By Clinical Informatics News Staff 

November 18, 2014 | The Tufts Center for the Study of Drug Development released new estimates today of how much it costs to develop and win marketing approval for a drug. The total? $2.6 billion. About the same as the gross domestic product of Burundi.

Tufts says the number comes from an estimated average out-of-pocket cost of $1,395 million and time costs—expected returns that investors forego while a drug is in development—of $1,163 million.

Post-approval R&D—including studies to test new indications, new formulations, new dosage strengths and regimens, and to monitor safety and long-term side effects in patients required by the U.S. Food and Drug Administration as a condition of approval—adds another $312 million, bringing the full product lifecycle cost per approved drug to $2,870 million.

Tufts last published similar research in 2003. Then the Tufts CSDD estimated the cost per approved new drug to be $802 million (in 2000 dollars), or $1,044 million today. It’s a 145% increase.

Joseph A. DiMasi, director of economic analysis at Tufts CSDD and principal investigator for the study, identified reasons he believes the number is climbing and also identified factors not at play.

According to DiMasi, costs are going up thanks to out-of-pocket costs for individual drugs and higher failure rates for drugs tested in human subjects. Factors that likely have boosted out-of-pocket clinical costs include increased clinical trial complexity, larger clinical trial sizes, higher cost of inputs from the medical sector used for development, greater focus on targeting chronic and degenerative diseases, changes in protocol design to include efforts to gather health technology assessment information, and testing on comparator drugs to accommodate payer demands for comparative effectiveness data.

Not to blame were lengthening development and approval times, he said.

$2.6 billion is a staggering amount of money. And, according to some groups, a complete myth.

As soon as the report was released, Rohit Malpani, Director of Policy and Analysis with Doctors Without Borders (Médecins Sans Frontières) released a statement that quoted GlaxoSmithKline’s CEO Andrew Witty who called the $1 billion drug price tag “one of the greatest myths in the industry.” (Witty’s comment was made at a conference and quoted in a 2013 Reuters article.)

“Experience shows that new drugs can be developed for as little as $50 million, or up to $186 million if you take failure into account,” Malpani said in the statement. “These figures are nowhere near what the industry claims is the cost.”

Other groups accused the Center of dealing more in propaganda than facts, calling for more details about the study, its findings and analyses.   

This morning, in anticipation of the report, the Pharmalot blog ran an online poll. Half of voters guessed the cost would come in less than $2 billion per drug. Only about 15% guessed more than $2.5 billion.