Drug Development Costs Rise to $1.3 Billion

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The cost of bringing a new drug to market is often cited as $1.3B according to a Tufts University study from several years ago. In this study, the $1.3B estimate is an increase of 60% from the previous estimate of $800M. Much of the cost associated with drug development is attributed to resources invested in drugs that never make it to market. Only one out of 10 drugs that are used as part of a clinical trial will become a marketed product. Therefore, the research and development investments and budgets include the 90% of drugs that fail to reach market, and thus never provide return on investment. The other 10% of drugs must cover the cost of the failure rate, as well as all other costs, such as administration, sales, marketing, etc.

A recent article in Forbes estimates that the current cost of drug development is closer to $4 billion. While the average cost may be $4 billion per drug, some companies may see costs as high as $12 billion. The cost of drug development was analyzed in several ways, and included data over the past 15 years. In the end, the different analyses yielded similar and alarming high numbers. For example, one simple analysis divided the number of approvals for each company, and divided it by the total research and development budget. Since the biggest culprit in the cost of drug development are the failed drugs, companies who have fewer drugs that make it to market per dollar spent in research and development tend to have higher drug development costs.

Naturally, the price of drug therapies has also risen and is part of the much larger debate on how to reform healthcare. While there are no easy answers, the only thing that is certain is that the current trends cannot continue forever.

Author: Rahul Mistry

Rahul Mistry is a veteran of the software industry. Mr. Mistry has two decades experience working in the technology product and services field. He was instrumental in the development of the eCTD REVIEW™ and VALIDATE™ software now used exclusively by the U.S. Food & Drug Administration to assess the technical integrity of each drug application the FDA receives.

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