An Estimate of Pharmaceutical Industry Product Liability Costs

In a previous post I discussed the Generic Pharmaceutical Association’s (GPhA) commissioned study of the potential costs of a proposed FDA rule that would allow generic drug manufacturers to update safety warnings and expose the manufacturers to liability. I criticized the methodology used by Alex Brill, of Matrix Global Advisors who authored the GPhA study. Brill arrived at an estimate of $4 billion annually in product liability costs and the GPhA has opposed the proposed rule change citing that figure. My critique of Brill’s methodology was principally aimed at his use of early 1980′s data for liability costs, and that data was not industry specific. Brill’s estimate was thus based on data that would seem to be of very little use in understanding current liability costs or projecting future ones. So, with that introduction, let me explain how I arrived at my own estimate of liability costs for the branded prescription drug industry.
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What Is Pharmaceutical Policy and What Is Its Goal?

The United States, as in most countries in the developed world, does not have a central government agency entrusted with determining pharmaceutical policy and allocating funds to drug development and drug distribution. Most of the drugs that are prescribed in the United States, as well as in other countries, are developed by for-profit pharmaceutical companies that operate in response to market forces. However, Continue reading