Market watch : Estimating the cost of new drug development: Is it really $802 million?

Health Affairs

Volumn 25, Issue 2, 2006, Pages 420-428

  Adams, Christopher P ^a   Van Brantner, V ^a  

^a FEDERAL TRADE COMMISSION   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

NEW DRUG;

ARTICLE; CLINICAL TRIAL; COST; DRUG INDUSTRY; ECONOMICS; FINANCIAL MANAGEMENT; HUMAN; UNITED STATES;

CLINICAL TRIALS; COSTS AND COST ANALYSIS; DRUG INDUSTRY; DRUGS, INVESTIGATIONAL; HUMANS; RESEARCH SUPPORT; UNITED STATES;

EID: 33645675960     PISSN: 02782715     EISSN: 02782715     Source Type: Journal    
DOI: 10.1377/hlthaff.25.2.420     Document Type: Review

References (30)

1. J.A. DiMasi, R.W Hansen, and H.G. Grabowski, "The Price of Innovation: New Estimates of Drug Development Costs," Journal of Health Economics 22, no. 2 (2003): 151-185.
2. J.A. DiMasi et al., "Research and Development Costs for New Drugs by Therapeutic Category: A Study of the U.S. Pharmaceutical Industry," PkarmcoEconomics 7, no. 2 (1995): 152-169;
3. and J.A. DiMasi, H.G. Grabowski, and J. Vernon, "R&D Costs and Returns by Therapeutic Category," Drug Information Journal 38, no. 3 (2004): 211-223.
4. See C.P. Adams and W. Brantner, "New Drug Development: Estimating Entry from Human Clinical Trials," FTC Working Paper no. 262 (Washington: Federal Trade Commission, 2003).
5. Pharmaprojects is supplemented with data from the Orange Book
6. R.M. Abrantes-Metz, C.P. Adams, and A.D. Metz, "Pharmaceutical Development Phases: A Duration Analysis," Journal of Pharmaceutical Finance, Economics, and Policy (forthcoming).
7. See DiMasi et al., "The Price of Innovation."
8. See Abrantes-Metz et al., "Pharmaceutical Development Phases."
9. Pharmaceutical Development Phases Ibid.
10. E.R. Berndt et al., "Industry Funding of the FDA: Effects of PDUFA on Approval Times and Withdrawal Rates," Nature Reviews: Drug Discovery 4, no. 7 (2004): 545-554, estimates this duration as having fallen from 24.2 months to 14.2 months between 1992 and 2002. However, our shorter estimates may be attributable to censoring bias toward observing completed durations for quicker drugs.
11. J.A. DiMasi and H.G. Grabowski, "R&D Costs, Innovative Output, and Firm Size in the Pharmaceutical Industry," International Journal of the Economics of Business 2, no. 2 (1995): 201-221, presents variation in costs of development by groups of firms where the authors also measure variation in actual expenditure by firm.
12. The date used is the first date we have for the drug's human clinical trials and could be from any phase.
13. R. Henderson and I.M. Cockburn, "Scale, Scope, and Spillovers: The Determinants of Research Productivity in the Pharmaceutical Industry," RAND Journal of Economics 27, no. 1 (1996): 32-59.
14. P.M. Danzon, A.J. Epstein, and S. Nicholson, "Mergers and Acquisitions in the Pharmaceutical and Biotech Industries," NBER Working Paper no. 10536 (Cambridge, Mass.: National Bureau of Economic Research, 2004).
15. DiMasi and Grabowski, "R&D Costs."
16. Thanks to an anonymous reviewer for pointing this out.
17. See DiMasi and Grabowski, "R&D Costs."
18. The categorizations are done by Pharmaprojects and come with the data. The therapeutic categorization is the most inclusive and the most aggregate. The categorization is based upon a European marketing system.
19. See C. Adams and W. Brantner, "Spending on New Drug Development," December 2005, http://papers.ssrn.com/sol3/papers.cfm? abstract_id-869765 (accessed 18 January 2006).
20. See DiMasi et al., "Research and Development Costs";
21. and DiMasi et al., "R&D Costs and Returns."
22. The previous section explains how the success rates were calculated.
23. See Navigant Consulting, "Navigant Consulting Estimates the Worldwide Market for Rheumatoid Arthritis Will Increase to Nearly $15 billion by 2009," 30 March 2004, http://www.corporate-ir.net/ireye/ir_site. zhtml?ticker=nciscript=410layout-0item_id=509944 (accessed 20 December 2005).
24. DiMasi et al., "R&D Costs and Returns," presents a more detailed discussion of the relationship between development costs and returns.
25. Abrantes-Metz et al., "Pharmaceutical Development Phases," uses similar data and a full duration model and also finds that AIDS/HIV drugs move through the development process fairly quickly.
26. DiMasi et al., "R&D Costs and Returns."
27. Thanks to an anonymous reviewer for pointing out this possibility.
28. DiMasi et al., "Research and Development Costs."
29. The authors present clinical costs because of a lack of cost data on preclinical costs by therapy.
30. According to M. Meadows, "The FDA's Drug Review Process: Ensuring Drugs Are Safe and Effective," FDA Consumer, FDA Pub. no. 02-3242 (Washington: Food and Drug Administration, 2002), most HIV drugs have been approved under accelerated approval provisions.