Drug costs

How much does it cost to develop a new medicine?

Several figures get bandied about, but a widely accepted figure is one produced by a US body – the Tufts Centre for the Study of Drug Development – that uses data supplied by the pharmaceutical industry. In 2001, it put the cost of developing an entirely new drug at US$800 million. A 2012 study by the Office of Health Economics stated that this figure has now risen to US$1.5 billion. In 2013, Forbes reported that some of the larger pharmaceutical companies were spending a staggering US$5.5 billion to develop a single drug.

A biotech product, such as a protein or monoclonal antibody, tends to be more expensive to produce and takes longer to bring to market; however, fewer fail during development (success rates are around 30 per cent, compared with 20 per cent for traditional pharmaceuticals).

About 40 per cent of the cost reflects expenditure on clinical failures. Around half the cost of drug development is classed as ‘opportunity cost’ or ‘time value of money’ – reflecting the long time periods and intensive efforts needed to develop a new drug.

The figures refer to entirely new drugs, which are actually relatively rare (20–30 are launched each year). Many drugs are refinements of pre-existing agents and hence cheaper to produce.

About this resource

This resource was first published in ‘Drug Development’ in January 2008 and reviewed and updated in August 2014.

Drug Development
Education levels:
16–19, Continuing professional development