NCPA - National Center for Policy Analysis

Costs to Develop New Drugs Soar

December 3, 2001

It is two-and-a-half times more expensive to research a new medication now than it was in 1987, even adjusting for inflation. That is the conclusion reached by researchers at the Tufts University Center for the Study of Drug Development.

  • On average, it now takes $802 million, including the cost of capital, to come up with a new pharmaceutical product.
  • While total research costs increased 7.4 percent annually in the 1990s, clinical costs -- the component of research associated with testing drugs on humans -- rose 12 percent annually.
  • Due to demands by managed-care buyers that drug companies prove the value of their drugs in larger and longer trials, the number of patients in a new drug trial has increased from about 1,300 in the early 1980s to more than 4,000 for a typical new medicine today.
  • The study found that the average development time for new medicines is 12 years.

In the 1990s, drug firms spent an average of $121 million out-of-pocket in research prior to clinical trials -- but that figure rises to $336 million when the costs of capital are included. The clinical testing stage consumes $282 million -- or $466 million when capital costs are factored in. The capital costs are determined by figuring how much would be returned by investing the money at 11 percent over time.

Drug company executives point out that patent-protection laws -- which have come under attack by some critics -- are vital to encouraging and protecting such huge investments.

Source: Gardiner Harris, "Cost of Developing Drugs Found to Rise," Wall Street Journal, December 3, 2001.

For text (WSJ subscribers)


Browse more articles on Health Issues