A recent study by the Tufts Center for the Study of Drug Development found the cost of the lengthy research and development process “from discovery to marketplace” of a new drug is approximately $2.6 billion.
Developing a new medicine can take 10 to 15 years, according to the Pharmaceutical Research and Manufacturers of America (PhRMA), a nonprofit trade group representing U.S. pharmaceutical and biopharmaceutical companies. PhRMA members spent a record $51.1 billion on research and development in 2013, up from $15.2 billion in 1995.
The study, Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs, was written by Joseph A. DiMasi, Ph.D., director of economic analysis at the Center, and coauthors Henry G. Grabowski, Ph.D., professor emeritus in economics at Duke University, and Ronald W. Hansen, Ph.D, a professor of business administration at the University of Rochester.
According to Yevgeniy Feyman, a fellow and deputy director of the Center for Medical Progress at the Manhattan Institute, a big part of the cost pharmaceutical companies bear is the expense of failed drugs, those that are found to be ineffective, unsafe, or not economically viable.
“In 2003 there was about a 21 percent approval rate” for new compounds that make it to the final approval process, Feyman said. “Since then, that number has roughly been cut in half,” to about 11 percent, causing the rise drug development costs over the past decade.
Long Discovery, Approval Process
Discovering, testing, and approving new drugs is a long process.
Drug discovery can take three to six years and involve tens of thousands of compounds. Only a handful of these advance clinical testing, which often lasts another six to seven years.
Finally, from those initial tens of thousands of compounds, one drug approved by the Food and Drug Administration (FDA) can emerge. FDA review can take six months, and preparing to begin manufacturing can take one and a half years. There are also additional ongoing research and monitoring costs.
This extended process for drug development and approval is costly. Labs require sophisticated and expensive technology, and skilled researchers. In addition, clinical trials are becoming increasingly more expensive, and it can be difficult to recruit patients.
Cost of Failure Included
Robert Weissman, president of the liberal interest group Public Citizen, criticized the $2.6 billion cost claim because it includes the research and development for failed drugs and the cost of capital.
Including those costs is entirely appropriate, however, says John R. Graham, a senior fellow at the National Center for Policy Analysis.
“Of course, the cost of R&D must include the cost of failed drugs,” explained Graham. “Those losses are real to investors, and they take them into account.” Graham also noted the cost of capital is a real cost to investors as well. “An investment that takes 10 to 15 years to pay back is more expensive than one that pays back in five years, other things equal,” Graham said.
Tom Gantert ([email protected]) writes for Michigan Capitol Confidential.
Tom Gantert is senior capitol correspondent for Michigan Capitol Confidential, a daily news site of the Mackinac Center for Public Policy.
