Developing a Drug Costs $2.6 Billion, but not Everyone Believes This

Nov 18, 2014

The cost to develop a new drug and win FDA marketing approval is now pegged at nearly $2.6 billion, according to a new report from the Tufts Center for the Study of Drug Development. The estimate will likely hearten drug makers that argue rising prices reflect rising costs, but consumer advocates reacted as if someone was trying to sell them a bridge.

The figure includes two basic components. One is the average amount of money that is actually spent, which Tufts calls ‘out-of-pocket’ costs and amounts to $1.395 billion. Then there are ‘time costs,’ which is another way of saying opportunity costs, of $1.16 billion. This is the return that investors could be expected to forgo if the money had been invested elsewhere while a drug is being developed.

“Drug development remains a costly undertaking,” says Joseph DiMasi, who is director of economic analysis at the Tufts Center and was the principal investigator for the study, in a statement. To reach its conclusion, Tufts dissected information provided by 10 drug makers on 106 randomly selected drugs that were first tested in human subjects anywhere in the world from 1995 to 2007.

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