Average cost of drug R&D? Try $2.9B on for size

The Tufts Center for the Study of Drug Development created the industry standard on R&D budgets when it pegged average R&D costs at close to $1 billion for each new drug. Today, Tufts researchers updated their figures and boosted the total to $2.9 billion.

Nothing creates an instant controversy in biopharma like a new study on average drug research costs. But before we take up the likely debate, let's look more closely at the figures used by Tufts.

The average out-of-pocket costs on R&D have hit $1.4 billion. And researchers at Tufts added in $1.16 billion for what it calls "time costs (expected returns that investors forego while a drug is in development)." Include another $312 million for postapproval research and the average costs spikes to $2.9 billion--a megablockbuster figure that would daunt any investor. And that's way up from their $802 million figure in 2003, a little more than $1 billion in today's inflation-adjusted figure, which helped get this discussion started.

Key factors for the huge tally: "Increased clinical trial complexity, larger clinical trial sizes, higher cost of inputs from the medical sector used for development, greater focus on targeting chronic and degenerative diseases, changes in protocol design to include efforts to gather health technology assessment information, and testing on comparator drugs to accommodate payer demands for comparative effectiveness data."

Lengthening development and approval times? Not responsible, says Joseph DiMasi, director of economic analysis at Tufts CSDD and principal investigator for the study.

"In fact," DiMasi said, "changes in the overall time profile for development and regulatory approval phases had a modest moderating effect on the increase in R&D costs. As a result, the time cost share of total cost declined from approximately 50% in previous studies to 45% for this study."

Big figures like this are frequently used to browbeat regulators, as lobbying groups accuse the FDA of demanding too much data or setting the bar too high on an approval. Tufts notes in its statement today that the figures were drawn from 10 pharma companies and 106 randomly selected therapies, which is also likely to serve as a lightning rod for critics who believe that quite a few pharma companies often notoriously pursue misguided R&D projects. Doctors Without Borders immediately blasted the study, calling it a snow job aimed at justifying exorbitant drug prices.

"The pharmaceutical industry-supported Tufts Center for the Study of Drug Development claims it costs US$2.56 billion to develop a new drug today; but if you believe that, you probably also believe the earth is flat," the group said in a caustic statement. "GlaxoSmithKline's CEO Andrew Witty himself says the figure of a billion dollars to develop a drug is a myth; this is used by the industry to justify exorbitant prices. We need to ask ourselves, if the CEO of a top pharmaceutical company says it's a myth that it costs a billion dollars to develop a drug, can we really take this new figure 2.56 billion seriously?"

Their favored figure: $186 million, including the cost of failure. And that helps illustrate the enormous gulf between two sides of this argument.

No one will dispute the fact that drug R&D is expensive. Even the most successful biotechs in the field rack up some big bills in the clinic, where finding the right data on the rights drugs remains a major challenge. But an average cost of $2.9 billion for each approval would probably put some biotechs out of business. -- John Carroll, editor-in-chief (email | Twitter)