The price of innovation: new estimates of drug development costs.
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The research and development costs of 68 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 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 new drug is 403 million US dollars (2000 dollars). Capitalizing out-of-pocket costs to the point of marketing approval at a real discount rate of 11% yields a total pre-approval cost estimate of 802 million US dollars (2000 dollars). When compared to the results of an earlier study with a similar methodology, total capitalized costs were shown to have increased at an annual rate of 7.4% above general price inflation.
Costs and Cost Analysis
Drug Evaluation, Preclinical
Research Support as Topic
Published Version (Please cite this version)10.1016/S0167-6296(02)00126-1
Publication InfoDiMasi, Joseph A; Hansen, Ronald W; & Grabowski, Henry G (2003). The price of innovation: new estimates of drug development costs. J Health Econ, 22(2). pp. 151-185. 10.1016/S0167-6296(02)00126-1. Retrieved from https://hdl.handle.net/10161/6706.
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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