Average cost to bring a drug to market is over $1 billion

The cost to bring a drug to market is a hotly debated topic. The costs include not only the costs for basic science and clinical trials. However, one must also take into account the cost of capital (since most cost are incurred up front, but revenue begins only after drug approval) and the likelihood of success (since most drugs fail. The most widely cited paper from DiMasi et al. (2016) find that the cost to bring a drug to market is $2.3 billion. Other papers find that the cost to bring a drug to market ranges from $314 million to $2.1 billion (in 2018 USD) [see reference list below].

A paper by Wouters et al. (2020) in JAMA has their own estimate. The authors use the costs of drug development for drugs approved by the FDA between 2009-2018. Cost information is based on SEC filings (10-K and 10-Q forms). Simply used the observed cost would result in biased estimates of drug development ocst since since non-approved treatments costs are not included. To address the former, the authors use the likelihood of drug approvals from Wong et al. (2019). The also use a real cost of capital of 10.5%–following what was used in DiMasi et al. 2016–to account for the fact that costs are incurred up front but revenues are collected years later. The authors cost data is based on information for only 63 drugs. Using this approach, the authors find:

After accounting for the costs of failed trials, the median capitalized research and development investment to bring a new drug to market was estimated at $985.3 million (95%CI, $683.6 million-$1228.9 million), and the mean investment was estimated at $1335.9 million (95%CI, $1042.5 million-$1637.5 million) in the base case analysis. Median estimates by therapeutic area (for areas with ≥5 drugs) ranged from $765.9 million (95%CI, $323.0 million-$1473.5 million) for nervous system agents to $2771.6 million (95% CI, $2051.8 million-$5366.2 million) for antineoplastic and immunomodulating agents.

The authors note that they had more robust data for drugs developed by smaller firms, orphan drugs, and those with accelerated approvals. They note that the DiMasi paper had data from more products (106 vs. 63) and also included more data from larger pharmaceutical firms.

Cost of drug development literature

• Wouters OJ, McKee M, Luyten J. Estimated research and development investment needed to bring a new medicine to market, 2009-2018. JAMA. 2020 Mar 3;323(9):844-53.
• DiMasi JA, Hansen RW, Grabowski HG. The price of innovation: new estimates of drug development costs. J Health Econ. 2003;22(2):151-185. doi:10.1016/S0167-6296(02)00126-1
• DiMasi JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry: new estimates of R&D costs. J Health Econ. 2016;47:20-33. doi:10.1016/j.jhealeco.2016.01.012
• Jayasundara K, Hollis A, Krahn M, Mamdani M, Hoch JS, Grootendorst P. Estimating the clinical cost of drug development for orphan versus non-orphan drugs. Orphanet J Rare Dis. 2019;14(1):12. doi:10.1186/s13023-018-0990-4
• Mestre-Ferrandiz J, Sussex J, Towse A. The R&D Cost of a New Medicine. London, UK: Office of Health Economics; 2012.
• Adams CP, Brantner VV. Estimating the cost of new drug development: is it really 802 million dollars? Health Aff (Millwood). 2006;25(2):420-428. doi:10.1377/hlthaff.25.2.420
• Adams CP, Brantner VV. Spending on new drug development. Health Econ. 2010;19(2):130-141. doi:10.1002/hec.1454
• DiMasi JA, Grabowski HG. The cost of biopharmaceutical R&D: is biotech different? Manage Decis Econ. 2007;28(4-5):469-479. doi:10.1002/mde.1360
• DiMasi JA, Grabowski HG, Vernon J. R&D costs and returns by therapeutic category. Drug Inf J. 2004;38(3):211-223. doi:10.1177/009286150403800301
• Paul SM, Mytelka DS, Dunwiddie CT, et al. How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nat Rev Drug Discov. 2010;9(3):203-214. doi:10.1038/nrd3078
• Prasad V, Mailankody S. Research and development spending to bring a single cancer drug to market and revenues after approval. JAMA Intern Med. 2017;177(11):1569-1575. doi:10.1001/jamainternmed.2017.3601

Likelihood of success by clinical trial phase

• Wong CH, Siah KW, Lo AW. Estimation of clinical trial success rates and related parameters. Biostatistics. 2019;20(2):273-286. doi:10.1093/biostatistics/kxx069
• Thomas DW, Burns J, Audette J, Carroll A, Dow-Hygelund C, HayM. Clinical Development Success Rates 2006-2015.Washington, DC: Biotechnology Innovation Organization, Amplion, and Biomedtracker; 2016.
• Hay M, Thomas DW, Craighead JL, Economides C, Rosenthal J. Clinical development success rates for investigational drugs. Nat Biotechnol. 2014;32(1):40-51. doi:10.1038/nbt.2786

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