Joseph A. DiMasi , Ph.D.
Director of Economic Analysis, Tufts Center for the Study of Drug Development, Tufts University

The Cost of Biopharmaceutical R&D: Is Biotech Different?

April 7, 2006
- 12:00-1:30 PM
1206 SHDH - 3620 Locust Walk

Abstract Video of talk

Dr. DiMasi, who has been with the Tufts Center since the fall of 1987, focuses his research activity on the new drug development and regulatory review processes and the economics of the pharmaceutical industry. His current research examines the impact of policies and practices to speed the development and review processes for new drugs, how firms have organized internally to accommodate the increasing need for pharmacoeconomic studies, the role that pharmacoeconomic evaluations have played in the R&D process, the cost of new drug development, and success and attrition rates for investigational drugs. Dr. DiMasi presents his work at numerous professional and industry conferences in the United States and abroad and has testified before the U.S. Congress in hearings leading up to the FDA Modernization Act of 1997 and reauthorization of the Prescription Drug User Fee Act. Dr. DiMasi received his Ph.D. in economics from Boston College.

The costs of developing the types of new drugs that have been pursued by traditional pharmaceutical firms have been estimated in a number of studies. However, similar analyses have not been published on the costs of developing the types of molecules on which biotech firms have focused. This study represents a first attempt to get a sense for the magnitude of the R&D costs associated with the discovery and development of new therapeutic biopharmaceuticals (specifically, recombinant proteins and monoclonal antibodies [mAbs]). We utilize drug-specific data on cash outlays, development times, and success in obtaining regulatory marketing approval to estimate the average pre-tax R&D resource cost for biopharmaceuticals up to the point of initial U.S. marketing approval (in year 2005 dollars). We found average out-of-pocket (cash outlay) cost estimates per approved biopharmaceutical of $198 million, $361 million, and $559 million for the preclinical period, the clinical period, and in total, respectively. Including the time costs associated with biopharmaceutical R&D, we found average capitalized cost estimates per approved biopharmaceutical of $615 million, $626 million, and $1,241 million for the preclinical period, the clinical period, and in total, respectively. Adjusting previously published estimates of R&D costs for traditional pharmaceutical firms by using past growth rates for pharmaceutical company costs to correspond to the more recent period to which our biopharmaceutical data apply, we found that total out-of-pocket cost per approved biopharmaceutical was somewhat lower than for the pharmaceutical company data ($559 million vs. $672 million). However, estimated total capitalized cost per approved new molecule was nearly the same for biopharmaceuticals as for the adjusted pharmaceutical company data ($1,241 million versus $1,318 million). The results should be viewed with some caution for now given a limited number of biopharmaceutical molecules with data on cash outlays, different therapeutic class distributions for biopharmaceuticals and for pharmaceutical company drugs, and uncertainty about whether recent growth rates in pharmaceutical company costs are different from immediate past growth rates.

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