The premier study on drug development costs was released and the results will astonish – costs have increased by 145% in the past decade (1). In 2003 the Tufts Center for the Study of Drug Development released what has become the financial benchmark for comparing drug development costs. In 2003 the average cost was estimated to be $800 million. The new cost–$2.6 billion. But I’ll explain below, why consumers are actually getting a great deal on what they pay at the pharmacy for drugs.
– Overview of the studies-
The study breaks down costs into four buckets (2)(3):
- Pre-clinical/pre-human discovery costs
- Clinical study and trial costs
- Failure rates
- A “cost of money factor” e.g. monies that could be invested elsewhere
The total costs for the discovery, trial and failure rates equals $1,395 million. The total time costs (cost of money) equals $1,163, in sum totaling $2,558 million.
The 2003 study, used product data that entered human testing during 1983-1994. The 2014 study, used product data that entered human testing during 1995-2007.
-My Take: Consumers are Getting a Fair Deal –
Comparing the Tufts study to the macro environment of inflationary costs bears out the relative stability of drug cost increases passed onto the U.S. consumer. The Consumer Price Index (CPI) represents a “basket of essentials” most U.S. households purchase each month-things like groceries, gasoline, electricity, shelter, medical necessities, etc… During the past decade the CPI has increased by 2.1% per year (4). This means on average you and I paid 2.1% more each year for our essential goods and services.
The CPI also tracks medical specific costs, both health services and health products. Since 2005, you and I are paying 35% more for medical services and drugs. Comparatively, if you choose to believe in the merit of the Tufts study, drug manufacturers have incurred a 145% increase in costs to discover and develop new drugs before those drugs are manufactured, marketed, sold, and then supported for safety and phase 4 research. Include these additional necessary support functions and costs grew closer to 200% since 2003.
If not for the continuous technological, process, and cost-saving efficiencies of drug manufacturers and health payers-you, myself and the rest of the country would have felt a much greater impact in our collective wallets with every filled prescription.
Navigate Your Company to Health, visit www.compassx.com
Kyle J. Heppenstall
- (1) Press Release http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study
- (2) Slide deck presentation via webcast http://csdd.tufts.edu/news/complete_story/cost_study_press_event_webcast
- (3) Background of the Study
- (4) Bureau of Labor Statistics 2014 CPI summary