The $2.6 Billion Pill: Methodologic and Policy Considerations

From the New England Journal of Medicine

By Jerry Avorn, MD

SUMMARY: In this NEJM Perspective, Dr. Avorn critically examines a widely cited claim by an industry-supported research center that it costs pharmaceutical companies $2.6 billion to develop a new drug. Avorn identifies significant methodological concerns with this estimate, including its reliance on industry-provided data, its inclusion of the opportunity cost of capital as an actual cost, and its failure to account for public subsidies through NIH funding, tax credits, and other government support. He argues that these methodological choices inflate the apparent cost of drug development and are then used to justify high drug prices to patients, payers, and policymakers. The piece calls for a broader-based, more transparent, and independently verified reckoning of research and development costs to ground policy debates in accurate data.

BACKGROUND: An industry-supported research center published an estimate claiming it costs pharmaceutical companies $2.6 billion to develop a new drug — a figure widely deployed in policy debates to justify high drug prices.

KEY FINDINGS: The $2.6 billion estimate relies on industry-provided data, includes the opportunity cost of capital as an actual cost, and does not account for substantial public subsidies. These methodological choices significantly inflate the apparent cost of drug development.

IMPLICATIONS: A broader-based, more transparent, and independently verified reckoning of R&D costs is needed to inform honest debates about fostering pharmaceutical innovation and setting fair prices for medications.