Developing a new medicine is an expensive undertaking. An analysis published in the Journal of Health Economics in March 2016 found that the average cost of developing a drug is $2.558 billion USD. The analysis from the Tufts Center for the Study of Drug Development is based on an average out-of-pocket cost of $1.395 billion USD, plus the inclusion of what economists call “time costs,” described by Joseph A. DiMasi, director of economic analysis at Tufts, as “expected returns that investors forego while a drug is in development.”
Critics have complained that DiMasi’s estimates are too high, and that including lost revenue as drug development costs -- at a whopping $1.163 billion USD -- distorts the facts, and validates high prices for medicine.
Leaving time costs out of the equation:
- If you take the actual cost of $1.395 billion USD and add a post-approval cost estimate of $312 million USD (for research to evaluate dose strength and other factors), you get $1.707 billion USD for each new drug -- without time costs.
- A simpler calculation, with a similar result: Take the average cost of manufacturers’ R&D and divide it by the number of new drugs. The answer: $1.756 billion USD per drug.
- The Tufts analysis was based on information provided by 10 pharmaceutical companies on 106 drugs tested by humans from 1995 to 2007.
Discussion Comments
Who paid for the study? That will tell you whether the numbers are believable or not. My money is on not!
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