Determination of the Cost of a New Drug Essay Example | Topics and Well Written Essays - 750 words

Determination of the Cost of a New Drug - Essay Example The paper tells that the anticipated cost for development of an average drug has been recently assessed by Joseph DiMasi together with his colleagues to be $802 million for every new molecular entity. The massive cost of developing a drug is a major component of the prevailing debates over the prescription drug prices, review policies of Food and Drug Administration (FDA), importation of the drugs from Canada, and barriers to universal entry. Having been assigned this central role of $802 million approximation in the debates, it is crucial to ask two questions. The first one is whether this number is an accurate approximation of the anticipated costs in the development of an average drug. The second question that follows concerns the meaning of the estimations if at all by any chance they are accurate.For some years, researchers with the inclusion of a team at El Lilly and another from Tufts University have approximated the cost incurred in the invention and development of a drug at either $1 billion or even more. These approximations attempt to exclude the costs that are not related directly to the approval of a drug and also don’t give room for any kind of comparisons between companies. The first determinant of the cost of the development of a new prescriptive drug is the size of the company that is producing the drug. There is the argument that bigger companies possess the economies of scale and the scope of the development of a drug. This argument links the size of the company with development costs that are lower. One difficulty that arises in measuring this effect is that large companies may be associated with lower-cost and successful drugs, either due to the reason that the drugs earn them reasonable revenues or the truth that acquisitions and mergers result to such drugs produced in the larger firms. The outcomes suggest that this could pose a problem.