Innovation in the pharmaceutical industry: New estimates of R&D costs.
Abstract
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).
Type
Journal articlePermalink
https://hdl.handle.net/10161/12742Published Version (Please cite this version)
10.1016/j.jhealeco.2016.01.012Publication Info
DiMasi, 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.This is constructed from limited available data and may be imprecise. To cite this
article, please review & use the official citation provided by the journal.
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Show full item recordScholars@Duke
Henry G. Grabowski
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 over one hundred peer reviewed articles analyzing the economics of pharmaceuticals
and also several books and monograph publica

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