Most biotech discoveries/products are associated with expensive and long development timelines, high inherent risks of development, and a limited product life cycle with inbound cash flow years after R&D activities. You need a good understanding of your expected total costs together with an assessment of the technological risks associated with your product development plans. Your potential target product profile should include a description of the value propositions to estimate future market shares with respect to the current/forecasted market landscape including reimbursement policies and existing and potential competitors. Significant data are available with respect to typical costs, timelines and risks associated with development of a new therapeutic solution (see bottom of the page for references to key literature + resources). These data could be of interest for anybody working within the biotech sector to aid you in your business growth. Here is the big picture presented – please go to the reference section at the end of the post for further information.



What does it cost to put a new pharmaceutical product on the market? You naturally need to construct your own timelines with development cost plans. The cost of putting a new biopharmaceutical product on the market has been investigated by several authors (See table below – note that values are capitalized to 2009 US$ and include the costs of all drugs developed – not just the succesful compounds/biomolecules that ultimately entered the marketplace. Estimates of the costs of developing new drugs vary methodologically, but taken together, they all suggest continuously rising expenditures (see table below).


Table modified from Morgan et al., 2011. All numbers in M$US capitalized to 2009 dollars. Each study refers to an individual study: 1Hansen and Chien, 1979; 2DiMasi, 1991; 3DiMasi et al., 2003; 4Adams and Brantner, 2006; 5Paul et al., 2011. See references for further information.

Key messages are:

  • It is generally extremely costly to develop new therapeutics and most often requires substantial investment’s and partnering activity to raise necessary capital and secure required competences – i.e. debt financing is typically not a realistic opportunity.
  • The capitalized costs for the pre-clinical studies are more or less similar to costs for the clinical studies (partly due to the time factor).
  • Importantly, note that the values given are averages and estimates.

The sales of marketed pharmaceutical products vary enormously. From block-busters to ~0 sale. Please see our X-factor section in addition. In general:

  • The peak year for the mean drug with respect to sales is the 10th year after the launch.
  • The sales of most new biopharmaceuticals do not surpass their nPV (less than 70%).
  • A new class of compounds is generally associated with higher value creation than follow-up me-too drugs.
Where can you get the numbers? Commercial databases (see BD Data), annual reports etc. might provide you with necessary details. For values of world-wide sales (and units), the list of U.S. Pharmaceutical Sales for top selling drugs is valuable:



It takes an estimated average 15 years from the drug discovery to marketing approval. The average clinical phase of drug development takes ~8 years from IND filing to marketing approval (see figure below). This does not seem to vary substantially over time and in-between indications. Studies covering 1980-2009 suggests that the time span of clinical phases have been more or less constant while there seems to be some increase in the speed of the approval phase (not shown).



Average time horizon for IND -> Marketing approval for various therapeutic indications. Figure made with data from Kaitin and DiMasi, 2011.

With respect to the extensive discovery/development programmes for new pharmaceuticals, the important take home-messages are:

  • A significant part of incurred costs is time-costs: Shortening the timeline for any development plan will significantly increase the overall value of the project. Moreover and importantly, potential loosing projects should be identified as early as possible and terminated – i.e. make sure to conduct every potential go/no-go enabling experiment(s) as early as possible.
  • The nPV (see also Valuation) of the project can change noticeably during your product development activities due to external factors (new entrants, change in regulatory requirements etc.). Thus, the nPV of the project should be followed closely along both the discovery and developmental phases.



Of course, a major risk associated with any discovery/development program is associated with development of the underlying technology (development of the final molecule, device etc.) If an NME´s finally succeeds in entering clinical trials, about 20% of these actually succeed in getting marketing approval (see figure below). The success rate seems slightly lower for traditional small molecule pharmaceuticals vs. large biological molecules (for instance recombinant proteins) perhaps indicating a future trend in drug discovery/drug development.


Success rate for small+large molecules for Phase I->III, NDA and final approval. FIgure made with published data from Kaitin and DiMasi, 2011.


Importantly, final success rates vary substantial with the indication/market (see figure below). Thus, if completely based on chance, it likely will require better data to convince potential investors to invest in development of new cardiovascular therapies. However, a smaller chance for passing the clinical trial efficacy, toxicity studies etc. might naturally be offset by addressing a larger market etc.



Why do drugs fail in the clinical trials? Much research have been conducted to understand and cut the high attrition rates – it is naturally important for a Company to identify potential failing compounds as early as possible. As the exhibit above shows, the highest attrition rates are seen in Phase II trials. Importantly, the single biggest cause of failure during Phase III trials are lack of efficacy compared to a placebo (45 % out of 106 overall analysed failures 1990-2007) followed by lack of superior efficacy compared to active comparator (24 % out of 106 overall analysed failures 1990-2007). See our Biotechnology X-factor section for a further discusion on these issues.


PhaseIII_AttritionRoot causes of failure during Phase III studies. Analysis of 106 molecules that failed during Phase III trials in the 1990-2007 period. Modified from Invention reinvented, McKinsey perspective on pharmaceutical R&D, 2010.




 Morgan, S., Grootendorst, P., Lexhin, J., Cunnigham, C., and Greyson, D. (2011) The cost of drug development: A systematic review. Health Policy 100: 4-17

 Kaitin, K.I., and DiMasi, J.A. (2010) Pharmaceutical innovations in the 21st century: New Drug Approvals in the First Decade, 2000-2009. Clin. Pharmac. Therap. 89:183-188

 Adams, C.P., and Brantner, V.V. (2010) Spending on new drug development. Health Economics 19:130-41

 DiMasi, J.A., and Grabowski, H.G. (2007) The cost of biopharmaceutical R&D: is biotech different? Mangerial and Decision Economics 28:269-279

 DiMasi, J.A., Hansen, R.W., Grabowski, H.G. (2003) The price of innovation: new estimates of drug development costs. J. Health. Economics, 22:151

 Adams, C.P., Bratner, V.V., (2006) Estimating the cost of new drug development: is it really $802 million? Health Affairs, 25:420-428

 Paul, S.M., et al., (2010) How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nat. Rev. Drug Disc. 9:203-14

 McKinsey & Company Publication (2010) Invention Reinvented. McKinsey perspective on pharmaceutical R&D

Hansen, R.W., and Chien, R.I. (1979) The pharmaceutical and development process: estimates of development costs and times and the effect of proposed regulatory changes. In: Issues in pharmaceutical economics. Lexinton, M.A. Lexinton Books, 151-191

DiMasi, J.A., and Grabowski, H.G. (2011) R&D costs and returns to new drug development: A review of the evidence. In: The Economics of the Biopharmaceutical Industry. Danzon, P.M., and Nicholson, S. Oxford University Press, 21-46

*Note that the many of the mentioned papers are covered by copyright issues. For these we therefore only refer to a corresponding search engine result or directly to the journal publisher.

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