Drug Development Costs About $1.7 Billion
Pharmaceutical manufacturers will be able to use a startlingly high appraisal of the cost of developing drugs when they attempt to justify the price of their products to skeptical consumers. According to a study by Bain & Co., the cost for a single new drug averages $1.7 billion, almost double the widely accepted $897 million estimate published in May by the Tufts Center for the Study of Drug Development.
According to Bain, the cost of drug development--currently 55% higher than the average cost from 1995 to 2000--is rising largely as a result of an increasing failure rate for prospective drugs in clinical trials. The rising cost of commercializing new drugs is another contributing factor--12 months of sales and marketing costs are included in Bain's cost estimate but not in the Tufts figure.
The consulting firm says rising costs, declining productivity, and a shortening of the average period of exclusivity for new drugs have driven return on investment for large pharmaceutical companies down from 9% in the late 1990s to 5% today.
The study criticizes big pharma for failing to aggressively attack costs by designing more efficient trials, pursuing partnerships, and integrating drug development and marketing activities.
Study coauthor Ashish Singh warns that by clinging to a blockbuster drug business model, which focuses efforts on drugs that will garner $1 billion or more in annual sales, the drug industry risks a reduction in stock market value, much like that faced by the computer industry in the 1990s.