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Sandeep Singh Dhillon
Soaring Drug Prices: Why does it cost so much? MIMS Malaysia
Pharma Extra, Pharma Notables

The ever-soaring drug prices have been in the centre of many discussions among patients and healthcare professionals alike. But despite many debates and frustration over the matter, no one really seems to know how much it really cost to develop a new drug.

The latest figure produced by the Tufts Center for the Study of Drug Development pointed at a whopping USD$2.6 billion (1). The number was three times higher than the Center’s earlier estimation of USD$800 million in 2003 (2). So what really happen?

According to the published figures, the USD$2.6 billion consisted of approximately $1.4 billion of out-of-pocket cost, and another $1.2 billion on time costs, which was equivalent to the opportunity costs that investors relinquished during drug development. Another publication by the Association of the British Pharmaceutical Industry put the figure at approximately at a£1.1 billion for one successful drug (3).

Nonetheless, the published figure was not without controversies and many aspects require closer inspection (2). This article will attempt to break down the costs into several core stages of drug development to understand better where all the money went.
The drug discovery process

The drug discovery process can be largely divided into two parts: pre-clinical and clinical studies. The latter can be further divided into four phases: phase I trial, phase II trial, phase III trial and post-marketing surveillance.

During the preclinical studies period, scientists and researchers will work on screening, selecting and altering promising molecules to fit a particular biology target of interest. It is very similar to the effort to picking the right key out from thousands of other keys to open a lock which will cure diseases. This research will be performed entirely in laboratories with cells or animals, and not on humans. A typical timeline for such work spans from four to five years. Scientists will have to screen more than a few thousand compounds to identify a few dozen highly promising ones for further preclinical testings. These further studies can be performed in silico, meaning computational simulation to predict the molecule behaviours, predicted efficacy and potential toxicity. These tests can also be conducted in cells or animal models. The costs of these early preclinical trials may reach as high as USD$500-USD$600 million (3).
Different phases of clinical trials

After the scientists are reasonably satisfied with the laboratory test results, the selected compounds then can be tested on humans. The phase I clinical trial is designed to evaluate the compounds’ safety profiles. Generally, these trials are conducted with a small number of healthy volunteers to collect pharmacokinetic and pharmacodynamic data. Phase I trials must adhere to strict regulatory and ethical requirements, and therefore are expensive to conduct. Successful phase I trials will eliminate 50% of the selected compound, and are estimated to cost around USD$260 million (3).

Subsequent phase II trials are designed to test the efficacy of the drug candidates, and will be conducted in a slightly larger population of around 100 to 500. In phase II trials, the compounds will be tested in real patients with the disease of interest instead of healthy volunteers. The time required to complete phase II trials is approximately 1 to 1.5 years, and will cost around USD$300 million (3).

Lastly, the compound must be tested in phase III clinical trials, which will be conducted in large scale. Commonly, 1000 to 5000 patients are recruited into the study around the world to ensure equal representation of patient sub-populations. A considerable amount of data on safety, efficacy and the overall benefit-risk relationship of the new compounds will be collected. Phase III clinical trials may cost up to USD$270 million (3).
Slim success rate

The success rate of a drug candidate to go through all three clinical phases successfully is very slim. Only one out of a few thousand initially screened molecules will be granted marketing authorisation as a licensed drug. The license does not guarantee profitability to the pharmaceutical companies. Many drugs were redrawn from the market due to unforeseen or rare side effects which adversely affected patients. Post-marketing surveillance efforts may cost up to USD$50 million (3).

It is crucial to recognise the drug development process is not straightforward and requires abundant effort to ensure the final pharmaceutical product is both safe and effective. Many will argue that pharmaceutical companies intentionally inflate their figures to justify the high prices, but unless both the pharmaceutical industry and the respective regulatory authority is willing, and capable of, overhauling the drug discovery and development process, it is quite possible that drug prices will continue to rise in the future. MIMS

1. Tuft CSDD. Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion [Internet]. Tufts CSDD. 2014 [cited 2016 Jun 24]. Available from:
2. Mack J. Cost to Bring a New Drug to Market Is $2.6 Billion According to Tufts – 3X More Than in 2003! Pharma Marketing Blog. 2014.
3. ABPI. The Association of the British Pharmaceutical Industry [Internet]. 2012 [cited 2016 Jun 23]. Available from:

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