As Biden signals interest in linking drug prices with R&D costs, new study finds costs per NME are increasing
Eroom’s law (essentially the opposite of Moore’s law) holds that the development of new drugs has become slower and more expensive over time. And a new analysis, published this month in PharmacoEconomics, confirms not only that costs have gone up over the years but the difficulty in tracking how R&D has shifted.
President Joe Biden last week signaled an interest in linking drug prices to R&D costs as part of his wider pledge to bring down the cost of prescription drugs. The details of how to track such a link between R&D and price still need to be ironed out in Congress.
German and Spanish authors said in this latest analysis that R&D costs per new molecular entity are definitely increasing over time, but they acknowledged that there’s “no universally correct answer regarding how much it costs, on average, to research and develop an NME,” and differences in therapeutic areas and types of drugs only complicate current papers that seek to identify this holy grail of bottom line numbers.
The Tufts Center for the Study of Drug Development famously said in 2016 that it costs almost $3 billion on average to develop a new drug. But the authors of this latest paper said that “their results cannot be substantiated,” partly because their data are shielded from external scrutiny. Similarly, much lower R&D estimates published in a JAMA paper from cancer docs Vinay Prasad and Sham Mailankody are critiqued for being biased too, particularly as the study relied on smaller companies and orphan medicines, which the PharmacoEconomics authors said can have 50% lower R&D costs than non-orphan drugs.
For this latest paper, the authors present a compilation and a critical assessment of all published estimates of the pre-launch average R&D costs per NME.
The analysis investigates 5 factors affecting the investment in R&D, which they said were most often mentioned in the literature: therapeutic class; orphan or non-orphan drugs; biopharma firm size; NCE or new biological entity (NBE); and self-originated or licensed-in.
Even among therapy-specific estimates, there were major differences among the 7 papers that the analysis examined. For example, in oncology, Falconi et al. estimated R&D costs of $2.1 billion, which was one of the highest totals, while the Prasad and Mailankody estimate was considerably lower at $944 million.
“Additionally, regulatory innovations incentivizing research on rare diseases—partly by reducing companies’ out-of-pocket R&D costs, reducing the time from submission to approval, and shifting risk to the post-authorization period—have led to the authorization of many treatments based on fewer data and surrogate measures only,” the authors wrote. “This might explain a negative effect on the pre-approval R&D spending while potentially impacting post-launch R&D costs. However, some factors suggest potentially higher average R&D costs of bringing an orphan drug into the market. For instance, the R&D process for orphan drugs is marked by difficulties in recruiting patients for clinical trials, thus increasing costs per patient. Furthermore, relatively less medical research is conducted on rare diseases, resulting in a limited clinical understanding of such disease processes.”
But there are still so many unknowns, the authors contend. For instance, they say the evidence is still inconclusive on whether smaller biopharma firms are more efficient than larger firms in bringing new drugs into the market. There is also a lack of data measuring the R&D costs of licensed-in drugs, which often have higher success rates than molecules developed internally.
And the authors note that it’s debatable whether the trend in current, increasing R&D cost estimates can predict the development of future drugs.
“There is no simple answer to our original question of how much it costs (on average) to research and develop a new medicine, specifically an NME. Average R&D costs mask essential sources of heterogeneity,” they added.
We detected a trend indicating that capitalized costs per NME are increasing. If the trend continues, it might have implications for the viability of the research-based biopharmaceutical industry’s business model. However, even this interpretation relies on the assumption that current or past trends are indicators of future trends, which is debatable. Future increases in R&D costs might reflect the growing complexity of target diseases, but ultimately these increases will be a function of the evolution of direct costs, attrition rates, and development times. These factors might be influenced by technological advances, the emergence of precision medicine, the resulting ‘orphanization’ of indications, and the development of companion diagnostics allowing effective stratification of patient subpopulations.