More MS news articles for Dec 2001

Drug development costs $802 Million on average

November 30th, 2001
By Lisa Richwine

WASHINGTON (Reuters) - The average cost to develop a new prescription drug has jumped to $802 million, an academic research center said Friday, attributing most of the increase to rising clinical trial costs.

But consumer groups attacked the new estimate from the Tufts Center for the Study of Drug Development and one said the actual cost was probably at least 75% lower.

The figure is important because pharmaceutical companies cite high research and development costs to explain drug prices, which some politicians and senior citizens' groups have criticized as too expensive.

The Tufts Center said it based the $802 million figure, which represents year 2000 dollars, on information obtained from 10 drug companies. The center previously estimated the cost at $231 million in 1987 dollars.

The major reason for the jump was a significant rise in costs for clinical trials, the tests that evaluate a product's safety and effectiveness in people.

"The size and complexity of the clinical trials has increased," Kenneth Kaitin, director of the Tufts Center, said in an interview.

He said new regulatory requirements added costs, and attempts to sell more products globally required marketing approval in multiple markets. More companies are also testing drugs for chronic diseases, which means the medicines need to be tested longer.

The drug industry still is the most profitable, earning profits as a percent of revenues that are four times the median rate for all Fortune 500 firms in the late 1990s, the Kaiser Family Foundation reported Wednesday.

The Tufts figure for drug development includes the cost of human clinical trials, preclinical tests, expenses for product failures and the impact of long development times on investment costs.

The Tufts center, based in Boston and affiliated with Tufts University, receives funding from pharmaceutical and biotechnology companies, but Kaitin said the financial support was unrestricted and the center's research was independent.

He said the research behind the new cost estimate would be submitted for publication in a peer-reviewed journal in the coming weeks.

But Bob Young, research director for Public Citizen's Congress Watch, a consumer group, said the average for actual after-tax cash outlays was probably 75% less than the Tufts figure.

He said Tufts' researchers included expenses that are tax deductible and that more than half of their figure was attributed to opportunity costs of investing in a potential drug when the money could have been invested elsewhere.

Young said he had no way to verify the drug company data provided to Tufts, but if it was accurate, he estimated the research expenses after taxes were closer to $240 million.

Tufts released its figure ahead of publication in a journal because it is important to policymakers, Kaitin said.

US lawmakers are debating how to help elderly Medicare patients buy prescription drugs they cannot afford. Pharmaceutical companies have defended their prices by saying they need to charge enough to fund future research on new medicines.

The Tufts study, "dramatically underscores the fact that innovative pharmaceutical research is very expensive and it's becoming more expensive," said Jeff Trewhitt, a spokesman for the Pharmaceutical Research and Manufacturers of America, the US lobbying group for brand-name drug makers.

Copyright © 2001 Reuters Limited