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Cost of developing new medicine swelled to $802 million, 
research study reports 


By: Gardiner Harris
The Wall Street Journal, December 3, 2001

PHILADELPHIA -- Researchers at Tufts University said Friday that the average cost of discovering and developing a new medicine has risen to $802 million -- a number bound [Bar chart]to be swept up into the debate over drug prices.

The study said research costs have risen 2.5 times in inflation-adjusted terms since 1987, when Tufts found that the average research expense for a drug was $231 million. While total research costs increased 7.4% annually in the 1990s, clinical costs -- the component

of research associated with testing drugs in humans -- rose 12%, said Joseph DiMasi, the study's lead author.

Merck & Co. Chairman and Chief Executive Raymond V. Gilmartin attended the unveiling of the Tufts data at a Philadelphia hotel and said increased clinical costs stem from demands by managed-care buyers that drug companies prove the value of their drugs in larger and longer trials.

"The number of patients in a new drug trial has increased from about 1,300 in the early 1980s to more than 4,000 for a typical new medicine today," Mr. Gilmartin said.

Dr. DiMasi has been issuing research-cost estimates for years based upon proprietary surveys of top drug companies. His numbers are routinely cited by industry backers to justify the ever-rising prices of new drugs. Just as often, consumer advocates dispute Dr. DiMasi's findings by criticizing his methods.

For instance, only $403 million of Dr. DiMasi's $802 million total are actual out-of-pocket expenses. The rest is an estimated cost of capital -- or the return that investing the money at an 11% rate of return would have earned over time. Bob Young, a researcher at the consumer group Public Citizen, says such accounting costs inflate the overall number.

"The bottom line is that pharmaceutical companies are still making wheelbarrows of money," Mr. Young said.

There are no winners in this dispute. Whether the average is $802 million or half that, there is little doubt that the costs of drug research and the chances of failure in the lab are growing.

Big pharmaceuticals companies are spending much more on research in recent years, but their labs' output has actually fallen at the same time. Biotechnology companies have collected billions of dollars from investors, but very few have launched drugs.

"It's not necessarily disaster if what's coming out of the process is valuable and we as a society are willing to pay for it," Dr. DiMasi said.

Mr. Gilmartin said his company is working hard to bring down the cost of research by investing in new genomics technology in hopes that better information will reduce the number of expensive failures in drug development. But drug-company executives have been touting for years the efficiencies that new technologies will bring to their labs, and each year the cost of research nonetheless goes up.

As for the politics surrounding the DiMasi study, Mr. Gilmartin said the DiMasi study sheds no light on drug prices. "The price of medicines is not determined by their research costs," Mr. Gilmartin said. "Instead, it is determined by their value in preventing and treating disease."

Mr. Gilmartin also argued that, given the enormous cost of research, big pharmaceuticals companies, not small biotechnology firms, are essential for developing medicines. He also said that patent-protection laws, which have come under attack by some drug-company critics, are vital to encouraging and protecting such huge investments.

The study found that the average development time for new medicines is 12 years.