Cost of each new drug: $1.3 billion

The Tufts Center for the Study of Drug Development¹ estimated that it was costing $1.3 billion in 2006 to bring each new drug to market. Why is it so expensive and why does the cost keep growing precipitously? There have been some technology advances, but they are expensive and have helped to raise the number of discoveries but not the number of approved drugs. Little cost-scaling is available at present for the clinical trial and production process bottlenecks of current drug development.

Quadrupling from $318m (1987) to $13 billion (2006).
Tufts Center for the Study of Drug Development¹

Biggest cost component: clinical trials
The biggest cost in bringing a new drug to market is human clinical trials, and these costs continue to grow. Without standardized electronic health records and other obvious initiatives, it is time-consuming and costly to source and enroll appropriate clinical trial participants. The cocktail problem is also in effect as people have had more varying health issues and remedies over time. The amount of detail to be collected and assessed increases and homogeneous and isolated factor patient comparisons are more difficult.

Increased complexity and amortization of failed drugs
The low-hanging fruit drugs have already been discovered. The diseases currently studied have less readily identifiable and more complex target molecules in the body. The target molecules have more intricate biological interactions and less easily matchable compounds for therapies. Each successful drug includes the cost of failed drugs as only one in five marketed drugs is able to pay for its R&D costs.

No cost decreases for biologic drugs
One of the main kinds of drugs produced starting in 1998 is biological drugs. These are drugs that mimic the effects of substances naturally made by the body. The fixed time, process and other costs required to produce these genetically engineered substances means that economies of scale do not ensue for larger volumes. This is compared to traditional drugs which became cheaper over time in production, helping to offset the cost of new discoveries.

Unclear benefits of newtech
How can the paradox of technology advances yet constant numbers of approved drugs be explained? Technology advances have been proliferating in areas such as mass spectrometry, protein crystallography, chromatography, flow cytometry, microfluidics, genetic scanning and synthesis and atomic force microscopy, all of which are helpful but expensive. The ongoing cost to maintain a state of the art lab has skyrocketed. Newtech has meant that the rate of discovered substances and medicines in development is increasing (2,700 compounds are in development in 2007 vs. 2,000 in 2003)², but the complete process of creating viable therapies and moving them through clinical trials to approval is the bottleneck.


¹ J.A. Dimasi and H.G. Grabowski, “The Cost of Biopharmaceutical R&D: Is Biotech Different?,” Managerial and Decision Economics 28 (2007): 469-479
² Adis R&D Insight Database, 27 February 2008