Overhype

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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  1. identicon
    Anonymous Coward, 30 Mar 2011 @ 8:54am

    I love this part

    "half the Tufts Center group's estimate was the "cost of capital," i.e., revenue foregone by not taking the money spent on R&D and investing it in securities instead."

    That $20 box of bagels cost them $348 (invested at 10% growth for 30 years).

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