The Burrill Report


The Tufts Center for the Study of Drug Development produces the oft-quoted industry number of what it cost to bring a drug from discovery to the marketplace. The number—$1.3 billion as of its last estimate—has been the subject of some controversy and criticism through the years, but a new study from the Harvard Kennedy School of Government suggest the folks at Tufts essentially got it right.

F.M. Scherer, a professor emeritus recently authored an analysis R&D costs and productivity and says the cost of drug development has outstripped any increase in output. He says when the spike in new drug approvals that resulted from FDA fee changes and the processing of a backlog is distributed over subsequent years, new drug approvals have increased by 2.1 percent while R&D costs have risen 7.4 percent.

Scherer suggests there are several reasons the Tufts numbers have been widely criticized. In part, he attributes it to the important role the number has played in industry arguments against government price controls in the United States. They have also been criticized for their use of capitalized costs, which takes into account not only the out-of-pocket expenses, but the cost of capital that is tied up in R&D over years. Scherer notes that the methodology was analyzed in a report to Congress by the U.S. Office of Technology Assessment and found the methodology used was appropriate and perhaps even conservative.

The most compelling criticism of the Tufts methodology, says Scherer, is that they may not rely on representative samples of the drug development universe. Scherer suggested an alternative methodology intended to capture a more inclusive approach and that takes into account the lag between R&D outlay and approval. What he found was that the average out-of-pocket R&D costs was $306 million in year 2000 dollars ($390 if biologics are included) compared to $282 million in Tuft’s calculation. “The difference is small, suggesting that in an intrinsically difficult measurement, the Tufts estimates are both credible and conservative,” he writes.

Scherer says its seems to be an inescapable conclusion that there’s been substantial growth in R&D spending to bring new drugs to market. Said another way, R&D productivity has fallen. He offers a few thoughts on why that is. These include a focus on more difficult therapeutic targets, the growth in the size of clinical trials as the FDA has raised the regulatory bar, the fact that hospital inflation has grown at nearly twice the rate of GDP price index and that hospitals have embraced clinical trials as profit centers, and that Big Pharma has failed to increase productivity through mergers and instead have allowed “organizational slack to accumulate in their R&D activities.”
“It is clear that clinical success may be achieved at substantially lower costs with alternative models of pharmaceutical development and testing,” he writes, “but embracing those alternatives requires streamlined regulatory and organization approaches and sacrifices in the richness of the evidence on the basis of which physicians must make subsequent prescription choices.”



December 22, 2011
http://www.burrillreport.com/article-widely_used_estimate_of_costs_to_develop_drug_may_be_conservative.html