Drug Development ROI: Understanding Investment Returns & Costs

Return on investment (ROI) and drug development technology represent the rate of return from investments in new chemical entities (NCE) and reflect the ratio of money gained or lost regarding capital put towards new drug production.

Cost

• In 2002, according to the Tufts Center for the Study of Drug Development, the research and development of an NCE cost $802 million. In 2003, however, the business consultancy firm Bain &Company modified this figure to reflect the cost of failed prospected drugs, bringing the cost of NCE development to $1.7 billion. Based on the "blockbuster" drug model (used with drugs whose annual sales exceed $1 billion), Bain &Company estimates a five percent ROI, and McKinsey &Company, a global business consulting firm, calculated a 7.5 percent ROI since 2001.

Problems

• Pharmaceutical industry analyst Henry Lowe, who holds a doctorate in organic chemistry, stated in 2009 that the rising costs of drug development, as well as a series of costly phase three (clinical trial) failures, have contributed to the steady decline in ROI.

Solutions

• Methods to lower drug development expenses and improve ROI include taking measures to achieve a higher success rate of compounds during clinical trials and bringing new drugs to market faster by shortening the time they spend in research and development.