Drug R&D Costs Put at $2.558 Billion

The average cost to develop and gain marketing approval for a new drug is now $2.558 billion, according to an analysis by the Tufts Center for the Study of Drug Development published (purchase or subscription required) in the Journal of Health Economics. The researchers say that the cost per approved compound is based on estimated average out-of-pocket costs of $1.395 billion and time cost (defined as expected costs that investors forego while a drug is in development) of $1.163 billion.

When post-approval research and development costs are included, the article says, the full, product lifecycle cost per approved drug increases to $2.87 billion. All the figures in the study are in 2013 dollars.

Center for the Study of Drug Development director of economic analysis Joseph DiMasi, principal investigator for the study, says that the estimate also accounts for expenses incurred for product development efforts that did not reach fruition, which reflects the full cost of winning marketing approval for a new drug.

The analysis was based in part on information provided by 10 drug companies on 106 randomly selected drugs that were first tested in human subjects anywhere in the world from 1995 to 2007.

DiMasi says that out-of-pocket costs for individual drugs and higher rates for drugs tested in human subjects are the primary reasons behind increasing drug development costs. Factors that the study says helped boost out-of-pocket clinical costs were increased clinical trial complexity, larger clinical trial sizes, higher cost of inputs from the medical sector used for development, 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.

“Drug developers are taking action to rein in rising development costs, including increasing efforts to discover, validate, and use biomarkers, adopting new approaches to patient recruitment and retention, and implementing leading-edge project management practices, but they face strong headwinds, given the complexity of the problems they are addressing,” DiMasi says.