Talkback from Tufts: Defending R&D Costs

Joe DiMasi

William Looney’s posting for this blog, “Calculating the Cost of R&D: Defending Tufts Research” (January 11, 2012), raises a number of interesting and important points.  Both the posting and the working paper by F.M. Scherer on which the posting was based, reflect a widespread concern over the state of R&D productivity in the pharmaceutical industry.  The level of resources needed to get a new drug approved by regulatory authorities is a critical aspect of the productivity of pharmaceutical R&D.

The Tufts Center for the Study of Drug Development (CSDD) has conducted a series of studies over the decades tracking industry R&D costs related to new drug approval.  Although the study criteria were defined in terms of when investigational drugs enter clinical testing, the results are easier to understand in terms of when that development resulted in success (i.e., when drugs from the study period obtained regulatory approval for marketing).  From this perspective, the first study in the series covered development that generally resulted in approvals during the 1970s, the second study was generally applicable to 1980s approvals, while the last study covered approvals during the 1990s to the early 2000s.  Taken together, the results demonstrate a marked upward trend, over and above general price inflation, in the cost per approved drug.  Alternative approaches examined as part of the last two studies to find ballpark figures by using public data confirm the study results, as does Scherer’s alternative analyses using such data.

Given scattered evidence of increasing costs for some components of the drug development process for more recent years and, the year 2011 notwithstanding, a generally stagnant level of new drug output, Tufts CSDD has undertaken a new study in our R&D cost series.  Currently, we are in the process of gathering data.  The results will cover new drug development that yielded approvals during the first decade of the 21th century.  As in the past, the cost of failures will be taken into account, and separate estimates of the time costs associated with the lengthy drug development process will be determined.  The data will reflect the diversity of development by therapeutic class and molecule type undertaken by mid-sized to large biopharmaceutical firms. There is more to R&D productivity than output per dollar spent, but clearly such a metric is needed as a starting point for a full discussion of productivity and what can be done to improve it in such a crucial segment of the health care sector.

Editor’s Note: The Tufts CSDD data has been cited by industry, which arouses skepticism, but as Forbes pointed out last week, the mean cost estimation may fall on the conservative side, particularly when current failure rates are considered.