The price of innovation: new estimates of drug development costs
Open accessAbstract
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 403 million US dollars (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 802 million US dollars (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.
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Conventional pharmaceutical development and deployment typically require hundreds of millions of US dollars.
“conventional pharmaceutical development and deployment typically require hundreds of millions of US dollars (51)”
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- Authors
- DiMasi, J. A., Hansen, R. W., & Grabowski, H. G.
- Affiliations
- Tufts University (US)
- University of Rochester (US)
- Duke University (US)
- Corresponding author
- DiMasi, Joseph A
- ORCID
- DiMasi, Joseph A
- Venue
- Journal of Health Economics
- Publisher
- Elsevier BV
- Published
- 2003-03
- Volume
- 22
- Issue
- 2
- Pages
- 151-185
- ISSN
- 0167-6296 (ISSN-L)
- OpenAlex
- W2121175754
- Cited by
- 4,265
- References
- 0
- Citations by year
- 2026: 50 · 2025: 71 · 2024: 85 · 2023: 106 · 2022: 123 · 2021: 143 · 2020: 142 · 2019: 178 · 2018: 164 · 2017: 161 · 2016: 179 · 2015: 233 · 2014: 274 · 2013: 283 · 2012: 299
- FWCI
- 423.30
- Type
- journal article
- Language
- en
- Open access
- green
- hdl.handle.net
- Licence
- cc-by-nc-nd
- www.elsevier.com/tdm/userlicense/1.0/ (tdm)
- Locations
- Journal of Health Economics (publishedVersion)
- PubMed (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- DukeSpace (Duke University) (submittedVersion, cc-by-nc-nd)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Pharmaceutical Economics and Policy
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Health Systems, Economic Evaluations, Quality of Life
- Life Sciences › Pharmacology, Toxicology and Pharmaceutics › Pharmacology › Pharmaceutical industry and healthcare
- Keywords
- drug development costs, pharmaceutical industry, cost of innovation, capitalized cost, marketing approval, pharmaceutical companies
- MeSH terms
- Capital Expenditures, Costs and Cost Analysis, Data Collection, Drug Evaluation, Drug Industry, Drug Evaluation, Preclinical, Humans, Inflation, Economic, Organizational Innovation, Research Support as Topic, United States, Drugs, Investigational, Drug Approval
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