What's the price of pharma innovation?

Posted by Cytel

Apr 5, 2016 4:00:00 PM



pill-shadows-1200049-639x905.jpgCost of pharmaceutical development and R&D productivity is an ongoing industry concern, consistently discussed in the mainstream and specialist press.  The issue is held in delicate balance against the increasing pressure on pharmaceutical pricing and cost containment measures.

A study by Tufts Center for the Study of Drug Development published earlier this year in the Journal of Health Economics (1) provides new estimates of R&D costs, building on previous work in the area.

 The data upon which the paper is based are from research and development costs of 106 randomly selected new drugs obtained from a survey of 10 pharmaceutical firms.

The study found a significant rise in total capitalized costs per new approved compound, when compared to the results of the previous study in this series - an increase at an annual rate of 8.5% above  inflation.  This results in total pre-approval cost estimate of $2,588 million per new approved compound, itself increasing significantly to $2,870 million when taking into account post approval R&D costs. 

Cost Drivers

The authors found that increase was driven by increases in the real out-of-pocket costs of development for individual drugs and importantly by higher failure rates for drugs that are tested in human subjects. In contrast, changes in development times or cost of capital were not driving factors.  The increase in clinical costs are attributed to factors including increasing clinical trial complexity, larger clinical trial sizes and changes in protocol design reflecting requirements to capture health technology assessment data.

The research highlighted that failure rates have also increased since their previous 2003 study and the authors suggest the potential factors:

  1. Increased risk-aversion among the regulatory authorities
  2. Industry focused on areas where science is more difficult and failure risks  higher
  3. Substantial growth in identified drug targets may have encouraged firms to pursue clinical development of more compounds with an unclear likelihood of success

Nearly as much has been written about failure rates in clinical trials as has been written about the cost of drug development and of course the two issues are fundamentally linked.  In a popular Cytel infographic previously published in the blog, we analysed Boston Consulting Group data on  Phase 3 failure rates to highlight the importance of strategic clinical development and avoiding late phase pitfalls. 


Cost mitigation strategies?

The focus of the diMasi et al paper is not to propose specific cost mitigation strategies.  However, in an April 2015 article (2) in the FT diMasi noted that, 'There is a lot of interest in improving the efficiency of clinical trial operations and designs”. This chimes with findings of an EyeforPharma white paper,  'Data and Technology in Clinical Trials 2015' (3) which was published recently. The white paper researchers surveyed pharma industry respondents about  methods they currently used in clinical trials, methods they intended to implement, and  the impact of data collection and analysis methods, current challenges, and patient-centricity. 

Interestingly, the two strategies which respondents believed would have the biggest impact in 5 years time  were adaptive trials and risk-based strategies.  Clearly the adaptive route may not be the right one for every trial. However, as we discuss in our 2015 Adaptive Trials white paper, in the right circumstances commercial benefits can be delivered along with others, through the improvements in information which can be obtained on the drug and its dosage.  This may result in a greater chance that the Phase 3 confirmatory trials will be successful, with a reduced probability that the Phase 3 dose will either be toxic or show inadequate efficacy. 

In case you missed it previously, you can download the Cytel Adaptive Trials white paper below:

Adaptive Paper

Further reading 


(1) DiMasi,J.A.,Grabowski,H.G.,Hansen,R.W.,INNOVATION IN THE PHARMACEUTICAL INDUSTRY: NEW ESTIMATES OF R and D COSTS,Journal of Health Economics(2016),http://dx.doi.org/10.1016/j.jhealeco.2016.01.012

(2) FT Article: Studies fuel criticism of high drug development costs 

(3) Eye for Pharma White Paper: Data and Technology in Clinical Trials





Topics: Phase 1, Program and Portfolio Optimization, Phase 3, phase 2, go-no-go, clinical development

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