Research and development in the pharmaceutical industry

Topics: Pharmacology, Pharmaceutical industry, Food and Drug Administration Pages: 133 (28323 words) Published: March 13, 2014
CONGRESS OF THE UNITED STATES
CONGRESSIONAL BUDGET OFFICE

A

CBO
STUDY
OCTOBER 2006

© Unlisted images, Inc.

Research and
Development in the
Pharmaceutical
Industry

Pub. No. 2589

A

CBO
S T U D Y

Research and Development in the
Pharmaceutical Industry
October 2006

The Congress of the United States O Congressional Budget Office

Preface

P

erceptions that the pace of new-drug development has slowed and that the pharmaceutical industry is highly profitable have sparked concerns that significant problems loom for future drug development. This Congressional Budget Office (CBO) study—prepared at the request of the Senate Majority Leader—reviews basic facts about the drug industry’s recent spending on research and development (R&D) and its output of new drugs. The study also examines issues relating to the costs of R&D, the federal government’s role in pharmaceutical research, the performance of the pharmaceutical industry in developing innovative drugs, and the role of expected profits in private firms’ decisions about investing in drug R&D. In keeping with CBO’s mandate to provide objective, impartial analysis, the study makes no recommendations. David H. Austin prepared this report under the supervision of Joseph Kile and David Moore. Colin Baker provided valuable consultation. Jim Baumgardner, Anna Cook, Doug Hamilton, and Dennis Zimmerman of CBO provided comments, as did Iain Cockburn of Boston University, Mark Duggan of the University of Maryland, and Judith Wagner of the Institute of Medicine. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.)

Christian Howlett edited the study, and Kate Kelly proofread it. Angela Z. McCollough prepared drafts of the manuscript. Maureen Costantino prepared the report for publication, with assistance from Allan Keaton, and designed the cover. Lenny Skutnik printed the initial copies, and Simone Thomas prepared the electronic version for CBO’s Web site (www.cbo.gov).

Donald B. Marron
Acting Director
October 2006

Contents

1

Introduction and Summary 1

2

Trends in R&D Spending and Output of New Drugs 7

3

What Does It Cost to Develop a New Drug? 19

4

Does Federal R&D Spending Stimulate or Substitute for
Private-Sector Spending? 27

5

Has the Drug Industry’s Innovative Performance Declined? 35

The Cost of Developing a New Drug 1
The Role of Federal Research and Development 2
Assessing the Drug Industry’s R&D Performance 3
The Drug Industry’s Profits and R&D Investment 4

Spending for Research and Development 7
R&D Intensity 9
Output of Innovative New Drugs 11
Leading Therapeutic Classes 12
Modifications and Approved New Uses of Drugs 14

Primary Determinants of R&D Costs 19
Why Have R&D Costs Risen for Innovative New Drugs? 21

Public and Private R&D Spending 27
Does Government R&D Crowd Out Private R&D? 29
A Changing Role for Public-Sector Research 33

Recent Innovative Performance 35
Did Changes in the Size of Drug Companies Affect
Research Productivity? 39

VI

RESEARCH AND DEVELOPMENT IN THE PHARMACEUTICAL INDUSTRY

6

Profitability and R&D Investment in the Drug Industry 43
Recent Estimates of Profitability 43
Expected Profits as a Signal for Performing Drug R&D 45

References 51

CONTENTS

Tables
2-1.

Therapeutic Classes with Three or More Leading Brand-Name Drugs in 2003

13

3-1.

DiMasi and Others’ Estimate of Average Research Costs and Times for Successfully Developed New Molecular Entities

20

Merger History of the Top Ten Pharmaceutical Companies in 2004 by Global Sales

40

5-1.

Figures
2-1.

Estimates of the U.S. Drug Industry’s Annual Spending on Research and Development

8

Research and Development Spending as a Percentage of Sales Revenue for Various U.S. Industries

10

Number of New Molecular Entities Approved by the Food and Drug Administration Each Year...

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$802 Million?” Health Affairs, vol. 25, no. 2 (March/
April 2006), pp
Research and Development, FY 2007 (Washington,
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vol. 295, no. 23 (June 21, 2006), pp. 2759-2764.
and Supplemental Indications,” PharmacoEconomics
(forthcoming, 2006).
Tracking Effects on Price Indexes for Antidepressants,” Brookings Papers on Economic Activity: Microeconomics (1996), pp. 133-199.
no. 1 (January/February 2004), pp. 10-22.
(Cambridge, Mass.: National Bureau of Economic
Research, April 1997).
Bureau of Economic Research, 2000), pp. 1-34.
no. 6 (November 2001), pp. 1033-1057.
(2004), pp. 1-14.
Kominski, eds., Changing the U.S. Health Care System
(San Francisco: Jossey Bass, 2001).
the Pharmaceutical Industry (July 1998).
no. 1 (January 2005), pp. 1-31.
——, Prices for Brand-Name Drugs Under Selected Federal
Programs (June 2005).
10536 (Cambridge, Mass.: National Bureau of Economic Research, June 2004).
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