Research and Development in the Pharmaceutical Industry
CBO assesses trends in spending for prescription drug research and development (R&D) and the introduction of new prescription drugs. CBO also examines factors that determine how much drug companies spend on R&D.
This report examines research and development (R&D) by the pharmaceutical industry.
Spending on R&D and Its Results. Spending on R&D and the introduction of new drugs have both increased in the past two decades.
In 2019, the pharmaceutical industry spent $83 billion dollars on R&D. Adjusted for inflation, that amount is about 10 times what the industry spent per year in the 1980s.
Between 2010 and 2019, the number of new drugs approved for sale increased by 60 percent compared with the previous decade, with a peak of 59 new drugs approved in 2018.
Factors Influencing R&D Spending. The amount of money that drug companies devote to R&D is determined by the amount of revenue they expect to earn from a new drug, the expected cost of developing that drug, and policies that influence the supply of and demand for drugs.
The expected lifetime global revenues of a new drug depends on the prices that companies expect to charge for the drug in different markets around the world, the volume of sales they anticipate at those prices, and the likelihood the drug-development effort will succeed.
The expected cost to develop a new drug—including capital costs and expenditures on drugs that fail to reach the market—has been estimated to range from less than $1 billion to more than $2 billion.
The federal government influences the amount of private spending on R&D through programs (such as Medicare) that increase the demand for prescription drugs, through policies (such as spending for basic research and regulations on what must be demonstrated in clinical trials) that affect the supply of new drugs, and through policies (such as recommendations for vaccines) that affect both supply and demand.