Determining Drug Development Costs in the United States
An economic evaluation study assesses these costs by therapeutic class, while identifying trends in pharma R&D intensity over time.
In a world where the cost of healthcare is top of mind for many, it may come as no surprise that high drug prices increase the chance of medication nonadherence. Drug prices in the United States are two to three times higher compared to other nations, and these numbers are higher for medications like insulin.1
Patients feel that drug prices should decrease, but on the other hand, there are those who believe that that these higher drug prices are necessary to offset R&D investments; in fact, studies project R&D costs for new drugs range in price from $314 million to $4.46 billion.1
Keeping this in mind, a study published in JAMA Network Open1 sought to explore how R&D intensity has evolved over time, developing a transparent analytical model to do so.
This economic evaluation study consisted of an analytical model of drug development that was created using public and proprietary sources that covered the 2000 to 2018 timeframe, including ClinicalTrials.gov, custom tabulations from the FDA’s internal drug databases, IQVIA’s GrantPlan databases and Medidata Solutions.
Study analysis was completed back in October 2020, and the objective of the analysis was to estimate the cost of bringing a drug to market.
When it came to each development stage and the 13 therapeutic areas, the investigators assessed seven parameters:
- Phase duration
- Time from start of one phase to the start of next phase (also known as start to start)
- Per-patient cost
- Number of patients enrolled per trial
- Average number of trials that were conducted for a new drug or biologics license application under a specific investigational drug application number
- Phase transition success probabilities
- Inflation-adjusted cost of capital
They also predicted three ways to determine development cost from nonclinical through post-marketing stages, including mean out-of-pocket cost (cash outlay), mean expected cost, and mean expected capitalized cost. And from 2008 to 2019, pharmaceutical R&D intensity—known as the ratio of R&D spending to total sales—was evaluated as well.
After a deep analysis, the projected mean cost of creating a new drug was approximately $172.7 million (its value in 2018) (range, $72.5 million for genitourinary to $297.2 million for pain and anesthesia), including post-marketing studies. If one were to include the cost of failures, the cost skyrocketed to $515.8 million.
When the costs of failures and capital were included, the mean expected capitalized cost of drug development increased to $879.3 million (range, $378.7 million for anti-infectives to $1.7562 billion for pain and anesthesia). Results differed according to therapeutic class.
The pharma sector saw a decline of 15.6% in sales, but from 2008 to 2019, there was a rise R&D intensity from 11.9% to 17.7%. When pinpointing large pharma companies, R&D intensity increased from 16.6% to 19.3%, while sales improved by 10.0% (from $380.0 to $418.0 billion) during that time. This was despite the fact that the cost of drug development continued to remain steady.
Overall, the investigators concluded that “In this economic evaluation, we developed a transparent analytical model using public and proprietary sources and estimated a mean expected capitalized drug development cost of $879.3 million, which falls at the lower end of the range of other published estimates.
“However, our estimate of mean cost (ie, the cash outlay that does not include the costs of failures or investment) was approximately three times lower than published findings that used data reported by pharmaceutical companies. Moreover, sales of large pharmaceutical companies have increased in recent years even as R&D intensity was stable or slightly decreasing. These results highlight the importance of understanding the scale and factors associated with the costs of drug development to inform the design of drug-related policies and their potential impacts on innovation and competition.”
Reference
1. Sertkaya A, Beleche T, Jessup A, Sommers BD. Costs of Drug Development and Research and Development Intensity in the US, 2000-2018. JAMA Netw Open. 2024;7(6):e2415445. doi:10.1001/jamanetworkopen.2024.15445
