Average cost of developing a new drug could be up to $1.5 billion less than pharmaceutical industry claims

This study calls into question whether the high price tags of some new drugs are reasonable.
- Dr Olivier Wouters, LSE Department of Health Policy

The costs of bringing a new drug to market may be lower than has been previously claimed by the pharmaceutical industry, according to a new LSE-led study in the US journal JAMA.

Researchers from LSE, the London School of Hygiene & Tropical Medicine and KU Leuven in Belgium used publicly available data to estimate how much, on average, drug companies spend on research and development to bring a new medicine to market.

Most prior analyses have been based on confidential data voluntarily supplied by drug companies to researchers with financial ties to the industry. Independent teams have not been able to verify these findings.

The researchers behind this new study estimated that the median cost of bringing a new drug to market was $985 million, and the average cost was $1.3 billion. This is in stark contrast to previous studies, which have placed the average cost of drug development as high as $2.8 billion.

High prices 

Dr Olivier Wouters, Assistant Professor of Health Policy in LSE's Department of Health Policy and lead author of the study, said: “While it’s essential that the pharmaceutical industry continues to find it profitable to develop new drugs that save or improve lives, this study calls into question whether the high price tags of some new drugs are reasonable.”

The researchers found that the cost of developing drugs varied across different disease areas, with cancer drugs being the most expensive. 

Their estimates took into account spending on failed trials for other drug candidates, as well as the cost of raising money from investors.           

To arrive at their estimates, the researchers reviewed detailed financial reports filed by drug companies with the US Securities and Exchange Commission. They were able to acquire and analyse data on 63 new drugs and biologic agents, out of a total of 355 approved in the US between 2009 and 2018.

Need for transparency

Dr Wouters said: “This is one of the most comprehensive studies to date on the costs of drug development based on publicly available data. It’s not the whole picture, but if drug companies want to keep claiming that these costs justify soaring prices, then they need to make their data available for public scrutiny.”

Dr Jeroen Luyten, Associate Professor of Health Economics at KU Leuven and co-author of the study, added: “The prices of some new drugs can be upwards of $100,000 per patient per year. We need transparency on the costs of drug development, otherwise we’re going into drug pricing negotiations blindfolded.”

The researchers noted that the selective reporting of financial data by drug companies meant that drugs in some disease areas were overrepresented in the study. The sample also comprised mostly of smaller-sized companies, since many larger firms did not make their data publicly available.

In a related article, published in JAMA Internal Medicine, Dr Wouters outlined how the pharmaceutical and health-product industry spent $4.7 billion lobbying the US federal government between 1999 and 2018. According to the paper, the industry spent an additional $1.3 billion on contributions to political campaigns in federal and state elections over this period.

Behind the article

“Estimated research and development investment needed to bring a new medicine to market, 2009-2018” by Olivier J. Wouters, Martin McKee, and Jeroen Luyten was published by JAMA on Tuesday 3 March 2020.

Dr Olivier Wouters is Assistant Professor of Health Policy at the London School of Economics and Political Science.

Professor Martin McKee is Professor of European Public Health at the London School of Hygiene & Tropical Medicine.

Dr Jeroen Luyten is Associate Professor of Health Economics at KU Leuven.