How much does it cost to get a drug approved? A new estimate puts the number at $2.55 billion, more than twice the cost assessed by the same lead researcher a decade ago. Not everyone believes the math.
Researchers from the Tufts Center for the Study of Drug Development looked at information from 10 drug companies on 106 randomly selected medications that had undergone human testing between 1995 and 2007. They break the $2.55 billion figure (expressed in 2013 dollars) into two parts: average out-of-pocket costs of about $1.39 billion and time costs—expected returns that investors do not receive while a drug is being developed—of about $1.16 billion.
Tufts researchers generated a 2003 estimate of $802 million in 2000 dollars—about $1.04 billion in 2013 dollars. That means the cost—at least by Tufts' calculation—has gone up by 145% in 13 years.
The Tufts center receives about 40% of the cost of its operating expenses from drug and biotechnology firms, as well as research entities such as contract research organizations and consulting firms. The center has been putting out estimates for drug development since 1991. (Hat tip to Modern Healthcare Editor Merrill Goozner's 2004 book The $800 Million Pill, which explores the pharmaceutical industry's defense of drug prices in the context of research and development costs.)
Some experts caution against taking the estimate and the methods Tufts used to achieve the figure at face value. Those questions were also raised in 2003. “The bottom line is that the report contains a lot of assumptions that tend to favor the pharmaceutical industry,” wrote Aaron Carroll in the New York Times' Upshot blog.
The new estimate comes as the pharmaceutical industry is responding to intense pressure to explain the high prices it charges for new drugs, as much $100,000 for a course of treatment. On the same day the Tufts center issued its report, the health insurance industry's trade group, America's Health Insurance Plans, posted an infographic showing a few drugs with prices that shot up significantly over the course of as little as six months.
“R&D costs have been increasing spectacularly over the decades,” Joseph DiMasi, the study's principal investigator and director of economic analysis at the Tufts Center for the Study of Drug Development, said during a webcast.
He went on to say that a manufacturer needs to have at least eight drug compounds in clinical development to obtain one approval.
The researchers say that a number of factors boosted out-of-pocket clinical costs, including increasingly complex clinical trials, manufacturers focusing on chronic and degenerative diseases, and the need for companies to conduct tests with competing drugs to establish comparative effectiveness data for payers.
Adding in the costs of post-approval research and development, such as developing studies to test approved drugs for new indications and identifying new dosage regimens, can add $312 million to the estimated total cost of bringing a drug to market in the U.S.
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