Cost to Develop New Pharmaceutical Is Now $2.6 Billion – Up from $800 Million, Says Study

The Tufts Center for the Study of Drug
Development has just completed a new study estimating how much it
costs to bring a new pharmaceutical to market. The Center’s 2003
report estimated that the cost per new drug developed between 1983
and 1994 at $800 million. In the analysis, the Center uses data on
a random selection of 106 new drugs developed by 10 pharmaceutical
companies between 1995 and 2007 to calculate the current costs of
getting a new drug across the regulatory finish line. From the

press release:

The $2,558 million figure per approved compound is based on
estimated:

• Average out-of-pocket cost of $1,395 million
• Time costs (expected returns that investors forego while a drug
  is in development) of $1,163 million

Estimated average cost of post-approval R&D—studies to test
new indications, new formulations, new dosage strengths and
regimens, and to monitor safety and long-term side effects in
patients required by the U.S. Food and Drug Administration as a
condition of approval—of $312 million boosts the full product
lifecycle cost per approved drug to $2,870 million. All figures are
expressed in 2013 dollars. …

Factors that likely have boosted out-of-pocket clinical costs
include increased clinical trial complexity, larger clinical trial
sizes, higher cost of inputs from the medical sector used for
development, greater focus on targeting chronic and degenerative
diseases, changes in protocol design to include efforts to gather
health technology assessment information, and testing on comparator
drugs to accommodate payer demands for comparative effectiveness
data.

Lengthening development and approval times were not responsible
for driving up development costs, according to DiMasi.

Genetic Engineering and Biotechnology News further

reported:

At a briefing this morning to announce study results, DiMasi
said the overall clinical approval success rate for new drugs, the
likelihood that a Phase I drug will be approved for marketing,
stood at less than 12% (11.83%). “Approximately seven out of eight
compounds that enter the clinical testing pipeline will fail in
development. Put another way, this says more precisely that on
average, you need to put 8.5 compounds into clinical development to
get one approval.”

That less than 12% percentage rate was lower than a Tufts study
four years ago “the higher failure rate had a substantial impact on
R&D costs. Higher out-of-pocket costs of conducting R&D,
and proportionately more failures in clinical testing are what
really drove the increase in cost per approved new drug.”

Whatever the costs for developing new pharmaceuticals, the price
that patients pay for them is whatever the market will bear. That
being said, if the prices don’t cover the development costs, then
there won’t be more new drugs.

As I have explained earlier, one good way to lower costs is to
reform the clunky hypercautious FDA regulatory system by moving
toward
conditional approval of new drugs after Phase II clinical
trials.