How do I Estimate the Cost of New Drug Development?

New drugs are developed every day through pharmaceutical companies. The book "The $800 Million Pill," among others, questions what the real costs of developing a new drug actually are and whether the industry is overspending. New drugs can take around 15 years before a single pill makes it to marketing, so the estimated costs of getting the medication ready add up.

Instructions

• 1

  Consider the drug creation process. According to America.gov, 5,000 to 10,000 chemicals are made for a single drug and researched to determine the potential effectiveness. The creation process requires researchers and technology, which adds to the cost of the drug development. Exact costs will vary depending on the specific methods of research, the number of researchers and the amount of time. According to Bio IT World, the researching process alone can cost between $40 million to $125 million before there are testable products.

• 2

  Add testing costs. Testing costs will differ depending on the number of chemicals that make it to the phase-one testing. Typically, five to 10 chemicals make it to the initial testing phases. Between phase one and phase three, the costs can add up to about $76 million to $115 million.

• 3

  Consider costs of failures. While many drugs make it to market, the cost of failures adds up as well. Like other costs, the failures vary depending on how far the failed medication made it into development. Typical costs of failures can add up to about the same costs as the research costs of $40 million with more for those that made it to the trial phases.

• 4

  Add in extra study costs. Many drug companies will continue testing beyond FDA approval. These tests will add to the costs, which varies depending on the nature of the tests, the length of time spend on the testing and the purpose of the testing. Studies can range between short-term studies to long-term studies that last years. Some drug studies, such as those that deal with HIV and AIDS research, can cost billions of dollars by the time the study is concluded. These costs will vary for each drug between a couple million to a few billion dollars.

• 5

  Calculate the final costs of the estimates. Costs of development without the extra study costs added will range between $156 million to about $240 million. The extra study costs are so variable that the added cost can bring up the development expense to a few billion. There are several factors, such as the potential failures that almost make it to approval to researching costs that will effect the ultimate costs.