Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs

J Health Econ. 2016 May;47:20-33. doi: 10.1016/j.jhealeco.2016.01.012. Epub 2016 Feb 12.

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).

Keywords: Discount rate; Innovation; Pharmaceutical industry; R&D cost; Technical success rates.

Publication types

  • Research Support, Non-U.S. Gov't

MeSH terms

  • Biomedical Research / economics*
  • Capital Financing
  • Costs and Cost Analysis
  • Drug Industry*
  • United States