The R&D Cost of a New Medicine

Mestre-Ferrandiz, J., Sussex, J. and Towse, A.

December 2012
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The cost of R&D for a successful new medicine has been an important policy issue at least since the 1960s. Cost estimates matter not just because of intellectual curiosity or for industry understanding of its performance, but because they are a key aspect of the international debate about the reasonableness of pharmaceutical prices and the magnitude of the long-term investments involved.

This publication reviews research published over the last three decades, which shows an increase in costs from £125 million ($199 million) per new medicine in the 1970s to £1.2 billion ($1.9 billion) in the 2000s (both in 2011 prices). An OHE costs analysis based on new data for 1998-2002 agrees with comparable analyses for the same time period.

The study explores four major factors that are producing higher R&D costs: out-of-pocket expenses, success/failure rates, R&D times and the cost of capital. It also discusses measures companies are taking now to improve efficiency and offers a glimpse into the promise and challenges presented by the new, gene-based sciences.