Tufts estimates cost to develop new drug at $897 Million

"Drug development remains a time-consuming, risky, and expensive process," said Tufts Center Director Kenneth Kaitin.

By Editor on May 14, 2003

"Drug development remains a time-consuming, risky, and expensive process," said Tufts Center Director Kenneth Kaitin. "To mitigate rapidly rising R&D costs, pharmaceutical firms over the past decade have aggressively sought to identify likely drug failures earlier in the development process. These efforts appear to be paying off, as the rate of late-phase terminations in the 1990s declined, compared to the 1980s."

Today's announcement expands on the $802 million estimate released by the Tufts Center in November 2001, by including post-approval R&D costs. The $802 million figure includes total average preclinical and clinical costs up to the time of receiving FDA marketing approval. Estimates are in year 2000 dollars.

Post-approval R&D costs are incurred by drug developers after receiving FDA approval to market a new product. Such costs may be incurred to conduct studies assessing the long-term safety and effectiveness of the marketed drug in a broader patient population or specific patient subgroups, such as children or the elderly, testing the marketed drug in new indications, and development of new formulations.

During the 1990s, clinical development times were a major source of the growth in drug development costs. From the 1980s to the 1990s, clinical period out-of-pocket costs grew five times as fast as preclinical period costs, according to the Tufts Center.

"Many factors are driving up clinical-period related costs," said the study's senior author, Joseph A. DiMasi, Director of Economic Analysis at the Tufts Center. "Among them are a greater emphasis on developing treatments for conditions associated with chronic and degenerative diseases, increasing clinical trial sizes, rising subject recruitment costs, and more procedures performed per subject."

The Tufts Center study was based on an analysis of data covering 68 drugs from 10 multinational, foreign- and U.S.-owned pharmaceutical firms during the 1990s. Included were products that won or failed to win marketing approval, as well as products still in development.

Other key findings from the Tufts Center analysis:

-- Average out-of-pocket cost per approved drug for post-approval R&D is $140 million, but when capitalized to the point of marketing approval, using a discount rate of 11%, discounted out-of-pocket R&D costs are $95 million.

-- Average capitalized cost for post-approval R&D was 10.6% of the total capitalized cost.

-- While total average (preclinical plus clinical) costs increased 5.8 times in constant dollars between the 1970s and 1990s, clinical costs increased 8.6 times.

-- Only 21.5% of drugs that begin phase I human trials are eventually approved for marketing.

In 1991, the Tufts Center estimated that the average cost to develop a new drug was $231 million (in 1987 dollars), equivalent to $318 million in year 2000 dollars.