Study: Most drug products recouped development costs within a decade of approval

Between 1995 and 2014, a majority of new drugs and medicines approved by the US Food and Drug Administration (FDA) recouped the average cost of drug development through net discounted sales within a decade of their approval, according to results from a recent retrospective study published in the journal Value in Health.

“Our findings suggest that most products had net discounted sales that exceeded the average costs of development within 10 years of approval. For these products, patents, data protection, and other regulatory exclusivities appear to provide brand-name drug makers with generous market protection,” Olivier J. Wouters, assistant professor of health policy at the London School of Economics and Political Science, and colleagues wrote.

The researchers performed a retrospective study of 616 new drugs and biologics approved by FDA between 1995 and 2014; they excluded 58 drugs and biologics that were either contrast agents or withdrawn due to safety. They obtained sales data for 361 of 558 products (65%) remaining from 126 unique companies.

The researchers followed the sales data for the drug and biologic products for a median of 13.2 years, calculating mean revenue per product and median sales data at 5 years and 10 years in 2019 US dollars and evaluating when each drug or biologic surpassed average industry-wide costs for developing a new drug during the time period as determined through published cost estimates.

Overall, the mean revenue of each product was $3.2 per billion after 5 years across 361 products, $9.5 billion after 10 years across 254 products, and $19.2 billion after 15 years across 177 products.

The researchers noted that the top 25 products comprised $2.1 trillion out of a total $5.5 trillion total sales (38%) across all 361 products evaluated. There were 48 drugs with under $1 billion in sales since their approval (13%), 101 drugs with between $1 billion to under $5 billion in sales (28%), 77 drugs with between $5 billion and under $10 billion in sales (31%), 18 products with between $50 billion and under $100 billion in sales (5%), and 6 products with more than $100 billion in sales (2%).

Of the products studied, 178 (49%) achieved sales of at least $1 billion or more at their peak, and 109 (30%) had an average of $1 billion in sales or more each year since the product’s approval. By therapeutic area, there were significant differences in median sales data by therapeutic area (P = .04), with products relating to genitourinary agents and sex hormones having the highest median 5-year sales at $3.0 billion, and products associated with sensory organ agents having the lowest sales data with a median of $1.1 billion in sales 5 years after approval.

The researchers found significant differences in 5-year median sales data between drugs for rare diseases and non-rare diseases ($1.0 billion vs. $1.9 billion; P < .001), but not for drugs granted accelerated approval compared to drugs without ($1.9 billion vs. $1.6 billion; P = .3) or first-in-class therapies compared to drugs that were not first-in-class ($1.6 billion vs. $1.7 billion; P = .75).

Wouters and colleagues said that when drugs were discounted by 10.5%, sales exceeded average development costs at 5 years for 47.1% of products, at 10 years for 75.2%, and at 15 years for 81.8% of products. When the researchers adjusted the analysis to account for costs associated with production, marketing, discounting, and a 60% reduction in annual sales, they found that 20.5% of products exceeded industry-wide average costs of development at 5 years, which increased to 45.6% of products at 10 years, and 56.2% of products at 15 years after approval.

Citing the Inflation Reduction Act of 2022, the researchers said the Centers for Medicare and Medicaid Services can use net prices of therapeutic alternatives when negotiating drug prices as well as whether a company recouped drug development costs at the time of price negotiation, and “may adjust the negotiated price higher if a firm has not recouped these costs.

“An understanding of the revenues earned by pharmaceutical companies on brand-name drugs, alongside data on business costs, can inform discussions about how to incentivize private investment in innovation while ensuring affordable prices for patients and the health-care system,” they said.

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Study: Most drug products recouped development costs within a decade of approval

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