Use of Clinical Trial Characteristics to Estimate Costs of New Drug Development

Key Points

Question

What is the estimated cost to develop a new drug and how do research and development (R&D) costs vary across firms?

Findings

This economic evaluation examining 268 US-traded drug developers found that, in 2019, 20 firms accounted for 80.8% of R&D activity (measured as clinical trial patient-months) and had 27.4% lower mean and 26.7% lower median costs per patient-month vs other firms. Median and mean costs per 2019 new approved drug were $708 million and $1.31 billion, respectively, after cost of capital and discontinuation adjustments.

Meaning

These findings suggest that R&D costs per new drug are highly skewed, so both median and mean costs should be considered.

Abstract

This economic evaluation estimates per-drug research and development costs and describes firm-level costs per discrete unit of research and development activity.

Abstract

Importance

Despite their importance to patients, health, and industry, the magnitude of investments in drug research and development (R&D) remain nebulous. New policies require more granular and transparent R&D cost estimates to better balance incentives for innovation and returns to developers.

Objective

To estimate per-drug R&D costs using a novel, reproduceable approach and to describe firm-level R&D costs per discrete unit of R&D activity (1 patient-month).

Design, Setting, and Participants

This economic evaluation used cross-sectional data to estimate 2014 to 2019 costs per patient-month. Costs per patient-month were calculated using data from 268 US publicly traded drug developers, contributing 1311 firm-year observations, that were highest ranked by assets or market capitalization, after exclusions. Per-drug costs were calculated from all R&D activity through approval for a cohort of 38 new drugs approved by the US Food and Drug Administration in 2019. Data were analyzed from January 2022 to July 2024.

Exposure

R&D activity, measured in terms of clinical trial patient-months.

Main Outcomes and Measures

This study used a 2-step approach to estimate R&D costs, first allocating firm-year–level total R&D spending across similarly aggregated patient-months, and then aggregating these incremental costs to estimate drug-level R&D costs per new drug.

Results

Among 268 developers assessed, 20 large firms accounted for 80.8% of all patient-months and had 27.4% lower mean and 26.7% lower median costs per patient-month compared with other firms. Each 1% increase in patient-months was associated with a 0.9% increase in R&D costs. R&D costs per new drug were highly skewed, with a lower median (IQR), at $708 million ($247 million to $1.42 billion) than mean (SD), at $1.31 ($1.92) billion, after adjusting for the cost of capital and discontinued products. Without these adjustments, direct costs per new drug were a median (IQR) of $150 ($67.6-$453) million and a mean (SD) $369 of ($684) million. While estimated R&D costs varied in sensitivity analyses, mean costs were always substantially greater than median costs.

Conclusions and Relevance

This economic evaluation found median per-drug R&D costs toward the lower end of the range from prior studies, with a mean closer to the middle of the existing range despite the broad scope of included costs. These findings suggest parallel development across indications, adjustment for discontinued products, and a small number of expensive development programs are particularly important drivers of R&D costs.