A novel perspective on pharmaceutical R&D costs: opportunities for reductions

Abstract

Introduction: R&D costs as an element of medicines' pricing play a prominent role in the discussions regarding the affordability of medicine. This paper investigates the details of R&D costs and the potential for reductions. Areas covered: The manuscript focuses on the constitution of R&D costs in relation to medicines' pricing and its potential developments. This manuscript builds on a cost-of-opportunity approach to explore the results of potential changes in drug development and its possible economic, political, and societal impacts. Expert opinion: The cost of capital is the largest cost category that could be affected by authorities. Public institutions can affect these costs by increasing public investments in R&D and reducing the amount of development time that is associated with a high capital need. In order to affect the cost of failure, it is key to understand its drivers. A government taking risks as the funder of early innovation yields an opportunity to introduce an alternative model for medicine development. Next, to control pricing, it is important to adequately reward innovation in order to ensure improved quality of care, access, and affordability of systems. Innovation, high-quality care, access, and affordability require entrepreneurial and changing positions of governments, authorities, public institutions, and the pharmaceutical industry.

Impacts of increasing requirements for research and development (R&D) cost transparency: Literature review

“…The extent of medicine R&D costs covered in each paper we found in the empirical literature varies. Some studies estimate the total R&D costs of new medicines, namely OOP expenses incurred at all stages of the R&D process, together with the cost of capital and allowing for the attrition rate [4,5,[19][20][21][22][23][24]. When all of these elements are taken into account, the result can be referred to as the total capitalised R&D cost of a successful new medicine.…”

“…There are also several studies which report that they consulted expert elicitation for cash expenditure estimates [50,[54][55][56]. Several other studies [26,36,[40][41][42][43][44][45][46][47]57] report estimating their own total costs for cash expenses based on calculations using databases, such as Evaluate Pharma [21], or reported in other literature [24]. Two documents authored by NGOs present cost data from their own projects [28,30].…”

“…The most commonly cited medical category included in the studies is 'new molecular entities' (NMEs), referring to a biologically active ingredient that has not previously been given market authorisation, e.g. by the US FDA [4,5,20,21,24]. One study uses a similar definition, although divorced from links to FDA authorisation, by referring to the medicines of focus as biopharmaceuticals, This is a subscriber database of data collected about the drug development pipeline.…”

“…Improving public-private collaborations, where both public and private institutions invest and share in development risk, is also argued to have the potential to increase transparency of R&D costs because of the assumption that this would enable governments and public institutions to have direct access to R&D cost information [21].…”