[Ip-health] BNA on $802

[James Love]

From Monday's BNA Daily Report for Executives

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No. 230
Monday December 3, 2001 Page A-8
ISSN 1523-567X
Regulation, Law & Economics

Drugs
Average Drug R&D Cost Is $802 Million,
Far More Than Earlier Estimates, Study Says
A study released Nov. 30 puts the average cost of developing a new
prescription drug at $802 million, over $500 million more than an estimate
done 10 years ago and $300 million more than figures most recently cited by
the drug industry.

The Tufts Center for the Study of Drug Development, which prepared the
study, said much of the rise in drug development costs can be linked to the
increased costs for clinical trials.

The $802 million drug development cost estimate updates a similar study the
Tufts Center completed in 1991. The 1991 Tufts Center estimate found that
the average cost to develop a new drug was $231 million, in 1987 dollars.


PhRMA to Use New Figure

The drug development cost figure cited most often by the Pharmaceutical
Research and Manufacturers of America, $500 million, is based on a 1996
estimate done by the Boston Consulting Group, PhRMA spokesman Jeffrey
Trewhitt told BNA Nov. 27. However, Trewhitt said, PhRMA now will use the
new Tufts estimate. "The answer is, we will use it," he said, noting that an
updated estimate is appropriate, given inflation and other considerations.
"This is an updated estimate, coming from a credible university with
experience in making these estimates," Trewhitt said.

Trewhitt said the new estimate "dramatically underscores the fact that
innovative pharmaceutical research is very expensive and is becoming more
expensive."

The latest Tufts figure is based on survey information submitted by 10 drug
companies, the Tufts Center said.


Clinical Costs on the Rise

If costs increased only at the rate of inflation, the average cost of new
drug development would have risen from $231 million in 1987 dollars (the
last Tufts estimate) to $318 million in 2000 dollars, Joseph A. DiMasi,
director of economic analysis at the Tufts Center and the principal
investigator for the latest study, said. But the new $802 million figure (in
2000 dollars) reflects rising clinical trial costs, DiMasi said.
"The difficulty in recruiting patients into clinical trials in an era when
drug development programs are expanding, and the increased focus on
developing drugs to treat chronic and degenerative diseases, has added
significantly to clinical costs," DiMasi said.

The drug development cost estimate includes not only the direct costs
associated with developing a prescription medicine, but also the "expenses
of project failures and the impact that long development times have on
investment costs," Tufts said.

"Bringing new drugs to market has always been an expensive, high-risk
proposition, and our latest analysis indicates that costs have continued to
skyrocket," Tufts Center director, Kenneth I. Kaitin, said in a statement.

"The single largest challenge facing drug developers--both pharmaceutical
and biotechnology companies--is to contain R&D costs and reduce development
times without compromising clinical test design. It's a tall order," Kaitin
said.

Although the Tufts study said costs increased in inflation-adjusted terms
for all stages of drug research and development, the study showed that
increases were particularly sharp in the clinical trial stages. Adjusted for
inflation, the annual growth rate for capitalized clinical costs (11.8
percent) was more than five times greater than the growth rate for research
conducted before clinical trials, the study said.

The consumer advocacy group Public Citizen, in a statement released Nov. 28,
said it anticipates the Tufts report "once again" to "significantly"
overstate the true costs of drug development. The real number, the group
stated, is likely to be "at least 75 percent lower" than the Tufts estimate,
the group said, pointing out that, among other things, the Tufts estimate
fails to take into account the value of R&D tax credits and taxpayer-funded
drug research conducted by the National Institutes of Health.

In addition, Public Citizen said, the Tufts figure inappropriately focuses
on the R&D costs for new chemical entities, the most expensive class of new
drugs.

Based in Boston, the Tufts Center for the Study of Drug Development is
affiliated with Tufts University.

More information is available at
http://www.tufts.edu/med/csdd/Nov30CostStudyPressRelease.html.