Spending on New Drug Development

Abstract

This paper replicates DiMasi et al (2003, 2004) estimates of expenditure on new drug development using publicly available data. The paper estimates that average expenditure on drugs in human clinical trials is around $27m per year, with $17m per year on drugs in Phase I, $34m on drugs in Phase II and $27m per year on drugs in Phase III of the human clinical trials. The paper's estimated expenditure on new drug development is somewhat greater than suggested by the survey results presented in DiMasi et al (2003, 2004). The paper combines a twelve year panel of research and development expenditure for 183 publicly traded firms in the pharmaceutical industry with panel of drugs in human clinical trials for each firm over the same period. The paper estimates drug expenditure by estimating the relationship between research and development expenditure and the number of drugs in development for 1,682 company/years (183 firms multiplied by the number of years for which we have financial and drug development information). The paper also estimates expenditure on drugs in various therapeutic categories. The paper confirms earlier work by the authors that $802m may under estimate the average amount needed to bring a new molecular entity to market. It also confirms that there is significant variation in spending by therapeutic category.

Keywords: Pharmaceuticals, Drug Development Cost