Insight journal - Deals and alliances

The costs of creating new drugs revealed

Posted on 19 August 2013


A recent survey by Forbes has revealed the true cost of generating new drugs by looking at number of new product launches compared to R&D spend over the same period.

A company hoping to get a single drug to market can expect to have spent $350 million before the medicine is available for sale. In part because so many drugs fail, large pharmaceutical companies that are working on dozens of drug projects at once spend $5 billion per new medicine.
For years, researchers, including one team from Tufts University and another at Eli Lilly, have estimated the cost of inventing and developing a drug at $1 billion or more.

These estimates try to exclude costs not directly related to a drug’s approval and also don’t allow for any comparisons between companies.

Matthew Herper at Forbes did something far cruder: he took the 15-year research spending of a group of big pharmaceutical companies and divided it by the number of new drugs (technically new molecular entities, the Food and Drug Administration’s term for drug molecules that have not been approved in any form for any use previously).

This method admittedly has flaws.

For Abbott Laboratories (now AbbVie) and Johnson & Johnson, it includes research spent on medical devices, not just drugs.

And some of the research budget goes to safety monitoring for any big company. But the effort was well-received and useful enough that I thought it worth repeating.

This time, though, I wanted to get at a slightly different question, too. What would happen if I looked at a bigger universe of companies, including those who had only launched a single product?

These data would give information not about the total research spending for a successful drug, but on the amount spent on individual drugs that succeed, without failures lumped in.

Here is the top 10 in order of most spent on R&D for each new drug approved.

Figure 1: Top 10 companies by cost per new drug

Rank  Company   Number new drugs 10 year R&D spend R&D spend per drug More @ Current Partnering
1 Abbott 1 $13.2m $13.18m News | Reports
2 Sanofi 6 $60.8m $10.13m News | Reports
3 AstraZeneca 4 $38.2m $9.56m News | Reports
4 Roche 8 $70.9m $8.87m News | Reports
5 Pfizer 10 $77.8m $7.78m News | Reports
6 Wyeth 3 $22.7m $7.57m News | Reports
7 Eli Lilly 4 $26.7m $6.68m News | Reports
8 Bayer 5 $33.1m $6.62m News | Reports
9 Schering-Plough 3 $18.8m $6.28m News | Reports
10 Novartis 10 $60.7m $6.07m News | Reports







Click here to see cost-per drug estimates for 98 companies over a decade.

“This is crazy. For sure it’s not sustainable,” says Susan Desmond-Hellmann, the chancellor at UCSF and former head of development at industry legend Genentech, where she led the testing of cancer drugs like Herceptin and Avastin. “Increasingly, while no one knows quite what to do instead, any businessperson would look at this and say, ‘You can’t make a business off this. This is not a good investment.’ I say that knowing that this has been the engine of wonderful things.”

A 2012 article in Nature Reviews Drug Discovery says the number of drugs invented per billion dollars of R&D invested has been cut in half every nine years for half a century.

Reversing this merciless trend has caught the attention of the U.S. government. Francis Collins, the director of the National Institutes of Health, in 2011 started a new National Center for Advancing Translational Sciences to remove the roadblocks that keep new drugs from reaching patients.

Click here to read more Forbes commentary on this study.



Report: Partnering Deals and Alliances with Big Pharma                        

Report: Partnering Deals and Alliances with Big Biotech

View: Current Partnering’s Partnering Scorecard – view top life science partnering deals by value

View: Current Partnering’s Deal Metrics – the latest deal trend infographics for life science deal making

View: Current Partnering’s Big Pharma Deal Making Scorecard – latest trends in big pharma deal making activity

View: Current Partnering’s Big Biotech Deal Making Scorecard – latest trends in big biotech deal making activity

Signup: Current Partnering Dealmakers Update – weekly newsletter providing the latest life science industry deal news, deal making trends, partnering events – sign up now

Signup: Current Agreements Deals Review – monthly newsletter - reviewing the previous month’s life science deal making – partnering, M&A and financing – sign up now

Subscribe: Current Agreements life sciences partnering, M&A and financing deals database – find out more

Follow us on: LinkedIn Current Partnering | LinkedIn Business Development Network | @Currentpartner on Twitter

Print Friendly, PDF & Email

Leave a Reply