IDEAS home Printed from https://ideas.repec.org/p/ohe/monogr/000135.html
   My bibliography  Save this paper

The R&D Cost of a New Medicine

Author

Listed:
  • Jorge Mestre-Ferrandiz;Jon Sussex;Adrian Towse

Abstract

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.

Suggested Citation

  • Jorge Mestre-Ferrandiz;Jon Sussex;Adrian Towse, 2012. "The R&D Cost of a New Medicine," Monograph 000135, Office of Health Economics.
    • Handle: RePEc:ohe:monogr:000135
    as

    Download full text from publisher

    File URL: https://www.ohe.org/publications/rd-cost-new-medicine/attachment-380-rd-cost-nme-mestre-ferrandiz-2012/
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sanzenbacher, Geoffrey T. & Wettstein, Gal, 2020. "Drug insurance and the strategic behavior of drug manufacturers: Evergreening and generic entry after Medicare Part D," Journal of Health Economics, Elsevier, vol. 72(C).
    2. Adrian Towse;Jimena Ferraro;Jorge Mestre-Ferrandiz, 2017. "Incentives for New Drugs to Tackle Anti-Microbial Resistance," Briefing 001842, Office of Health Economics.
    3. Juan Carlos Rejon-Parrilla & Jaime Espin & David Epstein, 2022. "How innovation can be defined, evaluated and rewarded in health technology assessment," Health Economics Review, Springer, vol. 12(1), pages 1-11, December.
    4. Jonathan Dando & Maximilian Lebmeier, 2020. "A novel valuation model for medical intervention development based on progressive dynamic changes that integrates Health Technology Assessment outcomes with early-stage innovation and indication-speci," Journal of Innovation and Entrepreneurship, Springer, vol. 9(1), pages 1-28, December.
    5. Billette de Villemeur, Etienne & Versaevel, Bruno, 2019. "One lab, two firms, many possibilities: On R&D outsourcing in the biopharmaceutical industry," Journal of Health Economics, Elsevier, vol. 65(C), pages 260-283.
    6. Nicol, Dianne & Critchley, Christine & McWhirter, Rebekah & Whitton, Tess, 2016. "Understanding public reactions to commercialization of biobanks and use of biobank resources," Social Science & Medicine, Elsevier, vol. 162(C), pages 79-87.
    7. Anita Rao, 2020. "Strategic Research and Development Investment Decisions in the Pharmaceutical Industry," Marketing Science, INFORMS, vol. 39(3), pages 564-586, May.
    8. Towse, Adrian & Hoyle, Christopher K. & Goodall, Jonathan & Hirsch, Mark & Mestre-Ferrandiz, Jorge & Rex, John H., 2017. "Time for a change in how new antibiotics are reimbursed: Development of an insurance framework for funding new antibiotics based on a policy of risk mitigation," Health Policy, Elsevier, vol. 121(10), pages 1025-1030.
    9. Ingo Stiller & Arjen Witteloostuijn & Bart Cambré, 2022. "Determinants of radical drug innovation: a systematic literature review," Management Review Quarterly, Springer, vol. 72(4), pages 967-1016, December.
    10. Dai, Rong & Watal, Jayashree, 2021. "Product patents and access to innovative medicines," Social Science & Medicine, Elsevier, vol. 291(C).
    11. Michael Drummond & Adrian Towse, 2014. "Orphan drugs policies: a suitable case for treatment," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(4), pages 335-340, May.
    12. Jörg Mahlich & Arne Bartol & Srirangan Dheban, 2021. "Can adaptive clinical trials help to solve the productivity crisis of the pharmaceutical industry? - a scenario analysis," Health Economics Review, Springer, vol. 11(1), pages 1-10, December.
    13. Michael Schlander & Karla Hernandez-Villafuerte & Chih-Yuan Cheng & Jorge Mestre-Ferrandiz & Michael Baumann, 2021. "How Much Does It Cost to Research and Develop a New Drug? A Systematic Review and Assessment," PharmacoEconomics, Springer, vol. 39(11), pages 1243-1269, November.
    14. Gregory G. Lubiani & Albert A. Okunade & Weiwei Chen, 2018. "Income Elasticity Decomposition Models and Determinants of U.S. Pharmaceutical Expenditures," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 389-403, December.
    15. Sauré, Philip, 2017. "Time-intensive R&D and unbalanced trade," European Economic Review, Elsevier, vol. 91(C), pages 229-244.
    16. Fossett, Sarah J. & Wunnava, Phanindra V., 2017. "Active Ingredients: Exploring the Key Factors Affecting the Rising Cost of Developing New Drugs," IZA Discussion Papers 10817, Institute of Labor Economics (IZA).
    17. Watal, Jayashree & Dai, Rong, 2019. "Product patents and access to innovative medicines in a post-trips-era," WTO Staff Working Papers ERSD-2019-05, World Trade Organization (WTO), Economic Research and Statistics Division.
    18. Barrenho, E & Smith, PC & Miraldo, M, 2013. "The determinants of attrition in drug development: a duration analysis," Working Papers 12204, Imperial College, London, Imperial College Business School.
    19. Jorge Mestre-Ferrandiz;Patricia Deverka;Michele Pistollato;Emily Rosenberg, 2014. "The Current Drug Development Paradigm: Responding to US and European Demands for Evidence of Comparative Effectiveness and Relative Effectiveness," Occasional Paper 000076, Office of Health Economics.
    20. Klüppel, Leonardo & Knott, Anne Marie, 2023. "Are ideas being fished out?," Research Policy, Elsevier, vol. 52(2).
    21. Gehrke, Birgit & von Haaren-Giebel, Friederike & Carlsson, Sissa & Dreier, Lukas & Häfner, Lukas & Ingwersen, Kai, 2015. "Branchenanalyse Pharmaindustrie: Geschäftsmodelle von Lohnherstellern und deren Auswirkungen auf Beschäftigung und Arbeitsbedingungen," Study / edition der Hans-Böckler-Stiftung, Hans-Böckler-Stiftung, Düsseldorf, volume 127, number 305, June.

    More about this item

    Keywords

    The R&D Cost of a New Medicine;

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ohe:monogr:000135. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Publications Manager (email available below). General contact details of provider: https://edirc.repec.org/data/ohecouk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.