Drug Development Costs: What Gives?

As previously discussed, drug development costs have been rising to almost prohibitive levels. In 1975, the average approved drug cost $100 million dollars (inflation-adjusted) to develop and approve. In 2005, that number had soared; it cost more than $1.3 billion to bring a drug to market.¹ Skyrocketing drug development costs cause pain across the board. They hurt pharmaceutical companies, who have to re-think how they manage their drug pipelines, and which gambles they take bringing a drug to market. It is also creating a public health crisis, as new drugs are not brought to market for the most common chronic diseases plaguing our society today.

Bringing new drugs to market has a clear public health benefit. When new heart drugs arrived on the market between 1999 and 2005, there was a 45% drop in hospital deaths due to heart attack in coronary-artery disease patients. When new anti-HIV drugs became available between 1995-1997, the annual death rate from HIV fell by 63%. These correlations provide clear incentive for bringing more drugs to market. The best way to do that is to reduce drug development costs.

Phase III clinical trials are the biggest obstacle to drug development, and are the reason behind skyrocketing drug development costs. Even though relatively few drugs are brought to Phase III, the process consumes about 40% of pharmaceutical companies’ R&D expenditures.¹ When you consider that most of the drugs Pharma researches never see patients, the numbers get worse. For an approved drug, 90% of the money invested in the drug was spent on Phase III clinical trials.¹

Phase III trials grow ever larger. There are more demands put on researchers, stricter limits on enrolling patients, and more manpower needed to complete the required tests. The FDA can come back at any time with new demands for more trials. The rules are a little more lax for orphan diseases and diseases with acute mortality rates, so it’s no surprise that pharmaceutical companies find those diseases more attractive. More people would benefit from drugs that address our most pressing public health concerns, which we’ll explore in future posts.