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R&D costs estimates

A number of studies have tried to estimate the cost of developing a new drug to treat a given illness. The US Pharmaceutical Manufacturers Association (PhRMA) estimates the cost at US $500 million over a period of 11 years from the initial research stage to the successful marketing of a new drug. More recent estimates by the Tufts Centre for the Study of Drug Development put the average cost at US$802 million spread over 12 years, while the Boston Consulting Group estimates the cost as $880 million over 15 years.

These estimates are averages and there is significant variation in both time and cost depending on the nature of the disease being targeted, the type of drug being developed and the nature and scope of the clinical trials required to gain regulatory approval. These figures do not include the cost of manufacturing, marketing and distributing the final drug.

The process by which a new drug is brought to market is referred to by a number of names - most commonly as the development chain or "pipeline", and consists of a number of distinct stages. There are various estimates of the percentage in the cost of each stage and required time:

Source:
(1) PhRMA Annual Survey 2001 as reported in PhRMA, Pharmaceutical Industry Profile 2001, p15.
(2) Boston Consulting Group, A Revolution in R&D, November 2001 p12.
(3) PAREXEL, PAREXEL's Pharmaceutical R&D Statistical Sourcebook, 2001, p 96.

The pharmaceutical industry has the highest ratio of R&D spending to sales (estimated at 15-20%) of any industry in the USA and this investment in R&D has been growing by about 15% per year over recent years.

The cost of developing drugs is rising, and this, combined with a perceived decrease in the productivity of R&D, has been the one of the major reasons for the recent wave of mergers and acquisitions among pharmaceutical companies, as they seek to find and exploit economies of both scale and scope in drug R&D.