Fiction: Each New Drug Costs $800 Million Dollars to Develop

Opponents of Canada drug imports are fond of saying that each new drug costs $800 million dollars to develop. Let's take a closer look at this oft-quoted (but rarely examined) figure.

For years, the drug industry claimed that each new drug cost $500 million to develop. A study by a Tufts University research institute (which, by the way, received most of its funding from the drug industry) upped this figure to $800 million.

Both estimates, however, are grossly inflated.

The drug industry counts the opportunity cost of capital, not actual cash outlays. This tends to inflate the estimate by 50 percent.

Their analysis does not reduce the costs of R&D by one-third - the amount that is tax deductible.

Their analysis only looks at the most innovative drugs (which happen to be the most expensive). Unfortunately, most "new" drugs are not innovative at all - they fall into the "me-too" category and usually contain the same active ingredient as existing drugs.

Taking these facts into consideration, the truth is closer to no more than $240 million dollars per new drug - a fraction of drug industry claims.

To find out more, please read The $800 Million Pill : The Truth behind the Cost of New Drugs in our Required Reading section.

Articles:
Would Lower Prescription Drug Prices Curb Drug Company Research & Development? (Source: Public Citizen)