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April 17, 2015

Drug R&D Costs: $1.7 Billion and Rising


DALLAS – The significant costs of developing new, life-saving drugs and treatments has reached over $1.7 billion per drug over a span of 10-12 years. The mounting costs can be attributed not only to the growing complexity of drugs, but also due to bureaucratic red tape and the short length of a drug’s patent life, two issues which can be mitigated by legislative reforms.

“While drug companies are proceeding with  research to create new and innovative drugs,  drug development remains very expensive—and likely to grow even more so,” says Institute for Policy Innovation (IPI) resident scholar Merrill Matthews, Ph.D. in a new publication, “The High Costs of Inventing New Drugs - And Of Not Inventing Them.”

Matthews says in addition to the cumbersome FDA approval process that lacks incentives to expediently get drugs to market, manufacturers are increasingly developing far more complex biologic drugs, treatments, and even cures, as opposed to simpler pill therapies of the past. And while price controls are critics’ primary solution to the high cost of drugs, price controls would simply halt the R&D process altogether.

Matthews wxplains that economist Joe DiMasi of the Tufts Center for the Study of Drug Development recently pegged the total out-of-pocket cost to develop and approve a new drug at about $1.707 billion, a figure that nearly matches his own “back of the envelope” approach of $1.756 billion, found by simply dividing the drug manufacturers’ reported R&D by the number of newly approved drugs. “Whichever method is used, it’s clear that drug development is very expensive,” writes Matthews.

“There are ways to make new drugs less expensive—i.e., cut down on some of the bureaucratic oversight or lengthening the patent life, which means the manufacturers would have more time to recoup their investment—but both efforts would require a major legislative push,” said Matthews.

“Drug manufacturers plowed millions of dollars into finding a treatment for AIDS once it became clear the disease would take thousands of lives. The research and development was costly and didn’t emerge overnight, but being diagnosed with AIDS is no longer a death sentence,” said Matthews. “If the cost of creating new drugs is high, the cost of not having any new drugs is immeasurable.”


The Institute for Policy Innovation (IPI) is an independent, nonprofit public policy organization based in Dallas. IPI resident scholar Merrill Matthews, Ph.D. is available for interview by contacting Erin Humiston at (972) 874-5139, or


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