R&D Expense per New Drug Developed

R&D Expense per New Drug Developed

KPI Details

Research & Development (R&D) Expense per New Drug Developed measures the average R&D expense for each new drug developed by the pharmaceutical company over the same period of time. High R&D costs can demonstrate inefficient practices within R&D operations (i.e., employee productivity), costs associated with drugs that never make it to the marketplace (i.e., drugs that fail during clinical trials and are thus never sold) or an overstaffing of the R&D function (i.e., analysts, researchers, etc.). Since pharmaceutical R&D expenses are invariably linked to how much the drug costs in the marketplace, exorbitant R&D expenses can drive up the prices of new drugs making them that much more difficult to sell to customers. Such unmanageable prices can therefore expose the company to reputational and financial risks born from not being able to pay off its liabilities on time and high degrees of customer dissatisfaction.

KPI Definition

The total expense incurred by a Pharmaceutical company's Research & Development (R&D) Department divided by the number of new drugs developed over the same period of time. R&D expense includes labor, investments, etc.

KPI Best Practices

• Higher than average approval rate of new drugs
• Incorporate third party outsourcing and research to absorb research overhead costs
• Invest in high-quality lab equipment to avoid replacing failed equipment frequently

KPI Calculation Instructions R&D Expense per New Drug Developed?

Two values are used to calculate this KPI: (1) the total expense incurred by a pharmaceutical company’s Research & Development (R&D) function, and (2) the number of new drugs developed by the company over the same period of time. New drugs are defined as drugs that are completely developed (i.e., drugs that have passed all clinical trials and have been approved by the FDA) and are currently being sold in the marketplace. R&D expenses can include labor, benefits, occupancy and technology costs. Only include costs associated with completely developed drugs (i.e., do not include costs associated with drugs that are killed during any point of the development process) in the denominator.

KPI Formula :

R&D Expense Incurred / Number of New Drugs Developed