How Much Does Research And Development Really Cost?


Drug development is both a “lengthy and costly process.” Pharmaceutical companies are spending tremendous amounts of money on research and development and not necessarily seeing an equal rate of return.

In 2010, according to Pharmaceutical Research and Manufacturers of America (“PhRMA”), the pharmaceutical industry spent an estimated $67.4 billion dollars on R&D alone and, importantly, over twenty percent of sales went directly to R&D. According to a study in 2003, which analyzed sixty-eight randomly selected new drugs from ten pharmaceutical companies in 1997, the expense of bringing a single, new, drug to the market was estimated to cost pharmaceutical companies $802 million dollars.

As of 2005 it was estimated that the expense of bringing a new drug to the market had increased to $1.3 billion dollars, and today the number has reached $1.7 billion dollars.

The authors of this study previously considered profitability and return rates versus pharmaceutical R&D and they had “not found evidence of significant and sustained excess profits.”Surprisingly to many, only two out of ten marketed drugs return revenues that match or exceed R&D costs.

What makes bringing a new drug to the market expensive? There are several factors to consider, including the risky nature of drug development, the increasing duration of research, and most importantly, the FDA’s approval process. A significant aspect of developing a new drug is meeting the FDA’s standards for safety, efficacy, and marketing. The federal government’s involvement includes the FDA’s approval being required at two stages of the drug development process.

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