Over-Regulation and Drug Prices

Does the FDA cause the prescription drug crisis? Its regulations force companies to spend decades testing life-saving drugs before they can be brought to market and make many drugs for treating relatively rare diseases economically impossible. Two new studies examine the financial costs.

A study by Joseph DiMasi, Ronald Hansen, and Henry Grabowski and published in the Journal of Health Economics in 2003 found that the average total cost to pharmaceutical companies of developing a new drug is $802 million. Responding to criticisms that these results were doctored or fake, two economists at the Federal Trade Commission attempted to replicate the study using a different data set. They concluded that the actual number is substantially higher, somewhere between $839 and $868 million. They also point out that certain drugs, for instance, drugs for treating AIDS, are developed at nearly half of the cost of developing the average drug and suggest that this difference is due to differences in regulatory policy.

Discussions of these studies here and here at Marginal Revolution.