Prescription Drug Development Costs Average $1.7B Per Product, Study Finds

Large pharmaceutical companies spend an average of $1.7 billion to develop, gain FDA approval and market a new product in the United States, according to a report by consulting firm Bain & Co., the Wall Street Journal reports. That cost -- extrapolated based on spending by drug companies on various stages of research and development from 2000 to 2002 -- has increased from about $1.1 billion per new product from 1995 to 2000, largely because of a higher rate of drug failure during trials, according to the report. While an average of one in eight drugs that began in animal testing made it to market during the 1995-2000 period, for the 2000-2002 period, one in 13 such drugs made it to market, the report found. The study states that drug firms now earn about a 5% return on investments to discover new products -- "below levels typically demanded by investors," the Journal reports. A 2001 study by the Tufts Center for the Study of Drug Development put the average drug development cost at $802 million, but Preston Henske, co-author of the Bain report, said that figure cannot be compared to the Bain report because a different methodology was used. The Bain study accounted for commercialization costs of drugs, such as marketing materials, which were not included in the Tufts study. Although many companies are operating "on borrowed time until their blockbuster patents run out," the report predicts that the blockbuster model will not quickly be abandoned by the industry, according to the Journal. The study compares the drug industry to the steel industry of the 1970s, "which clung to aging plants and an expensive workforce" and subsequently saw many companies go bankrupt, the Journal reports. The report recommends that drug makers concentrate on specific areas of strength rather than all diseases and consider outsourcing some functions (Landers, Wall Street Journal, 12/8).