The Costs of Clinical Trials

Information about the costs incurred by the pharmaceutical industry to produce a new drug is relatively limited. We examine the costs of clinical trials using data from pharmaceutical firms’ reported annual research and development expenses and FDA clinical trial data for years 2006 through 2010. We estimate firm-level multivariate regression models with total annual R&D expenses for the firm as the dependent variable and various indicators for the number and scale of Phase I through IV clinical trials as explanatory variables. We find that the annual cost is $19.9 million for a Phase I trial, $24.2 million for a Phase II trial, $48.9 million for a Phase III trial, and $35.2 million for a Phase IV trial. These results are consistent with previous estimates and yield an expected cost per approved pharmaceutical of $600 million – or over $1.2 billion when capitalized at 11% per year. Because the scale of these clinical trials varies considerably, we also decompose these average costs into the fixed costs of running a trial and the variable costs per human subject. We find that the annual cost for a clinical trial subject is $489,900 for Phase I, $303,100 for Phase II, $12,400 for Phase III, and statistically insignificant for Phase IV. We believe that these estimates can help firms, policymakers, and foundations to set realistic budgets for pharmaceutical development, and to quantify the benefits of alternative trial designs that reduce trial size and length.