A recent paper in BMJ Open by Moore et al. (2020) aims to estimate the cost of pivotal trials for recently approved drugs. The authors use the IQVIA CostPro Mid-Level Tool to estimate the cost of these trials. Note that a pivotal trials is one that provides ‘substantial evidence’ of benefit to justify marketing approval, rather than trials for new indications after marketing approval.
Using this approach for 101 recently approved molecules, the authors find the pivotal trials for these drugs:
…had an estimated median cost of US$48 million (IQR US$20 million–US$102 million). The 225 individual clinical trials had a median estimate of US$19 million (IQR US$12 million–US$33 million) per trial and US$41 413 (IQR, US$29 894–US$75 047) per patient. The largest single factor driving cost was the number of patients required to establish the treatment effects and varied from 4 patients to 8442. Next was the number of trial clinic visits, which ranged from 2 to 166. Our statistical model showed trial costs rose exponentially with these two variables (R2=0.696, F=257.9, p<0.01).
This number is much lower than the DiMasi et al. (2016) estimate of $2.6 billion to bring a drug to market. Which number is right?
The key issue is that these studies measure different things. The Moore paper measure just the clinical trial cost for a pivotal trial for approved drugs. The DiMasi paper measures the full cost it takes to bring a single drug to approval. Why are these different?
First, Moore focuses only on the pivotal trial (typically Phase III) whereas DiMasi includes the cost of earlier stages.
Second, Moore only includes the cost of outsourcing the clinical trial. This does not include pharma costs for their own staff to work with the clinical trialists, contracting costs, etc. Whereas Moore says the cost is $48 million for a Phase III trial, Di Masi estimates $255 million. DiMasi’s Phase II trial cost of $59 million is not too far from the Moore estimate.
Third–and most importantly–many drugs fail. It would be great if life sciences companies knew perfectly which drugs worked and which did not but a lot of pharma R&D/clinical trial cost goes to drugs that ultimately fail. In the DiMasi paper, more than 7 out of every 8 drugs that have a Phase I trial fail (i.e., <12% of drugs that start Phase 1 are ultimately approved). This figures ignores research on many candidate therapies that researched prior to Phase I (e.g., in animal studies) that ultimately were not promising enough even to make it to Phase I.
Fourth, one must finance the clinical trial cost. The DiMasi paper uses a an 11% real after-tax weighted average cost of capital (WACC), derived from a capital asset pricing model (CAPM). The Moore paper does not take into account the cost of financing.
In short, if we think $48 million is 5 times too low for Phase III clinical trial cost due to other costs, then we have $255 million. If 7 out of every 8 drugs fails, then the cost gets us to about $2 billion. Note that drug failures likely reduce the clinical trial cost (e.g., you may stop a clinical trial program before reaching phase III), but then we would also need to account for the cost of capital. Even with this greatly simplified, back-of-the-envelope calculation, one can see that we are much closer to $2 billion that $48 million in terms of the cost to bring a drug to market.
In short, while it may be true that the contracting cost of outsourcing a clinical trial is close to $50 million, the true cost of bringing a drug to market is likely much closer to the $2 billion.
- DiMasi JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry: new estimates of R&D costs. Journal of health economics. 2016 May 1;47:20-33.
- Moore TJ, Heyward J, Anderson G, Alexander GC. Variation in the estimated costs of pivotal clinical benefit trials supporting the US approval of new therapeutic agents, 2015–2017: a cross-sectional study. BMJ Open. 2020 Jun 1;10(6):e038863.