Exploring the impacts of increasing cost transparency requirements in pharmaceutical R&D

Healthcare business graph and medical examination, with stethoscope and businessman in blurred background, photo by ipopba/Adobe Stock

ipopba/Adobe Stock

What is the issue?

The costs of researching and developing new medicines are large and the R&D process takes many years, with much uncertainty about how successful any new medicine in the R&D pipeline will prove to be. Insights on the size and nature of R&D costs are important and can affect views on how much it is reasonable to pay for a new medicine. Transparency in R&D costs is therefore of public and policy interest.

How did we help?

We undertook a literature review in the autumn of 2022 to discover:

  • How far and by what methods it is possible to identify, and hence be transparent about, the R&D costs of a new medicine; and
  • What the implications would be, were greater transparency of R&D costs of individual medicines to be achieved, including implications for medicine pricing and innovation.

We captured what the literature says about the types of information published about the costs of drug R&D, the sources of cost data and the degree of transparency which is achievable. We took an international approach and reviewed a wide range of sources including policy documents and relevant databases as well as academic studies.

What did we find?

Transparency was generally not defined explicitly but information that, according to the literature, 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. Assertions are made in the literature that advantages would include ‘fairer’ prices, better investor decisions, better accountability and governance, and hence greater trust. But 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. Evidence about the likely impact of greater transparency on medicines prices and on future medicines innovation, is lacking.