Drug Development Costs Total $1.5B

The cost of drug development has been a matter of controversy, particularly because the high cost and long time to bring a drug from discovery to market is used to justify high prices for innovative drugs.

This article published with permission from The Burrill Report.

The cost of drug development has been a matter of controversy, particularly because the high cost and long time to bring a drug from discovery to market is used to justify high prices for innovative drugs. Now a new report that examines a wide range of previous studies pegs the total at $1.5 billion.

The study from the from the independent U.K. research organization, the Office of Health Economics, and funded in part by the industry, based its number on 2011 dollars and new data from the period 1998 to 2002. It relied on unpublished data gathered by CMRI in confidential surveys. It said its findings are in line with other studies.

Cost difference across therapeutic area varies, with development cost for neurology, respiratory, and oncology the highest. At the low end, drugs for HIV/AIDS and anti-parasitics were among the least expensive to develop. Developing drugs for the most expensive indications can be twice the cost for developing drugs for the least expensive areas.

Out-of-pocket costs for drug development rose nearly 600% from the 1970s to the 2000s, the researchers said. The rising costs, in part, are due to falling success rates for drugs in clinical development as drugmakers sought to tackle more intractable diseases such as Alzheimer’s and cancer. The study found that success rates fell to 1 in 10 in the 2000s compared to 1 in 5 during the 1980s.

The increasing complexity of the science underlying drug development and rising regulatory barriers has slowed the process of bringing drugs through research and development to approval. In the 2000s, that time grew to 13.5 years from just six years in the 1970s.

The authors note that most studies that calculate the cost of R&D focus on drugs developed in-house by pharmaceutical companies and exclude drugs that have been in-licensed. They attribute that to the difficulty researchers face in gathering accurate data about the development costs of in-licensed drugs. Drugs that are in-licensed, they note, tend to be more successful. They attribute this to what they call a “screening effect” since these drugs have been subjected to some testing before they are selected for licensing programs.

To combat rising costs, the authors note companies have taken a variety of approaches including making decisions earlier in the R&D process to discontinue drugs that do not have strong market prospects, better controlling clinical costs, using outsourcing or conducting trials in lower-cost areas, and entering into collaborations with a range of both public and private entities.

The report notes that the cost of capital has risen as well. In order to provide adequate returns to investors to attract the capital necessary to fund the risky process of drug development, drugmakers in the 2000s needed to provide an 11% return, up from 8% in the 1970s.

In looking at policy discussions that question whether drug development is affordable under the current models, the authors focus on two concerns noted in other studies. This includes a lack of flexibility in process, timing and methods, and a lack of alignment and collaboration between stakeholders and innovators.

“The R&D costs identified in our study are driven by a combination of factors, including changes in technology and decisions taken by companies and regulators,” write the authors. “Whether the current drug development paradigm needs revising and — if so, how — is clearly an important policy issue that merits further investigation.”

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