Drug Development Costs Skyrocket

One reason new medicines are more expensive is that the cost of discovering and producing new therapies is soaring. A new study from the Tufts Center for the Study of Drug Development puts the cost of developing a new prescription medicine at a whopping $802 million. That represents a rise that is double that of inflation over the past 15 years, largely because of expanding clinical trial expenditures.

Back in 1987, Tufts researchers put the average R&D cost for a pharma-ceutical at $231 million. Then, in 1993, Congress' Office of Technology Assessment upped the number to $359 million.

The Tufts analysis by economist Joseph DiMasi uses a similar methodology, which includes expenses for research failures and the cost of capital. Together those expenses account for half of the total because it takes an average of 12 years to bring a new therapy to market.

Although all R&D costs have risen over the past 15 years, theTufts study shows that increases are particularly acute for the clinical period. The inflation-adjusted annual growth rate for capitalized clinical costs was 11.8 percent, more than five times greater than that for preclinical research. DiMasi says difficulties in recruiting patients for clinical trials, expansion of drug development programs, and greater focus on developing drugs to treat chronic and degenerative diseases are to blame for the rise of clinical trial costs.

As the debate accelerates over how to control rising drug expenditures, the $800 million figure is sure to be cited frequently. Pharma companies point to rising R&D costs to support requests for strong patent protection to encourage investment. Critics charge that the high estimate fails to account for tax deductions and government subsidies of R&D and that the finding demonstrates the need for more transparency in pharma research practices.