New study suggests it costs $1.3B in R&D investment to bring a drug to market. How did it get there?
Politicians, pundits and patient groups now have a new number at their disposal when drugmakers cite high R&D costs — as much as $2.8 billion in current dollars — to justify their pricing decisions: $1.3 billion in mean investment to bring a drug to market.
The estimated mean cost is the central finding reported in a new JAMA study, which set out to obtain its own answer to the long-running debate of how much it costs to get a therapy to patients. But the figure doesn’t capture the range of costs broken by therapeutic area, which can range from $765.9 million for nervous system drugs to $2.77 billion for cancer and immunology treatments.
The results, coupled with another JAMA paper that concluded Big Pharma was more profitable than other large public companies, would likely not bode well for an industry that’s already seen its reputation hit rock bottom — especially in an election year.
As with all estimates, there’s also prone to be debate regarding the methodology. How the researchers conducted their analysis explains why their conclusion appears higher than some but lower than the industry’s favorite number from Tufts.
The first has to do with sample size. Of the 355 new drugs and biologics approved by the FDA between 2009 and 2018, the authors identified 63 drugs for which R&D expenditure data were available from SEC filings. That covered 17.7% of all new treatments that notched an OK during the 10-year period — with only drugs from public companies represented.
There is also a larger proportion of orphan and first-in-class drugs as well as programs granted expedited development or approval pathways, according to the study.
Secondly, because the researchers tried to take into account the money that companies spent on failed projects, the success rate they chose mattered. In an accompanying editorial, Harvard economist David Cutler noted that the group “estimated roughly the same” raw costs of moving a drug from one stage to another but not the odds of success, which could make a big relative difference.
The third point of contention corresponds to the third step in the researchers’ calculation, where they apply a “real cost of capital rate” in an attempt to account for the opportunity cost of investing in drug development.
Finally, there are the inconsistencies in reporting R&D costs, especially when it comes to gauging money spent on preclinical work, which can paint an incomplete picture.
The authors, Olivier Wouters and Martin McKee of the London School of Economics, together with Jeroen Luyten of KU Leuven, were the first to admit such limitations of their study. But the limitations — or the exposure thereof — are perhaps precisely the point.
“Greater transparency around research and development costs is essential for analysts to check the veracity of claims by companies that the steep prices of new drugs are driven by high development outlays,” they wrote.