Costs of Drug Development and Research and Development Intensity in the US, 2000-2018

Area of Science:

• Health Economics
• Pharmaceutical Policy
• Drug Development

Background:

• Understanding drug development costs is crucial for informing policies aimed at reducing expenses, fostering innovation, and enhancing patient access.
• Previous estimates of drug development costs have varied, highlighting the need for comprehensive economic evaluations.

Purpose of the Study:

• To estimate the cost of drug development across different therapeutic classes.
• To analyze trends in pharmaceutical research and development (R&D) intensity over time.

Main Methods:

• An analytical model of drug development was employed, utilizing public and proprietary data from 2000 to 2018.
• Three cost measures were estimated: out-of-pocket cost, expected cost, and expected capitalized cost.
• Pharmaceutical R&D intensity (R&D spending to sales ratio) was analyzed from 2008 to 2019.

Main Results:

• The mean cost to develop a new drug was $172.7 million (2018 dollars), ranging from $72.5 million to $297.2 million by therapeutic class.
• Including costs of failures and capital, the mean expected capitalized cost increased to $879.3 million, with wide variations by class.
• From 2008 to 2019, overall pharmaceutical R&D intensity rose to 17.7%, while large companies saw a rise to 19.3% despite stable development costs and revenue growth.

Conclusions:

• Drug development costs remained relatively stable, yet R&D intensity increased, particularly for large pharmaceutical companies with growing revenues.
• Findings suggest that current policies may not fully capture the dynamics of R&D investment relative to development costs.
• These insights can guide the design of drug-related policies to effectively influence innovation and market competition.