The Ridiculous Cost of Medical Research Regulation

The much-touted ballpark estimate of a billion dollars to produce a modern pharmaceutical from start to finish is about a decade old now - that figure is adjusted for today's diminished dollar value, eroded by inflation. You can replace "pharmaceutical" with any medical technology that is going to require a fair amount of original research and further tinkering in the laboratory to obtain the first working prototypes and the result is much the same. This large round number is the kitchen sink cost across a decade of work, including failed attempts and the opportunity cost of investment. The lion's share of the direct expenditures are imposed by regulatory requirements: trials, data, and more trials.

It has long been my position that almost all of the work carried out in the US at the behest of the FDA to prove safety is unnecessary. In fact it is counter-productive, as the immense imposed costs on development shut out a great deal of the experimentation and small-scale initiatives needed for rapid progress. Much of what the FDA demands is not demanded by similar regulatory bodies in other parts of the world, and even their requirements are very onerous in comparison to the standards in place fifty years past, a time when medical development seems to me to have worked just fine. It is a question of balances and choice: it is better to err in favor of faster progress and informed patient choice, but that is very far from the present state of affairs.

The result of an excessive and growing regulatory burden is that many potential medical technologies languish, are rejected outright, or are never developed at all, and patients suffer as a result. Our future health is determined by the pace of progress, and a slowdown across the board harms all of us considerably. Unfortunately that cost is invisible to the public at large and thus bureaucrats suffer very little as a result of the harms they cause by blocking progress. Meanwhile even comparatively small harms caused by an approved treatment that turns out to be overwhelmingly beneficial save for some negative effects for some people can snowball in the media to cause great damage to a career in the FDA bureaucracy. So you can see that the incentives are very much aligned with ever greater demands for proof and ever greater costs imposed on medical research and development. This is in fact what has happened over the past few decades, with the present result that in an age of radical progress and plummeting costs in the laboratory it is nonetheless the case that medicine is ever more expensive and the introduction of new applications of medical research has slowed down. This is well known and widely commented on, but so entrenched that this detrimental trend shows no signs of slowing.

So, to return to the cost of developing a modern pharmaceutical product: estimated at a billion dollars (in today's dollars) ten years ago, the same approach results in an estimated $2.5 to $2.8 billion dollars now. Interestingly the bulk of that is apparently not due to the increased time required to run the regulatory gauntlet, but rather largely due to other increases in the demands of regulators: much larger trials and more data. Via In the Pipeline, here are a couple of items on this topic. The second includes a very educational model and cost breakdown - you might take a look at that to see that initial research to the prototype stage, many failures included, is a fraction of the full cost of development and approval. That is something to think about as we raise money to help fund SENS research into the foundations of near future rejuvenation treatments.

Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion

Developing a new prescription medicine that gains marketing approval, a process often lasting longer than a decade, is estimated to cost $2,558 million, according to a new study by the Tufts Center for the Study of Drug Development. The $2,558 million figure per approved compound is based on estimated: 1) Average out-of-pocket cost of $1,395 million. 2) Time costs (expected returns that investors forego while a drug is in development) of $1,163 million. Estimated average cost of post-approval R&D - studies to test new indications, new formulations, new dosage strengths and regimens, and to monitor safety and long-term side effects in patients required by the U.S. Food and Drug Administration as a condition of approval - of $312 million boosts the full product lifecycle cost per approved drug to $2,870 million. All figures are expressed in 2013 dollars.

In a study published in 2003, Tufts CSDD estimated the cost per approved new drug to be $802 million (in 2000 dollars) for drugs first tested in human subjects from 1983 to 1994, based on average out-of-pocket costs of $403 million and capital costs of $401 million. The $802 million, equal to $1,044 million in 2013 dollars, indicates that the cost to develop and win marketing approval for a new drug has increased by 145% between the two study periods, or at a compound annual growth rate of 8.5%.

A Billion Here, A Billion There: The Cost Of Making A Drug Revisited

At first principles, there are several items that need to be factored in: direct costs of moving a drug forward, paying for failures along the way, and the time value of money (forgoing other investments). Since they haven't shared their model, I've built a quick-and-dirty version using their public assumptions to recreate in a ballpark fashion their $2.5B drug cost estimate. The distribution of costs (30-33% of spending into pre-clinical phases) is similar to their report. Here is my "estimated" model that you can download and play with.

The silver lining in all of this is that the greater the demands of the regulators, the more that development will move to much less costly regions of the world. We've seen this in the initial growth of the stem cell field, with proficient clinical industries established in Asia and elsewhere years prior to the first therapies eventually obtaining approval in the US - and we'd likely still be waiting on that approval if not for the fact that the existence of establish clinical networks and research groups elsewhere in the world puts increasing public pressure on US regulators to speed things up. Travel halfway around the world is cheap in comparison to the initial cost of most new medical technologies, which ultimately means that regulators set on ever-increasing demands will paint themselves out of the picture. Given yet more regulatory costs, the US research community will only thrive in the years ahead to the extent that it forges bridges to developers and clinics in other parts of the world - but that will definitely become the new normal if the trend continues.


Not sure I get your argument.

The major cost factor are Phase II & III trials. These are both safety and efficacy trials. You cannot avoid doing efficacy trials if you want to have something like a working drug.

Sure, an argument can be made that drugs should be able to get pre-approval based on biomarkers. But that in fact is already implemented by the FDA e.g. in the case of Ezetimibe.

Where do you think money can be saved? Preclinical? For this discussion putting preclinical at 30% of costs seems incorrect to me, since following your link, some 17% of this are "discovery phase" and I don't think the FDA impacts that.

I think your sweeping dismissal of the regulatory process is not warranted. Can you provide evidence in favour of your position or make some suggestions for improvement?


Posted by: Kismet at November 28th, 2014 12:21 PM

My argument is that near all of the present clinical trial process is make-work and dead weight imposed over time as a result of the incentives of career bureaucrats. I am saying that you can in fact avoid performing efficacy trials in their present form and still have a working medical technology at the end of the day: the present trials should be replaced by the market of independent competing developers and reviewers. That situation would serve developers and patients far better than regulation, and in fact has to some degree in the case of stem cell treatments, as the incentives are far more aligned towards faster progress and the development of better products.

Posted by: Reason at November 28th, 2014 3:21 PM

Sorry, Reason, but you're wrong here. It's not government regulation that's doing this.

In The Pipeline actually shows the real reason why it's harder: we got all the easy ones. Conventional chemistry methods are simply not enough anymore.
We need- we NEED- extremely advanced modeling technology (a purpose-built AI would be perfect!) to accurately model cells and discover compounds before we even do one iota of physical chemistry. The problem is simply too big to do drug discovery the normal way.

Posted by: Slicer at November 28th, 2014 5:50 PM

Your statement: "small harms caused by an approved treatment that turns out to be overwhelmingly beneficial save for some negative effects for some people can snowball in the media" is probably inaccurate as it does not seem to apply to vaccines (see VAERS-Vaccine Adverse Event Reporting System database). Is there something that can be learned to achieve what we all undoubtedly want - speedier and more efficient drug development?

Posted by: mygenesdirect at November 30th, 2014 11:37 AM

I will say only one word: thalidomide.

Posted by: Antonio at December 1st, 2014 2:12 PM

I think this is a good article as it emphasizes that currently the time costs are as much as the actual physical outlays of money.

And it is not only the "time value of money" (the interest costs of a 10 year project) that are important. Most investors are looking for short term investments. So the long clinical trials process cuts off a lot of potential funding. To invest billions in a decade long project requires a massive company. A good example of this in another industry is nuclear energy. It is actually a lot cheaper than most alternatives, and is even on a par with coal and gas in a lot of cases, without the cancer causing particulate matter of coal. But billions of dollars invested for 5 or so years for most plants to get built is just too much of a "bet the farm" investment for most power companies. Even in a large common market such as the US. Hence government price guarantees are needed which are effectively government backed insurance against bankruptcy are needed.

It is good to see that Japan has pretty much binned the requirement for stage 3 trials of stem cell medicines in diseases with no other options.

The real problem is that most of the public don't know or care about these problems, so politicians don't either.

Posted by: Jim at December 1st, 2014 6:52 PM

I vehemently and completely disagree with your statement that "...the present trials should be replaced by the market of independent competing developers and reviewers. That situation would serve developers and patients far better than regulation, and in fact has to some degree in the case of stem cell treatments..."

It appears to me that all so called stem cell treatments are snake oil. Some things have been tried, and simply did not work (sufficiently), yet people continue to peddle it on the grey market (e.g. adult stem cells and related bull$ for heart disease)

I am in partial agreement on some other points, one example is parabiosis research:

"It is time for a rejuvenation lifespan study, i.e. administration of GDF11 to aged mice and end-of-life assesment of function plus lifespan. The results are so good that pilot studies in humans should immediately commence. If they have not yet started the clinical and preclinical work necessary to move into humans*, then I do agree with the critics: something is fucking wrong with our regulatory framework. Not everything, mind you, but a treatment like this calls for immediate follow-up.

* e.g. microdose Phase I studies of different recombinant GDF-11 forms, as well as studies with human plasma (see commentary to ref. 1)"

Posted by: Kismet at December 5th, 2014 8:55 AM
Comment Submission

Post a comment; thoughtful, considered opinions are valued. New comments can be edited for a few minutes following submission. Comments incorporating ad hominem attacks, advertising, and other forms of inappropriate behavior are likely to be deleted.

Note that there is a comment feed for those who like to keep up with conversations.