How much does it cost for a pharmaceutical company to get one new drug onto the market? As with all variations of “what does it cost” questions the answer is complicated. Any such answer requires explanation of what the calculation means.
Other posts discussing this issue:
- 3/1/12: What does it cost to invent a new drug?
- 6/2/14 – Another explanation why meds cost so much; this ties into the GIK valuation issue
According to a 2016 study by Tufts Center for the Study of Drug Development, here is their calculation of what it takes to get one compound to the point of where it is approved for sale:
- $1.395 billion – out-of-pocket costs – actual cash expended at the point approval is obtained to sell the compound
- +$1.163 billion – “time costs”, in other words the capitalization of having to invest more than a billion dollars over many years – this represents the opportunity cost of having otherwise been able to invest that money in something else that would have produced a return earlier
- =$2.558 billion – total capitalized cost at point of receiving approval to sell one compound
- +0.312 billion – costs incurred for follow-up required by FDA as a condition of obtaining approval – this includes factors such as monitoring long-term side effects, monitoring safety, looking at new formulations or dosage strength
- =$2.870 billion – total lifecycle costs to develop one new medicine that is approved by the FDA for sale
The study was based on a random selection of 106 drugs from 10 pharmaceutical companies. Since that is a random selection presumably the calculation would apply to all medicines.