cost of drug development Essay

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MANAGERIAL AND DECISION ECONOMICS
Manage. Decis. Econ. 28: 469–479 (2007)

Published online in Wiley InterScience
(www.interscience.wiley.com) DOI: 10.1002/mde.1360

The Cost of Biopharmaceutical R&D:
Is Biotech Different?
Joseph A. DiMasia,* and Henry G. Grabowskib a Tufts Center for the Study of Drug Development, Tufts University, USA b Department of Economics, Duke University, USA

The costs of developing the types of new drugs that have been pursued by traditional pharmaceutical firms have been estimated in a number of studies. However, similar analyses have not been published on the costs of developing the types of molecules on which biotech firms have focused. This study represents a first attempt to get a sense for the magnitude of the
R&D costs associated with the discovery and development of new therapeutic biopharmaceuticals (specifically, recombinant proteins and monoclonal antibodies [mAbs]).
We utilize drug-specific data on cash outlays, development times, and success in obtaining regulatory marketing approval to estimate the average pre-tax R&D resource cost for biopharmaceuticals up to the point of initial US marketing approval (in year 2005 dollars).
We found average out-of-pocket (cash outlay) cost estimates per approved biopharmaceutical of $198 million, $361 million, and $559 million for the preclinical period, the clinical period, and in total, respectively. Including the time costs associated with biopharmaceutical R&D, we found average capitalized cost estimates per approved biopharmaceutical of $615 million,
$626 million, and $1241 million for the preclinical period, the clinical period, and in total, respectively. Adjusting previously published estimates of R&D costs for traditional pharmaceutical firms by using past growth rates for pharmaceutical company costs to correspond to the more recent period to which our biopharmaceutical data apply, we found that total out-of-pocket cost per approved biopharmaceutical was somewhat lower than for the pharmaceutical company data ($559 million vs $672 million). However, estimated total capitalized cost per approved new molecule was nearly the same for biopharmaceuticals as for the adjusted pharmaceutical company data ($1241 million versus $1318 million). The results should be viewed with some caution for now given a limited number of biopharmaceutical molecules with data on cash outlays, different therapeutic class distributions for biopharmaceuticals and for pharmaceutical company drugs, and uncertainty about whether recent growth rates in pharmaceutical company costs are different from immediate past growth rates. Copyright # 2007 John Wiley & Sons, Ltd.

INTRODUCTION
The financial viability of new drug and biopharmaceutical development depends on the expected costs of, as well as the returns to, R&D. When
R&D costs are substantial it is important to
*Correspondence to: Tufts Center for the Study of Drug
Development, Tufts University, 192 South Street, Suite 550,
Boston, MA 02111, USA. E-mail: joseph.dimasi@tufts.edu

Copyright # 2007 John Wiley & Sons, Ltd.

examine approaches that could reduce those costs.
If the productivity of new drug development can be improved, then more innovations may be pursued and eventually reach the patient. The
Food and Drug Administration (FDA), through its Critical Path Initiative, has initiated a process to, in part, explore how the agency, industry, and academia can establish methods that would lower development costs (FDA, 2004).

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J.A. DiMASI AND H.G. GRABOWSKI

R&D costs for new drugs (including the costs of failures and time costs) have been estimated to average in excess of $800 million (in year 2000 dollars) for development that led to approvals in the 1990s, with a marked upward trend relative to earlier decades (DiMasi et al., 2003). These R&D cost estimates have used data on new drugs developed by traditional pharmaceutical firms
(primarily new…