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.
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%.
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.