title: Innovation in the pharmaceutical industry: New estimates of R&D costs.
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).
authors.affiliation: Tufts Center for the Study of Drug Development, Tufts University, United States. Electronic address: joseph.dimasi@tufts.edu.
authors.forename: Joseph A
authors.initials: JA
authors.lastname: DiMasi
authors.affiliation: Department of Economics, Duke University, United States.
authors.forename: Henry G
authors.initials: HG
authors.lastname: Grabowski
authors.affiliation: Simon Business School, University of Rochester, United States.
authors.forename: Ronald W
authors.initials: RW
authors.lastname: Hansen
mesh_terms: D035843:Biomedical Research / Q000191:economics*; D002202:Capital Financing; D003365:Costs and Cost Analysis; D004345:Drug Industry; D014481:United States
keywords: Discount rate; Innovation; Pharmaceutical industry; R&D cost; Technical success rates