[Ip-health] Developing a Drug Costs $2.6 Billion, but not Everyone Believes This

Claire Cassedy claire.cassedy at keionline.org
Tue Nov 18 10:10:21 PST 2014


Developing a Drug Costs $2.6 Billion, but not Everyone Believes This

12:50 pm ET  Nov 18, 2014


The cost to develop a new drug and win FDA marketing approval is now pegged
at nearly $2.6 billion, according to a new report from the Tufts Center for
the Study of Drug Development. The estimate will likely hearten drug makers
that argue rising prices reflect rising costs, but consumer advocates
reacted as if someone was trying to sell them a bridge.

The figure includes two basic components. One is the average amount of
money that is actually spent, which Tufts calls ‘out-of-pocket’ costs and
amounts to $1.395 million. Then there are ‘time costs,’ which is another
way of saying opportunity costs, of $1.16 million. This is the return that
investors could be expected to forgo if the money had been invested
elsewhere while a drug is being developed.

“Drug development remains a costly undertaking,” says Joseph DiMasi, who is
director of economic analysis at the Tufts Center and was the principal
investigator for the study, in a statement. To reach its conclusion, Tufts
dissected information provided by 10 drug makers on 106 randomly selected
drugs that were first tested in human subjects anywhere in the world from
1995 to 2007.

The report is the latest entrant in a long-running debate. The
pharmaceutical industry maintains that drug development is increasingly
expensive due to rising costs, which helps explain why prices have also
been rising in recent years. But consumer groups say the numbers mask
irrelevant or overstated expenses and are used unfairly to justify rising
prices. And they note that Tufts is funded, in part, by drug makers.

Judging by the reactions following its release, the new report is unlikely
to settle anything. In a terse statement, Doctors Without Borders, the
advocacy and relief group, decried the $2.6 billion estimate. “If you
believe that, you probably also believe the earth is flat,” says Rohit
Malpani, director of policy and analysis, in a statement.

“We know from past studies and the experience of non-profit drug developers
that a new drug can be developed for just a fraction” of the Tufts
estimate, he says. “The cost of developing products is variable, but
experience shows that new drugs can be developed for as little as $50
million, up to $186 million, if you take failure into account… These
figures are nowhere near what the industry claims is the cost.”

Actually, Tufts say the final tab can run higher. How so? The estimated
average of cost of R&D following FDA approval of a drug – which can include
studies for testing new indications, dosages and monitoring safety – can
add another $312 million on to the total life cycle cost for an approved
drug. This would bring the full cost to a whopping $2.87 billion. This
estimate is in 2013 dollars, by the way.

The estimate, which includes the cost of unsuccessful projects, is
substantially higher than the $802 million that Tufts calculated in its
last report published in 2003. Similarly, an estimate published in late
2012 by the Office of Health Economics, a U.K. consulting firm, found that
the cost to develop and drug was $1.5 billion. That research was conducted
with funding from AstraZeneca.

What accounts for the huge increase? Tufts says the total capitalized cost
per approved new compound grew at an 8.5% compound annual rate and
out-of-pocket cost per approved new compound grew at a 9.3% annual rate.
Tufts also says increases in cash outlays used to conduct clinical
development and higher drug failure rates during clinical testing
contributed most to the estimated increase in R&D costs.

You can look at the Tufts slide show here for the methodology and various

One critic argues that the Tufts report is hard to understand for another
reason – there is a lack of information.

“The new Tufts study was part of a public relations campaign, designed to
get people to accept high drug prices,” says Jamie Love of Knowledge
Ecology International, a non-profit group that tracks intellectual property
and access to medicines issues. “The study is long on propaganda and short
of details… Did all of these drugs really have zero NIH funding for
pre-clinical” work?

In a statement, he calls for putting pressure on Tufts to release more data
used to calculate its estimate. For instance, he argues that “we don’t know
how many patients were in the trials (that were used to calculate the
estimate) or how much money was claimed to have been spent per patient in
the trials. Since the entire estimate was based upon the costs of the
trials, we don’t have any idea of what the sample looked like.”

He maintains that information on sample size is pertinent to understanding
the costs because cancer trials, for instance, are typically smaller than
trials for other drugs, but as a result “the study will be used to justify
high prices for cancer drugs.”

We asked DiMasi for comment about these remarks and the statement from
Doctors Without Borders and will update you accordingly.

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