Economists cite soaring costs behind average $1.9B price tag on drug R&D
Over the past generation, the economics of drug development have grown ugly. A U.K. think tank reviewed the literature and concluded that the average cost of developing an approved drug has increased tenfold, jumping from $199 million to $1.9 billion since the 1970s. And the Office of Health Economics fingered four key factors for the math: soaring out-of-pocket research costs--in inflation-adjusted dollars--a success rate that's been dramatically cut in half, a vastly longer amount of time spent in the clinic and a significantly increased cost of capital as regulatory demands grew alongside scientific complexity.
The OHE asserts that out-of-pocket R&D costs have surged 600% since the 1970s. Meanwhile, the chances of success dwindled from one in 5 to one in 10. And the average time it takes to get the data needed for an approval jumped from 6 years to 13.5 years. While probably not a shock to anyone who's been observing the industry in the past decade, they are also some of the worst figures ever used to explain development costs.
There have been a number of figures bandied about in recent years over the toll rising R&D costs and the rising risk of drug development have had on the industry. When pharma companies aren't using these figures to cite the need for a radical overhaul of the whole development process while axing unproductive efforts, they're also used to defend the rising cost of new drugs. The numbers in this report--partially financed by AstraZeneca ($AZN), which knows firsthand just how painful clinical failure has become--also help explain why regulatory issues can be so frustrating for industry groups.
The Financial Times looked over the full report and concluded that among the most important lessons in the numbers is that pharma companies would be well advised to spend more time in earlier-stage research before rushing a drug into expensive late-stage testing. Biotech companies can be an efficient source of less-risky products, notes the FT. Also, as the scientific complexity of drug development has increased, there's a greater need for better collaborative efforts to reduce risks.
Ultimately, none of the numbers in the report are sustainable. Just the time to market--13.5 years--is enough to drive venture money out of the business.
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