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Tufts CSDD Pegs Drug R&D to Market Costs at $2.6 billion

March 10, 2016

Costs attributed to clinical complexity, larger trials, and efforts to accommodate payer demands

The average cost to develop and gain marketing approval for a new drug is now estimated to be $2.6 billion, according to recent analysis by the Tufts Center for the Study of Drug Development of the Journal of Health Economics. The analysis was based, in part, on information from 10 pharma companies on 106 randomly selected drugs that were first tested in human subjects from 1995 to 2007.

The article, included in the May issue of the Journal of Health Economics, contains more detailed analyses than what was presented in November 2014 when Tufts CSDD first disclosed primary results on drug development costs, after having previously submitted the study to the peer-reviewed publication.

The $2.6 billion price tag per approved drug is based on estimated average out-of-pocket expenses of $1.4 billion and time costs (expected returns that investors forego while a drug is in development) of $1.2 billion.

According to Tufts CSDD, post-approval R&D costs of $312 million bring the full product lifecycle cost per drug approved, on average, to $2.9 billion. Post-approval studies are required by the U.S. FDA as a condition of approval, and assess new indications, formulations, and dosage strengths and regimens, and monitor safety and long-term side effects. All figures are expressed in 2013 dollars.

The Tufts CSDD estimate also includes expenses for failed product development efforts, which Joseph A. DiMasi, director of economic analysis at Tufts CSDD and principal investigator for the study, said reflects the full cost of winning marketing approval for a new drug. Mr. DiMasi also noted that drug development often takes longer than a decade and that out-of-pocket costs for individual drugs and higher failure rates for drugs tested in human subjects were the primary reasons behind rising costs.

Some factors attributed to higher clinical costs were increased complexity, larger trial sizes, higher cost of inputs from the medical sector used for development, 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.

Mr. DiMasi added, "Drug developers are taking action to rein in rising development costs, including increasing efforts to discover, validate, and use biomarkers, adopting new approaches to patient recruitment and retention, and implementing leading-edge project management practices, but they face strong headwinds, given the complexity of the problems they're addressing.”

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