Innovation in the pharmaceutical industry: New estimates of R&D costs.
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The research and development costs of 106 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms. These data were used to estimate the average pre-tax cost of new drug and biologics development. The costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval. The estimated average out-of-pocket cost per approved new compound is $1395 million (2013 dollars). Capitalizing out-of-pocket costs to the point of marketing approval at a real discount rate of 10.5% yields a total pre-approval cost estimate of $2558 million (2013 dollars). When compared to the results of the previous study in this series, total capitalized costs were shown to have increased at an annual rate of 8.5% above general price inflation. Adding an estimate of post-approval R&D costs increases the cost estimate to $2870 million (2013 dollars).
Published Version (Please cite this version)10.1016/j.jhealeco.2016.01.012
Publication InfoDiMasi, Joseph A; Grabowski, Henry G; & Hansen, Ronald W (2016). Innovation in the pharmaceutical industry: New estimates of R&D costs. J Health Econ, 47. pp. 20-33. 10.1016/j.jhealeco.2016.01.012. Retrieved from https://hdl.handle.net/10161/12742.
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Professor Emeritus of Economics
Professor Grabowski specializes in the investigation of economics in the pharmaceutical industry, government regulation of business, and the economics of innovation. His specific interests within these fields include intellectual property and generic competition issues, the effects of government policy actions, and the costs and returns to pharmaceutical R&D. He has been publishing research papers for over four decades, from his earlier work, “The Effects of Regulatory Policy on the Incentives