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Innovation in the pharmaceutical industry: New estimates of R&D costs

Listed author(s):
  • DiMasi, Joseph A.
  • Grabowski, Henry G.
  • Hansen, Ronald W.

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).

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File URL: http://www.sciencedirect.com/science/article/pii/S0167629616000291
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Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 47 (2016)
Issue (Month): C ()
Pages: 20-33

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Handle: RePEc:eee:jhecon:v:47:y:2016:i:c:p:20-33
DOI: 10.1016/j.jhealeco.2016.01.012
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505560

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