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New research using the characteristics of clinical trials to project the cost of developing new drugs shows that the typical spend in developing new medications may be lower than often believed and is skewed by a limited number of ultra high-cost drugs. The study, conducted by the RAND Corporation, found that the mean cost for developing a new medication is significantly higher than the median cost of development, which suggests that median costs may be more useful for policy discussions on drug pricing, according to the authors of the study, published by JAMA Network Open.1,2
“Our work suggests that it may not be as costly to develop the typical new drug as has been previously estimated,” lead study author Andrew Mulcahy, senior policy researcher at RAND, said in a press release. “Reliable research and development cost estimates are essential to assessing the appropriateness of incentives such as patent regulatory exclusivity and other rules that assure that drug developers can achieve fair returns on their investments.”2
The study authors noted the importance of their research in the context of the ongoing debate surrounding drug price regulation introduced by the Inflation Reduction Act, which may affect research and development investments, as the pharmaceutical industry is concerned lower prices may have a substantially negative effect on drug development.
“For new drug, studies differ in covering costs from discovery through an initial regulatory approval or beyond, eg, through subsequent approvals and postmarketing trials, with further distinctions for estimates in specific therapeutic area (eg, oncology) or for certain drug candidates (eg, self-originated new drugs),” the study authors wrote. “For R&D, many prior studies focus on clinical development rather than R&D broadly, quantifying clinical research activity by counts of trials by phase or enrolled patients. Studies vary in their handling of preclinical research and overhead (if included at all).”1
The study authors examined Citeline’s Trialtrove clinical trials database to analyze clinical trial activity for each of the 38 new drugs that were approved by the FDA in 2019. Investigators collected per-drug research and development costs using a novel, reproduceable approach to illustrate firm-level research and development costs per discrete unit of activity. Cross-sectional data were gathered from 268 publicly traded drug developers in the United States, which contributed 1311 firm-year observations, to project costs from 2014 to 2019 per patient-month. Per-drug costs were estimated from all research and development activity all the way through approval from the 38 new FDA-approved drugs in 2019.
“The novel approach we used provides us with greater confidence that we are capturing more of the spending that goes into research and development as compared to previous studies of this nature,” Mulcahy said in the release.2
Of 268 developers in the analysis, the study found that 20 large firms accounted for 80.8% of all patient-months, showing a 27.4% lower mean and 26.7% lower median costs per patient-month compared to other firms.
They associated each 1% increase in patient-months to a 0.9% increase in research and development costs. After adjusting for the cost of capital and discontinued medications, the cost per new drug showed a lower median (IQR) at $708 million ($247 million to $1.42 billion) than mean (SD), at $1.31 ($1.92) billion. Without making those adjustments, the direct costs per new drug were a median (IQR) of $150 ($67.6-$453) million and a mean (SD) $369 of ($684) million. The study found that mean costs were always substantially greater than median costs.
“This economic evaluation found median per-drug R&D costs toward the lower end of the range from prior studies, with a mean closer to the middle of the existing range despite the broad scope of included costs,” the study authors concluded. “These findings suggest parallel development across indications, adjustment for discontinued products, and a small number of expensive development programs are particularly important drivers of R&D costs.”1
References
1. Mulcahy A, Rennane S, Schwam D, Dickerson R, Baker L, Shetty K. Use of Clinical Trial Characteristics to Estimate Costs of New Drug Development. JAMA Netw Open. 2025;8(1):e2453275. doi:10.1001/jamanetworkopen.2024.53275
2. Typical cost of developing new pharmaceuticals is skewed by high-cost outliers. News release. RAND Corporation. January 7, 2025. Accessed January 8, 2025. https://www.eurekalert.org/news-releases/1069759