The price of innovation: New estimates of drug development costs

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Abstract

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 US$ 403 million (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 US$ 802 million (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. © 2003 Elsevier Science B.V. All rights reserved.

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DiMasi, J. A., Hansen, R. W., & Grabowski, H. G. (2003). The price of innovation: New estimates of drug development costs. Journal of Health Economics, 22(2), 151–185. https://doi.org/10.1016/S0167-6296(02)00126-1

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