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The cost of biopharmaceutical R&D: is biotech different?

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  • Joseph A. DiMasi

    (Tufts Center for the Study of Drug Development, Tufts University, USA)

  • Henry G. Grabowski

    (Department of Economics, Duke University, USA)

Abstract

The costs of developing the types of new drugs that have been pursued by traditional pharmaceutical firms have been estimated in a number of studies. However, similar analyses have not been published on the costs of developing the types of molecules on which biotech firms have focused. This study represents a first attempt to get a sense for the magnitude of the R&D costs associated with the discovery and development of new therapeutic biopharmaceuticals (specifically, recombinant proteins and monoclonal antibodies [mAbs]). We utilize drug-specific data on cash outlays, development times, and success in obtaining regulatory marketing approval to estimate the average pre-tax R&D resource cost for biopharmaceuticals up to the point of initial US marketing approval (in year 2005 dollars). We found average out-of-pocket (cash outlay) cost estimates per approved biopharmaceutical of $198 million, $361 million, and $559 million for the preclinical period, the clinical period, and in total, respectively. Including the time costs associated with biopharmaceutical R&D, we found average capitalized cost estimates per approved biopharmaceutical of $615 million, $626 million, and $1241 million for the preclinical period, the clinical period, and in total, respectively. Adjusting previously published estimates of R&D costs for traditional pharmaceutical firms by using past growth rates for pharmaceutical company costs to correspond to the more recent period to which our biopharmaceutical data apply, we found that total out-of-pocket cost per approved biopharmaceutical was somewhat lower than for the pharmaceutical company data ($559 million vs $672 million). However, estimated total capitalized cost per approved new molecule was nearly the same for biopharmaceuticals as for the adjusted pharmaceutical company data ($1241 million versus $1318 million). The results should be viewed with some caution for now given a limited number of biopharmaceutical molecules with data on cash outlays, different therapeutic class distributions for biopharmaceuticals and for pharmaceutical company drugs, and uncertainty about whether recent growth rates in pharmaceutical company costs are different from immediate past growth rates. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Joseph A. DiMasi & Henry G. Grabowski, 2007. "The cost of biopharmaceutical R&D: is biotech different?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 469-479.
  • Handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:469-479
    DOI: 10.1002/mde.1360
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    References listed on IDEAS

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    1. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
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    10. Bruce Rasmussen, 2010. "Innovation and Commercialisation in the Biopharmaceutical Industry," Books, Edward Elgar Publishing, number 13680.
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    15. Mazzola, Erica & Perrone, Giovanni & Kamuriwo, Dzidziso Samuel, 2015. "Network embeddedness and new product development in the biopharmaceutical industry: The moderating role of open innovation flow," International Journal of Production Economics, Elsevier, vol. 160(C), pages 106-119.
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    20. Yu, Xinning & Lan, Yanfei & Zhao, Ruiqing, 2021. "Strategic green technology innovation in a two-stage alliance: Vertical collaboration or co-development?," Omega, Elsevier, vol. 98(C).
    21. Barrenho, E & Smith, PC & Miraldo, M, 2013. "The determinants of attrition in drug development: a duration analysis," Working Papers 12204, Imperial College, London, Imperial College Business School.
    22. Kolympiris, Christos & Kalaitzandonakes, Nicholas & Miller, Douglas, 2015. "Location choice of academic entrepreneurs: Evidence from the US biotechnology industry," Journal of Business Venturing, Elsevier, vol. 30(2), pages 227-254.
    23. Williams, David R., 2013. "Human and financial capital as determinants of biopharmaceutical IPO de-listings," Journal of Business Research, Elsevier, vol. 66(12), pages 2612-2618.
    24. Colvin, Matthew & Maravelias, Christos T., 2011. "R&D pipeline management: Task interdependencies and risk management," European Journal of Operational Research, Elsevier, vol. 215(3), pages 616-628, December.

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