March 2023 Issue Brief 9
ASPE developed an analytical model of medical product development using data from public and
proprietary sources with coverage from 2000 to 2018. The model estimated the cost, duration, and phase
transition success probability associated with each stage of development, including FDA review and approval.
The results of the analytical model provided
an estimate of the cost of medical product
development at each stage of the process
from the nonclinical stage to post-marketing.
In this model, the cost of the FDA review
stage was estimated using user fees paid by
industry and the average time it takes for FDA to review a marketing application. The duration of product
development varied across medical products, with some drugs taking up to 10 years to develop, and other drugs
not reaching the marketing authorization stage. These estimates considered the time it takes to develop a
medical product (i.e., “development costs”) and the likelihood that each product was successful at each stage of
the development process. That is, these costs included the cost of investment and the cost of failures also
known as “capitalized costs.” Our results show that FDA user fees made up approximately 1.0 percent of the
total capitalized cost of development for drugs,
34
2.0 percent of the total capitalized cost of development for
preventive vaccines, and 0.5 percent of the total capitalized cost of development for complex medical
devices.
35,36
In a related report from 2022,
37
ASPE developed an analytical framework that examined the expected
profit for a generic drug developer in different size drug markets. The framework included characteristics of the
type of drugs, the opportunity cost of capital, the fifteen stages of generic drug development, and future
revenue expectations. This framework formed the basis for an operational model that can simulate expected
changes in the cost of developing a generic drug based on different policy changes, such as a change in user
fees.
38
This analysis found that the average cost to develop a generic drug was $2.4 million ($3.2 million in 2022
dollars) and that it required just under 5 years to bring a generic drug to market. The average capitalized cost
was $5.3 million ($7.06 in 2022 dollars). FDA user fees to submit an ANDA constituted 1.7 percent (range: 0.2 to
7.0 percent) of expected capitalized costs.
The analysis also assessed the impact of a hypothetical 50 percent decrease in ANDA submission fees. A
50 percent decrease in ANDA submission fees would result in a 1.2 percent (range: 0.1 to 4.8 percent) decrease
in expected capitalized costs.
39
In contrast, other factors would have a much larger impact on reducing the cost
34
In our model, drugs include biologics except preventive vaccines which are modeled separately.
35
Sertkaya, A., DeVries, R., Jessup, A., Beleche, T. (2022) Estimated Cost of Developing a Therapeutic Complex Medical Device in the US.
JAMA Network Open, 5(9): e2231609. Doi: 10.1001/jamanetworkopen.2022.31609.
36
Therapeutic complex medical devices are defined as a Class III device that usually sustains or supports life, is implanted, or presents
potential unreasonable risk of illness or injury and requires a PMA application to obtain marketing approval in the U.S. These types of
applications make up less than 1 percent of all medical device submission and, as such, the results cannot be generalized to other medical
devices Further, there is variability in terms of complexity of medical products, which can result in a large degree of variability around the
average development cost.
37
Sertkaya, A., Lord, A., & Berger, C. (2022). Cost of Generic Drug Development and Approval. Report for the Office of the Assistant
Secretary for Planning and Evaluation, U.S., Department of Health and Human Services. https://aspe.hhs.gov/reports/cost-generic-drugs
38
Broadly speaking, these stages captured the initial R&D phases, in vivo testing, bridging studies, patent challenge and litigation, and
FDA review. See Sertkaya et al (2022) for additional details.
39
The hypothetical model assumes that the fee decreases would not affect FDA’s capacity to review applications in a timely manner.
Sertkaya et al (2022) note that “a fee decrease of that magnitude could severely hamper FDA’s ability to meet its congressionally
mandated review timelines and would likely increase the average FDA ANDA review time estimated in the model. This could potentially
countervail the cost-saving effect of FDA ANDA review fee reductions to the generic drug applicant and can even result in an increase in
the overall expected capitalized development cost.”
User fees made up less than 2.0 percent of the
total capitalized cost of development for drugs,
complex medical devices and preventive vaccines.