The price of innovation: new estimates of drug development costs

TLDR: The research and development costs of 68 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms and used to estimate the average pre-tax cost of new drug development.

About: This article is published in Journal of Health Economics.The article was published on 2003-03-01 and is currently open access. It has received 4135 citations till now. The article focuses on the topics: Fixed cost & Total cost.

Figures

Table 3 Average phase times and clinical period capitalized costs for investigational compounds (in millions of 2000 dollars)a

Table 5 Out-of-pocket clinical period phase costs for approved compounds (in millions of 2000 dollars)a

Table 2 Nominal and real cost-of-capital (COC) for the pharmaceutical industry, 1985–2000

Table 4 Compound annual growth rates in out-of-pocket and capitalized inflation-adjusted costs per approved new druga

Fig. 3. Capitalized preclinical, clinical, and total costs per approved new drug by discount rate.

Fig. 4. Out-of-pocket and capitalized total cost per approved new drug for new drugs and for improvements to existing drugs.

Frequently asked questions

Q1. What have the authors contributed in "The price of innovation: new estimates of drug development costs" ?

For example, DiMasi et al. this paper found that the average out-of-pocket cost per new drug is US $ 403 million ( 2000 dollars ). 

Q2. What are the future works mentioned in the paper "The price of innovation: new estimates of drug development costs" ?

Can further improve their performance in terminating research early for compounds that will not make it to approval, then this will help lower out-of-pocket and capitalized costs. The growth rate for gross margins for recent years was also substantially lower than the growth rate for R & D outlays, leading to the suggestion that R & D growth rates could lessen in the future. The authors will examine costs by therapeutic category in future research. The R & D cost data for this study can be used in further analyses of R & D productivity at the firm level in future research. 

Q3. What categories would each have to be decomposed into shares for pre-human, pre-?

The categories “Toxicology and Safety Testing (4.5%),” Pharmaceutical Dosage Formulation and Stability Testing (7.3%),” “Regulatory: IND and NDA (4.1%),” “Bioavailability (1.8%),” and “Other (9.0%)” would each have to be decomposed into shares for pre-human R&D, pre-approval clinical period R&D, and post-approval R&D. 

Q4. What are the main factors that have intensified the interest in the performance of the pharmaceutical industry?

In addition, the congressional debates on Medicare prescription drug coverage and various new state initiatives to fill gaps in coverage for the elderly and the uninsured have intensified the interest in the performance of the pharmaceutical industry. 

Q5. What is the growth rate in total cost of preclinical research?

The growth rate in capitalized costs, however, is driven more by the fact that preclinical costs have a lower share of total out-of-pocket costs in the current study than in the previous studies, and time costs are necessarily proportionately more important for preclinical than for clinical expenditures. 

Q6. What is the common way drug developers submit their results to regulatory authorities?

Once drug developers believe that they have enough evidence of safety and efficacy, they will compile the results of their testing in an application to regulatory authorities for marketing approval. 

Q7. What are the common types of pharmaceutical firms that have received orphan drug designations?

In addition, the vast majority of the manufacturers with products that have received orphan drug designations are biotech firms or small niche pharmaceutical firms (see http://www.fda.gov/orphan/designat/list.htm). 

Q8. What percentage of pharmaceutical R&D expenditures are currently accounted for by outsourcing?

By all accounts, pharmaceutical firms have contracted out drug development activities at a rapidly growing rate over their study period, and the share of pharmaceutical R&D expenditures currently accounted for by outsourcing is substantial.