Cost of drug development

The cost of drug development is the full cost of bringing a new drug (i.e., new chemical entity) to market from drug discovery through clinical trials to approval. Typically, companies spend tens to hundreds of millions of U.S. dollars on drug development.[1] One element of the complexity is that the much-publicized final numbers often not only include the out-of-pocket expenses for conducting a series of Phase I-III clinical trials, but also the capital costs of the long period (10 or more years) during which the company must cover out-of-pocket costs for preclinical drug discovery. Additionally, companies often do not report whether a given figure includes the capitalized cost or comprises only out-of-pocket expenses, or both.

One study assessed both capitalized and out-of-pocket costs as about US$1.8 billion and $870 million, respectively.[2]

In an analysis of the drug development costs for 98 companies over a decade, the average cost per drug developed and approved by a single-drug company was $350 million.[3] But for companies that approved between eight and 13 drugs over 10 years, the cost per drug went as high as $5.5 billion, due mainly to geographic expansion for marketing and ongoing costs for Phase IV trials and continuous monitoring for safety.[3]

A new study in 2020 estimated that the median cost of getting a new drug into the market was $985 million, and the average cost was $1.3 billion, which was much lower compared to previous studies, which have placed the average cost of drug development as $2.8 billion.[4]

Alternatives to conventional drug development have the objective for universities, governments and pharmaceutical industry to collaborate and optimize resources.[5]

Research and development

The table shows research and development statistics for pharmaceutical companies as of 2013 per Astra Zeneca.[6]

Pharmaceutical company Number of drugs approved Average R&D spending per drug (in $ Millions) Total R&D spending from 1997-2011 (in $ Millions)
AstraZeneca 5 $11,790.93 $58,955
GlaxoSmithKline 10 $8,170.81 $81,708
Sanofi 8 $7,909.26 $63,274
Roche Holding 11 $7,803.77 $85,841
Pfizer 14 $7,727.03 $108,178
Johnson & Johnson 15 $5,885.65 $88,285
Eli Lilly & Co. 11 $4,577.04 $50,347
Abbott Laboratories 8 $4,496.21 $35,970
Merck & Co Inc. 16 $4,209.99 $67,360
Bristol-Meyers Squibb Co. 11 $4,152.26 $45,675
Novartis 21 $3,983.13 $83,646
Amgen Inc. 9 $3,692.14 $33,229

Severin Schwan, the CEO of the Swiss company Roche, reported that Roche's research and development costs amounted to $12.3 billion in 2018,[7] a quarter of the entire National Institutes of Health budget. Given the profit-driven nature of pharmaceutical companies and their research and development expenses, companies use their research and development expenses as a starting point to determine appropriate yet profitable prices.[8]

Pharmaceutical companies spend a large amount on research and development before a drug is released to the market and costs can be further divided into three major fields: the discovery into the drug’s specific medical field, clinical trials, and failed drugs.[9]

Discovery

Drug discovery is the area of research and development that amounts to the most time and money. The process can involve scientists to determine the germs, viruses, and bacteria that cause a specific disease or illness.[10] The time frame can range from 3–20 years and costs can range between several billion to tens of billions of dollars. Research teams attempt to break down disease components to find abnormal events/processes taking place in the body.[10] Only then do scientists work on developing chemical compounds to treat these abnormalities with the aid of computer models.[10]

After "discovery" and a creation of a chemical compound, pharmaceutical companies move forward with the Investigational New Drug (IND) Application from the FDA.[10] After the investigation into the drug and given approval, pharmaceutical companies can move into pre-clinical trials and clinical trials.[10]

Trials

Drug development and pre-clinical trials focus on non-human subjects and work on animals such as rats. This is the most inexpensive phase of testing.[11]

The Food and Drug Administration mandates a 3 phase clinical trial testing that tests for side effects and the effectiveness of the drug with a single phase clinical trial costing upwards of $100 million.[12]

After a drug has passed through all three phases, the pharmaceutical company can move forward with a New Drug Application from the FDA. In 2014, the FDA charged between $1 million to $2 million for an NDA.[13]

Failed drugs

The processes of "discovery" and clinical trials amounts to approximately 12 years from research lab to the patient, in which about 10% of all drugs that start pre-clinical trials ever make it to actual human testing.> Each pharmaceutical company (which have hundreds of drugs moving in and out of these phases) will never recuperate the costs of "failed drugs". Thus, profits made from one drug need to cover the costs of previous "failed drugs".

Relationship

Overall, research and development expenses relating to a pharmaceutical drug amount to the billions. For example, it was reported that AstraZeneca spent upwards on average of $11 billion per drug for research and developmental purposes.[12] The average of $11 billion only comprises the "discovery" costs, pre-clinical and clinical trial costs, and other expenses.[14] With the addition of "failed drug" costs, the $11 billion easily amounts to over $20 billion in expenses. Therefore, an appropriate figure like $60 billion would be approximate sales figure that a pharmaceutical company like AstraZeneca would aim to generate to cover these costs and make a profit at the same time.

Total research and development costs provide pharmaceutical companies a ballpark estimation of total expenses. This is important in setting projected profit goals for a particular drug and thus, is one of the most necessary steps pharmaceutical companies take in pricing a particular drug.

Research on costs

Tufts Center for the Study of Drug Development has published numerous studies estimating the cost of developing new pharmaceutical drugs. In 2001, researchers from the Center estimated that the cost of doing so was $802 million,[15] and in 2014, they released a study estimating that this amount had risen to nearly $2.6 billion.[16] The 2014 study was criticized by Medecins Sans Frontieres, which said it was unreliable because the industry's research and development spending is not made public.[17] Aaron Carroll of the New York Times also criticized the study, saying it "contains a lot of assumptions that tend to favor the pharmaceutical industry."[18] The Center's 2016 estimate, published in the Journal of Health Economics, found the cost to have averaged $2.87 billion (in 2013 dollars).[19]

References
  1. Sertkaya A, Wong HH, Jessup A, Beleche T (April 2016). "Key cost drivers of pharmaceutical clinical trials in the United States". Clinical Trials. 13 (2): 117–126. doi:10.1177/1740774515625964. PMID 26908540. S2CID 24308679.
  2. Paul SM, Mytelka DS, Dunwiddie CT, Persinger CC, Munos BH, Lindborg SR, Schacht AL (March 2010). "How to improve R&D productivity: the pharmaceutical industry's grand challenge". Nature Reviews. Drug Discovery. 9 (3): 203–214. doi:10.1038/nrd3078. PMID 20168317. S2CID 1299234.
  3. Herper M (11 August 2013). "The Cost Of Creating A New Drug Now $5 Billion, Pushing Big Pharma To Change". Forbes, Pharma & Healthcare. Retrieved 17 July 2016.
  4. Wouters OJ, McKee M, Luyten J (March 2020). "Estimated Research and Development Investment Needed to Bring a New Medicine to Market, 2009-2018". JAMA. 323 (9): 844–853. doi:10.1001/jama.2020.1166. PMC 7054832. PMID 32125404.
  5. Maxmen A (August 2016). "Busting the billion-dollar myth: how to slash the cost of drug development". Nature. 536 (7617): 388–390. Bibcode:2016Natur.536..388M. doi:10.1038/536388a. PMID 27558048.
  6. Al-Huniti N (June 20, 2013). "Quantitative Decision-Makingin Drug Development". AstraZeneca. p. 23. Retrieved March 13, 2016.
  7. Team T. "How Big Is Roche's R&D Expense?". Forbes. Retrieved 2020-01-14.
  8. Frank RG, Ginsburg PB (17 November 2017). "Pharmaceutical industry profits and research and development". Brookings. Retrieved 2020-01-14.
  9. Klotz L (16 January 2014). "What Is the Real Drug Development Cost for Very Small Biotech Companies?". Genetic Engineering & Biotechnology News. Retrieved March 15, 2016.
  10. "New Drug Development Process" (PDF). California Biomedical Research Association. Archived from the original (PDF) on March 14, 2016. Retrieved March 15, 2016.
  11. "Animal Models in Drug Discovery". Taconic Biosciences. Retrieved 2020-01-14.
  12. Herper M. "The Truly Staggering Cost Of Inventing New Drugs". Forbes. Retrieved 2016-03-15.
  13. Gaffney A. "FDA Publishes All User Fee Rates for Fiscal Year 2014 | RAPS". www.raps.org. Archived from the original on 2016-03-17. Retrieved 2016-03-15.
  14. "8. AstraZeneca". FierceBiotech. 3 June 2019. Retrieved 2020-01-14.
  15. Pear R (1 December 2001). "Research Cost For New Drugs Said to Soar". New York Times. Retrieved 21 November 2014.
  16. Silverman E (20 November 2014). "What Does It Cost to Develop a New Drug? Latest Study Says $2.6 Billion". Wall Street Journal. Retrieved 21 November 2014.
  17. Pierson R (18 November 2014). "CORRECTED-Tufts says average new drug costs $2.6 bln to develop, critics wary". Reuters. Retrieved 21 November 2014.
  18. Carroll A (19 November 2014). "$2.6 Billion to Develop a Drug? New Estimate Makes Questionable Assumptions". New York Times. Retrieved 25 November 2014.
  19. DiMasi JA, Grabowski HG, Hansen RW (May 2016). "Innovation in the pharmaceutical industry: New estimates of R&D costs". Journal of Health Economics. 47: 20–33. doi:10.1016/j.jhealeco.2016.01.012. hdl:10161/12742. PMID 26928437.

Further reading
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