by Mike Masnick

Filed Under:
costs, development, drugs, patents

Drug Companies Overestimate Cost Of Developing A New Drug By Merely $1.26 Billion

from the and-there-you-go dept

It's one of those numbers that comes up every single time we talk about the pharma industry: the claim that it costs $1.3 billion for pharma companies to develop a new drug. In fact, in our recent discussion on the FDA banning drugs that have been on the market for decades, it didn't take someone long to toss out such a number (they used $1.2 billion, but $1.3 billion is the "standard" these days -- just a few years after it was $800 million). Of course, every time people point this number out, I point to the excellent research by Merrill Goozner who did a massively thorough debunking of the $800 million number seven years ago, showing that the true number was closer to $35 million.

And yet, the $800 million number has lived on, boosted by inflation to $1.3 billion.

And it's still bunk. Gerd Leonhard points us to some new research that appears to have dug deeper into the question today, and found (once again) that the $1.3 billion claim is total bunk and the real number is more like $55 million -- based on the same data used by the study used to support the $1.3 billion number. In fact, they point out that it appears the pharma industry and those seeking greater protectionism appear to be overestimating the actual cost of drug development by $1.265 billion.

Now, there are some reasonable quibbles with the lower number as well, but there's a growing body of evidence that the real number is a lot closer to the lower one than the higher one. There are certainly some outliers, but the idea that the average cost to develop a new drug is over a billion dollars, and therefore pharma companies need special extra protection is bunk and certainly shouldn't be cited any more.

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    d_mat (profile), 30 Mar 2011 @ 9:28am

    What budget?

    While I'm not surprised by fudged numbers, that is one of the biggest discrepancies I've ever seen. Does the music industry even get close?

    But what I am really interested in is how they might come up with such a number. Sure, a lot of lab work might not lead to specific products, but how much of that are studies showing the drugs don't have the effect we're paying for? I wouldn't mention those if I were them, considering someone might start looking.

    There is one glaring omission here though. A large portion of the research that goes into these products still happens in universities and is funded, at least in part, by taxes. If they are including that in the cost, and I wouldn't put it past them, then that would explain the "discrepancy". Of course, that would not make the number right, it would just make it a double deception: the taxpayer twice, once for the research, and once for the product!

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