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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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March 10, 2011

The Cost to Develop a Drug: Your Own Numbers?

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Posted by Derek

Bruce Booth over at Atlas Venture (a VC fund here in Cambridge) has been following the Light and Warburton drug-cost estimate with interest. And now he's got a form up on his site for people to enter their own estimates of the costs. Take a look - it's bound to come up with a number that's more in tune with reality! For one thing, he's actually asking people who have, you know, developed drugs. . .

Comments (29) + TrackBacks (0) | Category: Clinical Trials | Drug Development | Drug Prices


1. Anonymous on March 10, 2011 9:18 AM writes...

Yea, but what fun is it to use facts? Or to ask people who actually have experience in the field?

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2. Cellbio on March 10, 2011 9:31 AM writes...

Thanks for the link. I posted over there, but In the Pipeline feels like home, so here are my comments...

Nice Model. My experience says the success rates are too high. Failure rate in preclinical is a measure of risk tolerance, and that can vary a lot by organization, but I've seen the survival rate to be much less than 50% for transition into Ph1. That impacts both preclinical and discovery costs, and opportunity costs, as the teams keep churning out new clinical leads. Also think the clinical success rates, though perhaps in line with historical rates, are a bit optimistic for today. Would love to know if that is true or not. Anyway, never seen an output rate of 10 preclinical projects to market, maybe closer to 100:1? Also can't imagine getting a PH2a and Ph2b done in 1.5 years. Might need to double the cost and float the time a bit.

My estimate topped $1B. Maybe high, maybe not, but real life experience, which factors in the human nature of drug development organizations, including risk tolerance, herd mentality, the desire to make well informed decisions with clear facts. This last bit, decision making, plagues organizations on both sides of the issue, failing to move forward in the face of uncertainty, and failing to cut losses early. On the uncertainty side, it influences more active agent comparisons and attempts to launch into well served markets, which I believe is one reason failure rates are rising. On the other side, there is little risk taking without clarity of why something and where something will work. And if we knew that, indeed our drug development costs would be much lower.

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3. anchor on March 10, 2011 9:32 AM writes...

The fact of the matter is drug discovery is a serious business and none of us in this like to float numbers and write some meaningless article for fun! The number for Phase 3 trial is too low to comprehend. May be those numbers cited in the article was true, but 10 years back. The only thing worse than a medicinal chemist not getting a job is to read these cockamamie stories.

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4. darwin on March 10, 2011 10:01 AM writes...

My guess is that when it is all averaged out, it was cheaper to put a man on the moon than it is to develop a drug. Lets compare: Neil Armstrong treated like a god nearing a half century later; Pharma gets bastardized, outsourced, and are perpetually chased by lawyers. If we are lucky, the second a drug finally hits the market, we get demonized by media and politicians over prices for 10 years, until the feederfish take over the patent that ulitmately knock 25% of the cost off.

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5. SteveM on March 10, 2011 10:15 AM writes...

Re: #2 Cell Bio "This last bit, decision making, plagues organizations on both sides of the issue, failing to move forward in the face of uncertainty, and failing to cut losses early."

A perverse irony is that Pharma companies utilize the most sophisticated Decision Analysis and Portfolio Management techniques. Yet their pipelines sort of stink across the board.

It's probably an indictment of both Decision Analysis as it's applied, as well as management's inability to leverage the legitimate insights it does provide.

Incidentally, if you are curious about how DA is applied in Pharma, you can find some presentations here:

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6. Ed on March 10, 2011 10:16 AM writes...

Cellbio: there was an article on success rates in Phase III and submission in NRDD last month here - maybe find interesting


McKinsey also did a study a while back about success rates for compounds targeting new mechanisms of action which found that they fail twice as often IIRC. Maybe we have been seeing an increased impact of such failures recently.

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7. Dr Evil on March 10, 2011 10:37 AM writes...

one MILLION dollars!!

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8. Still Scared of Dinosaurs on March 10, 2011 10:50 AM writes...

It seems to me that the debate is about the real cost of developing drugs in which the point of argument is what counts as a legitimate expense. Critics lop off administrative costs etc. while the industry has incentive to add everything it can to make the risk seem as dire as possible.

I cannot imagine a meaningful estimate of the cost of developing a drug across companies, indications, and countries, one that does not just reinforce the biases of the people making the estimates.

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9. biologist on March 10, 2011 11:19 AM writes...

How about a top-down estimate? How much did Pharma and Biotech spend for R&D over the last 10 years, and how many drugs have been approved?

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10. Rick on March 10, 2011 11:36 AM writes...

@ 10 - biologist
Been there, done that using PhRMA numbers. I got about around $1.2 per drug. But remember that is not based on any standard definition of R&D, but rather on the expenses the reporting companies themselves labeled "R&D". In the few cases it's been possible to examine the raw data, that has included things that look much more like marketing and/or branding (such as single-topic conferences where the single topic is the drug being marketed and the attendees are physicians whose expenses are paid by the drug's manufacturer).

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11. Rick on March 10, 2011 11:38 AM writes...

@ 10
sorry, my last post had an error. That's $1.2 billion per drug.

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12. Rick on March 10, 2011 11:55 AM writes...

@7 Still Scared...

Therein lies the rub. It's known as experimenter bias and it's the reason people like to see independent verification of study results.

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13. daveh on March 10, 2011 12:13 PM writes...

This is a problem:

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14. MIMD on March 10, 2011 2:03 PM writes...

Still think the result should not be a single figure, but a graph of probability or likelihood vs. cost.

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15. Drug Developer on March 10, 2011 4:57 PM writes...

One other complicating factor: Companies spend a LOT of money on secondary indications for approved compounds. This is mostly beneficial (I think), but doesn't show up in the simple total spend divided by new molecules calculation. It's tricky.

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16. metaphysician on March 10, 2011 5:15 PM writes...

You know, is there any field in which marketed products have to amortize as much futile expenditures as pharma?

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17. Rick on March 10, 2011 5:52 PM writes...

@15-Drug Developer
Good point. That's a big problem with simply dividing industry-wide R&D spending by the number of NMEs, right?

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18. Anonymous BMS Researcher on March 10, 2011 5:53 PM writes...

I've seen some internal benchmarking in which we compare ourselves with the competition, which of course are proprietary so I will be a little vague here. From the numbers I've seen, it takes at least $3-4 billion annual R&D spend to get one NME per year onto the market, and many pharma companies don't manage that ratio of NMEs to annual R&D spend.

Some of this of course is for expanding the indications of products already on the market, and those who like to attack our industry would say a big chunk of this should be called marketing rather than genuine R&D. But even if one assumes two thirds of the total R&D spend is for things other than getting new drugs to market, that's still about a billion dollars to get the average new drug on the market. Maybe it's $800 million, maybe it's $1.5 billion, but I cannot see how a reality-based estimate could be as low as $500 million in any case.

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19. Dr. Demented on March 10, 2011 9:03 PM writes...

@ #13: It will surely do wonders for the reputation of pharma. The good news is that I'm not sure public perception can get much lower.

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20. Cellbio on March 11, 2011 12:18 AM writes...

Thanks Ed. Had thought to add, and that NRDD piece made me remember that once "treatable" patients fall out of a trial subject pool due to effective therapies, the remainders may include potential responders to new meeds, along with the refractory types that are tougher to move towards clinical endpoints.

SteveM, I have seen great DA folks, and learned a lot from them, but also saw then walk out the door because their solid approaches were not heeded by the decision makers. At least they applied their science of quality decision making to their own career choices, a lesson I now realize I did not learn from them. Hmmm.

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21. LondonChemist on March 11, 2011 3:07 AM writes...

Although this subject is an important one, especially for those of us in smaller organisations who keep wondering if we have enough money to get to a meaningful endpoint, it does rather remind me of one of the late Douglas Adam's inventions (in Life, the Universe and Everything I think) of Bistromathics and the recipriversexcluson, a number whose existence can only be defined as being anything other than itself......

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22. dvrvm on March 11, 2011 4:42 AM writes...

Asking people for their opinion is not exactly highly scientific methodology, either.

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23. Hap on March 11, 2011 9:42 AM writes...

No, but there is a difference between uninformed and informed opinion. Some people's opinions are worth something, and some are not - the distinction depends on judgement, intelligence, and intellectual honesty, but without knowing anything about something, those qualities don't make an opinion on that something worthwhile. Asking people who might know something is a prerequisite for getting worthwhile opinions.

If no one knows anything, or if drug R+D costs are hypervariable, then the survey output could still be worthless, but in that case it would still be more useful than the Warburton/Light analysis.

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24. Hap on March 11, 2011 1:17 PM writes...

There's probably a selectivity in who responds to the survey (people might have a vested interest in pharma or people annoyed by the W/L estimate), though I still stand with my previous response.

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25. jgault on March 11, 2011 7:34 PM writes...

In my opinion by far the best study done on the current cost of drug development is the one in NRDD in 2010 (Paul S.M., Nat. Rev. Drug Dis., 2010, 9, p203). Fully loaded cost including opportunity and failure costs comes out to average 1.7B/product launch. In my experience the cost breakdown by phase and attrition rates are very much in line with my experience in the 4 companies I have worked for. The great thing about this paper is that it also suggests a very good general strategy for reducing the costs. Bottom line, we have to reduce Phase II attrition rates. Our biggest issue is we are not choosing targets which are succeeding in real clinical indications (of course this can vary widely with indication). If I can jump on the soapbox for a minute, my feeling is this is a direct result of an over reliance on reductionist biology and an abandonment of traditional pharmacology. Anyway, this paper is a must read for anyone in the pharma industry

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26. Rick on March 12, 2011 9:51 AM writes...

To JGault (25)
Although I have conflict of interest concerns about the Paul et al article, I agree that costs have been rising for quite a while and the root causes have not be adequately investigated. If by "reductionist biology" you mean mechanism-based drug discovery, rational drug design, structure-based drug design and the computational methods that go along with it, I agree with you to a significant extent. A prevailing view, which is reflected in articles and presentations describing "The Drug Discovery Process", is that it is impossible to discover a drug without knowing the mechanism and molecular target. I have actually been told this, verbatim, many times by pharmaceutical and biotech executives. It must make the founders of the modern pharmaceutical industry roll over in their graves. Compounding the problem is the tendency of new technologies to displace existing ones, regardless of whether existing technologies have outlived their usefulness.
I do not think the root cause lies in the use of reductionist technologies, many of which have proven powerfully useful in the right context, per se, but rather the assumption that they rendered older, less deterministic drug discovery approaches obsolete. Better, cheaper, faster is a laudable goal, it's what technology development does, but prematurely assuming victory is a recipe for disaster.

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27. Kaleberg on March 12, 2011 6:53 PM writes...

Knowing little about the costs of drug development, I simply went to the SEC and learned that Pfizer claims to spend about $8B to $9B per year on research and development, at least for the last three years. Then I went to the FDA and looked up for the last few years for first time drug approvals. I was surprised to see Pfizer only showing one drug a year. That puts a ceiling on drug costs of about $8B, but surely Pfizer is releasing other new drugs, most likely under other names. (At least I hope so.) The good news, from my point of view as a shareholder, was the Glaxo and Novartis seemed to be doing better in the FDA database.

I'm pretty sure I'm not using the FDA database very well. I'm much better at groveling around the financials. Was there really only one new drug approval in 2010? Does Pfizer get approvals under subsidiary names?

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28. Bruce Booth on March 13, 2011 8:46 PM writes...

Great comments - in particular the discussion around reductionist thinking, additional indications, etc...

Btw, I added a more classic Pharma primary care model to the site in response to comments. It certainly captures the bookends - comes in around $1.8B.

Thanks for the comments.

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29. jgault on March 19, 2011 12:06 PM writes...

Agreed, there are many great new advances and technologies which assist us in the pursuit of drug discovery. The problem is when we use these tools in the absence of a deep understanding of pharmacology and physiology we miss interpret the results of our experiments. The other problem is the empires new technologies can create within companies can become impediments to good decision making.

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