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HSG St. Gallen: Drug costs USD 6.16 billion on average.

Are the days of new drugs for less than USD 1 billion over?

Figures in the industry spoke of USD 700-1,000 million as the cost of developing a new drug. A study by the University of St. Gallen covering the period 2001-2020 found that the cost of developing new drugs has risen dramatically. It was estimated that the cost of developing a new drug is now around 6.16 billion US dollars, a significant increase on previous estimates. The study looked at various factors contributing to this cost increase, including increasing regulation and the need to conduct larger clinical trials.

The authors of the study argue that these high costs for the development of new drugs lead to a growing gap between large pharmaceutical companies and smaller biotech companies. While large pharmaceutical companies are still able to bear the high costs of developing new drugs, smaller companies are often unable to keep up and must either focus on developing less complex drugs or merge with a large pharmaceutical company. In addition, the US stock market in particular will continue to gain in importance as a source of financing. 

Hostility to innovation at the expense of patients


The study suggests that there is a need to find new ways to reduce the cost of developing new drugs and improve access to these drugs. One way is to strengthen collaboration between companies and academic research institutions and reduce the cost of clinical trials. Another way is to simplify regulation to reduce the cost and time it takes to get new drugs approved.

Overall, the study is an important finding for the pharmaceutical and biotechnology industry and shows that there is a need to find new ways to reduce the cost of developing new drugs in order to improve access to these vital medicines.

Risks increase as of day 1.

For us as risk experts, we can deduce from this that our clients' loss distributions are already shifting upwards from the outset and are "playing in a new league" with the Phase 2 study. In this context, in addition to the protection of company assets (e.g. molecules), adjustments to manager protection will also be required, which, in addition to clever concepts (e.g. with a view to an IPO), will above all also include higher sums insured, e.g. in D&O insurance. In addition, particularly with regard to the biotech landscape active in the DACH region, a campaign driven by politicians must be launched to reduce costs. 

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