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Financial valuation methods for biotechnology

The full cost of bringing a new drug (i.e., new chemical entity) to market – from discovery through clinical trials to approval – is complex and controversial. Typically, companies spend tens to hundreds of millions of U.S. dollars.[6] One element of the complexity is that the much-publicized final numbers often not only include the out-of-pocket expenses for conducting a series of Phase I-III clinical trials, but also the capital costs of the long period (10 or more years) during which the company must cover out-of-pocket costs for preclinical drug discovery. Additionally, companies often do not report whether a given figure includes the capitalized cost or comprises only out-of-pocket expenses, or both. Another element of complexity is that all estimates are based on voluntary releases of otherwise confidential information which may not be easily independently verified.

One 2010 study assessed both capitalized and out-of-pocket costs for bringing a single new drug to market as about US$1.8 billion and $870 million, respectively.[7]

In an analysis of the drug development costs for 98 companies over a decade, the average cost per drug developed and approved by a single-drug company was $350 million.[8] But for companies that approved between eight and 13 drugs over 10 years, the cost per drug went as high as $5.5 billion, due mainly to geographic expansion for marketing and ongoing costs for Phase IV trials and continuous monitoring for safety.[8]

Alternatives to conventional drug development have the objective for universities, governments, and the pharmaceutical industry to collaborate and optimize resources.