The OBR Blog

November 19, 2014 - 11:11 pm Posted in Featured comments0 Comments

The estimated average pre-tax industry cost per new prescription drug approval now peaks at $2.56 billion—an increase of 145% since 2003. According to a study conducted by the Tufts Center for the Study of Drug Development at Tufts University in Boston, Massachusetts, this cost includes failures and capital costs, with the vast majority of drugs failing at some point during clinical testing.

This study is one of a series of apples-to-apples comparisons that date back to the 1970s, explained presenter and principal investigator Joseph DiMasi, PhD, in a press conference. In the Tufts study, the term “drug” was used for both drugs and biologics, or both large and small molecules.

The cost dataset in the study included 106 investigational new drugs and biologics that were first tested in humans anywhere in the world between 1995 and 2007, and came from 10 firms. Clinical period development cost data were collected up to 2013, with 5 compounds still active at the time of data collection. The study broke down annual company biopharmaceutical R&D expenditures between 1990 and 2010 in various ways to estimate pre-human R&D costs.

Among the 1,442 compounds included, 7% were FDA approved, 80% were abandoned at some point in the development process, and 12.6% were still active in some phase. DiMasi said that, since many compounds fail in testing, phase costs must be weighted by probability of entering the phase to obtain costs per investigational compound. The probabilities of transitioning from one clinical phase to the next were:

  • 59.5% from phase I-II
  • 35.5% from phase II-III
  • 62.0% from phase III-NDA/BLA submission
  • 90.4% from NDA/BLA submission to NDA/BLA approval
  • Overall, 11.8% from phase I to NDA/BLA approval

Stated another way, DiMasi explained that it takes an average of 8.5 compounds to get to 1 clinical approval.

The time from synthesis of a compound to its regulatory approval was estimated to be 128 months—roughly 11 years. Pre-human expenditures, meaning R&D before a drug enters clinical testing, were estimated to be 30.8% of costs per approved compound.

The total out-of-pocket cost per approved new compound was $1,395 billion, while the total capitalized cost was $2.558 billion. Including post-approval costs added $466 million in out-of-pocket costs and $312 million in capitalized costs.

Capitalized R&D costs were adjusted for inflation and had a compound annual inflation-adjusted growth rate of 8.5% from the 1990s to the early 2010s. The out-of-pocket cost per approved new drug increased at an annual rate of 9.3%, which was higher than the prior studies when annual rates were 7.6% (1980s- 1990s) and 7% (1970s-1980s).

Most of the estimated increase in R&D costs is due to increases in cash outlays used to conduct clinical development and higher drug failure rates. The direct cash outlay costs in the Tufts study had an 82.5% cost increase for out-of-pocket clinical phase costs when compared to the 2003 study. The overall risk profile, which came from the clinical approval success rate plus the distribution of failures, had costs increased by 47.3% compared to the 2003 study.

One positive finding was that the cost in time decreased by 4.9% for the pre-human phase, by 3.0% for the regulatory review phase, and by 5.6% for the overall development timeline. This slightly affected the increase in total R&D cost for new drugs.

by Kathy Boltz, PhD

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