Cover: Impacts of increasing requirements for research and development (R&D) cost transparency

Impacts of increasing requirements for research and development (R&D) cost transparency

Literature review

Published Mar 31, 2023

by Jon Sussex, Charlotte Davies, Zuzanna Marciniak-Nuqui, Mark Cabling, Jorge Mestre-Ferrandiz, Andrew W. Mulcahy

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Research Questions

  1. How far is it possible to identify, and hence be transparent about, the R&D costs of a new medicine?
  2. What would the implications be, were greater transparency of R&D costs to be achieved?

The costs of researching and developing new medicines are large, with much uncertainty about how successful any new medicine in the R&D pipeline will be. Insights on the size and nature of R&D costs can affect views on how much it is reasonable to pay for a new medicine. Transparency in R&D costs is of public and policy interest. We reviewed the academic and grey literatures to discover what it says about the types of information published about the costs of R&D, the sources of cost data and how much transparency is achievable.

We found that transparency was generally not defined explicitly but information that could be made (more) transparent includes: direct R&D costs such as supplies and staff costs; indirect costs such as overhead expenses; R&D timelines needed to bring new drugs to market; the cost of capital for medicines R&D; the costs of abandoned projects; and information about attrition rates and public contributions to medicines R&D, such as indirect subsidies, incentives, tax credits and post-approval support.

The implications were greater transparency of R&D costs of individual medicines to be achieved, are currently unclear. Claimed advantages include 'fairer' prices, better investor decisions, better accountability and governance, and hence greater trust. Claimed disadvantages include that greater transparency might feed predatory behaviour by commercial rivals to research-based pharmaceutical companies, and impose administrative costs, both of which might damage the flow of new medicines. Evidence about the likely impact of greater transparency on medicines prices and innovation is lacking.

Key Findings

  • Transparency was generally not defined explicitly in the literature.
  • Implicitly, discussions of transparency concern the extent to which companies and other organisations that are conducting medicines R&D should periodically publish data on their R&D costs, medicine by medicine. Some papers focused particularly on proposing that companies should publish data about the extent of public funding of the R&D of individual medicines, including via joint funding arrangements and tax credits.
  • The implications were greater transparency of R&D costs of individual medicines to be achieved, are currently unclear. Assertions are made that advantages would include 'fairer' prices, better investor decisions, better accountability and governance and hence trust. Assertions are also made that greater transparency might feed predatory behaviour by commercial rivals to research based pharmaceutical companies, and would lead to additional administrative costs, both of which might damage the flow of new medicines. But evidence about the likely impact of greater transparency on medicines prices and how that can be expected to affect different countries, and evidence about the effect of that on access to existing medicines and on future medicines innovation, is lacking.

Research conducted by

The research reported here was commissioned and funded by Merck Sharp & Dohme (Europe) Inc. and conducted by RAND Europe.

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