cost of developing a new drug & financial risks

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What does a new drug cost? Well, one estimate puts the cost of a new drug at 2.6 billion US dollars. This estimate was compiled by Professor Joseph DiMasi of the Tuft’s Center for the Study of Drug Development as well as colleagues from other institutions. This single estimate is not accepted by everyone, but the figure is the most commonly quoted number for the cost of developing a new drug. Some estimates are lower at under 1 billion dollars. Others are higher at over 5 billion dollars. Whatever the real figure is, the cost of developing a new drug is undeniably very high. The costs include researcher salaries, preclinical research expenses, the facility costs, and the cost of monitoring patient health outcomes during clinical trials. Drug discovery and development is also high risk. Let’s see how the high risk nature of drug discovery affects the overall cost of finding just one drug.
Assume we have 10 drug programs, and each of those 10 programs have advanced a lead compound into a phase 1 trial. Of those 10 compounds in phase 1 trials, around 6 or 60% will be advanced into phase 2 trials. Of those 6 compounds in phase 2 trials, around 2 or just 33% will advance into phase 3 trials. Just 1 of those, or 50%, will have a successful NDA (new drug application) and be approved as a drug. Based on these rough values, a compound that enters clinical trials has around a 10% chance of successfully becoming a drug. The cost of developing an approved drug includes not just the cost of that one successful compound but also the cost of the other 9 failures.
The high cost and risk of drug discovery has a large impact on all of pharma. So high costs result in higher prices for patients. These high costs can reduce patient access to drugs. Regional differences in drug prices are common as countries with a greater reliance on private insurance tend to have higher prices than countries with publicly funded healthcare. Costs and risks can influence the selection of new drug campaigns in drug companies. Ideally, one might hope that drug campaigns might only be selected based on unmet medical needs, but costs and risks are absolutely part of the discussion and influence decisions. Research costs and failure risks also influence how in-progress drug programs are managed. If you are interested in joining a drug campaign and becoming part of the drug research community, then having a general appreciation of drug costs and risks of failure is necessary for understanding motivations and decision making for research programs.