Drug Development Costs $802 Million on Average

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Drug Development Costs $802 Million on Average

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WASHINGTON (Reuters) Nov 30 - The average cost of developing a new prescription drug has jumped to $802 million, an academic research center said on Friday, attributing most of the increase to the rising cost of clinical trials.



But consumer groups attacked the new estimate from the Tufts Center for the Study of Drug Development, with one saying 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 high.



The Tufts Center said it based the $802 million figure, which is in year-2000 dollars, on information obtained from 10 drug firms.



A decade ago, the center estimated the cost at $231 million in 1987 dollars.



"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 have also created added costs, and attempts to sell more products globally require obtaining approval in multiple markets. More companies are also testing drugs for chronic diseases, meaning that the medicines need to be tested longer, he said.



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



The drug industry still is the most profitable, earning profits as a percentage 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 center, based in Boston and affiliated with Tufts University, receives funding from pharmaceutical and biotechnology companies, but Kaitin said the financial support is unrestricted and the center's research is independent. He said the research behind the new cost estimate would be submitted for publication in a peer-reviewed journal in the coming weeks.



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 Pharmaceutical Research and Manufacturers of America.



But Bob Young, research director for Public Citizen's Congress Watch, a consumer group, said the average for actual after-tax cash outlays is probably 75% less than the Tufts figure. He said the Tufts researchers included expenses that are tax-deductible and that more than half of the figure they arrived at was attributed to the opportunity costs of investing in a potential drug when the money could have been invested elsewhere.



Young said he has no way to verify the drug company data provided to Tufts, but that he estimates the research expenses after taxes are closer to $240 million if the data are accurate.



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 afford prescription drugs. Pharmaceutical companies have defended their prices by saying they need to charge enough to fund future research on new medicines.