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Key factors in the rising cost of new drug discovery and development

Nature Reviews Drug Discovery volume 3, pages 417–429 (2004)Cite this article

Key Points

  • The development of a new drug requires a major investment of capital, human resources and technological expertise. It also requires strict compliance with regulations on testing and manufacturing standards before a new compound can be used in the general population.

  • All these requirements contribute to the cost increases for new chemical entity (NCE) R&D. The central question raised by this trend is: who in the future will pay for new pharmaceutical R&D?

  • With this question in mind, this article first describes how the environment for pharmaceutical R&D has changed over time, and the effect of these changes on R&D cost, risk and the time invested; second, reviews the literature on the cost of drug discovery and development for NCEs; and third, considers the societal value of new drugs.

Abstract

The public desire for new therapies, their increasing cost and the increased role of government as a payer for innovative new drugs all converge on the issue of the rapidly rising cost of new drug development — now thought to be greater than US $800 million — and highlight the necessity for an efficient use of resources. With this in mind, here we review studies on the cost of developing new drugs and consider how this cost has, and could be, affected by the changing environment for pharmaceutical research and development.

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Figure 1: The drug approval process in the United States.
Figure 2: Trends in drug approval time.
Figure 3: Estimated capitalized out-of-pocket costs for NCEs entering each phase.
Figure 4: Pharmaceutical sales, R&D and expenditure and social value.

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Acknowledgements

We thank two anonymous reviewers for their helpful comments; all errors and omissions remain the responsibility of the authors.

Author information

Authors and Affiliations

  1. College of Pharmacy, University of South Carolina, Columbia, 29208, South Carolina, USA

    Michael Dickson

  2. Aventis Pharmaceuticals, Bridgewater, 08807-2854, New Jersey, USA

    Jean Paul Gagnon

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Corresponding author

Correspondence to Michael Dickson.

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Competing interests

J.P.G. is an employee of Aventis Pharmaceuticals Inc.

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FURTHER INFORMATION

Pharmaceutical Research and Manufacturers of America

Public Citizen

Tufts Center for the Study of Drug Development

Glossary

ACADEMY OF MANAGED CARE PHARMACY FORMULARY GUIDELINES

The Academy of Managed Care Pharmacy's Format for Formulary Submissions, published in October 2000, is a set of guidelines for the evaluation of medications. The Format is helping to answer the often-asked question: “which new drugs offer advantages at reasonable costs, thus providing good value?” There are two important goals for the Format process: first, to improve the quality, timeliness, scope and relevance of the data and information made available for pharmacy and therapeutics committees to use in their decision-making; and second, to facilitate and streamline the acquisition of data and information and the review process for pharmacists in managed-care organizations.

SAFETY

Safety is determined by balancing risk and benefit for a given disease.

EFFICACY

The ability of a drug to work under ideal conditions (for example, in a well-controlled clinical trial).

REVIEW TIME

The FDA defines review time as the time it takes the FDA to review a New Drug Application.

APPROVAL TIME

The FDA defines approval time as the time from the first New Drug Application (NDA) submission to NDA approval. It includes the sum of FDA review time for the first submission of an NDA to the Agency, plus any subsequent time during which a pharmaceutical sponsor addresses deficiencies in the NDA and resubmits the application, plus subsequent FDA review time.

EFFECTIVE PATENT LIFE

EPL is defined as the number of years of market exclusivity for a product once it has received marketing approval. EPL will always be less than the nominal patent life because drug entities are patented long before they receive marketing approval.

MEDICARE

The federal health insurance programme for people 65 years of age or older, certain younger people with disabilities and people with end-stage renal disease.

MEDICAID

A joint federal and state programme that helps with medical costs for some people with low incomes and limited resources. Medicaid programmes vary from state to state, but most healthcare costs are covered if you qualify for Medicare and Medicaid.

STUDY PARAMETER CHANGES

The methodological differences between the 1991 and the 2003 DiMasi studies can be briefly summarized as: first, the 1991 study examined 93 self-originated NCEs from 12 companies, whereas the 2003 study was based on 68 self-originated NCEs from 10 companies; second, the cost of capital was 9% in the 1991 study and 11% in the 2003 study; third, the average time from beginning clinical trials to marketing approval in the 1991 study was 98.9 months, but 90.3 months in the 2003 study; and last, the average clinical success rate for the 1991 study was 23%, compared with 21.5% in the 2003 study.

CAPITALIZATION

The amounts and types of long-term financing used by a firm to grow and expand its business. It may include common stock, preferred stock, retained earnings and long-term debt. Capitalized costs are out-of-pocket costs that have been discounted at an appropriate discount rate to address the time value of money.

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Dickson, M., Gagnon, J. Key factors in the rising cost of new drug discovery and development. Nat Rev Drug Discov 3, 417–429 (2004). https://doi.org/10.1038/nrd1382

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