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Rational Rose 2007 Licence
Production costs rose to 13 percent, accounting for an additional $ 1.7 billion in the five years following approval in 2009. Despite spending on production costs that was 1.5 times the pre-implementation-period share, over 70 percent of the resulting incremental total revenue was still being spent in production. Moreover, data on production costs on drugs approved from 2009 to 2016 were scarce. As a result, this estimate is based on data from other drugs. For instance, pre-implementation drug costs for some biologics, which were unavailable as a type of drug from 2009 to 2016, might also have been included in the estimate for total drug costs. Another, more recent example, is the Cost of Goods Sold (COGS) for recombinant human insulin, which rose from a pre-period share of 37 percent in 2013 to 46 percent in 2018 before stabilising at 40 percent. COGS accounts for 48 percent of total revenue, a combination of sales prices and rebates.
R&D costs rose to 9 percent, up from 3 percent pre-implementation. The increase in R&D costs relative to drug development was due to a large increase in numbers, among other things, or the value of invested R&D. During the period between 2016 and 2018, R&D spending as a share of net R&D added to the gross or net value of invested R&D. For example, the value of net R&D added to the gross value of invested R&D rose to $ 4.4 billion (or $ 2.4 billion net) from $ 1.4 billion (or $ 1.2 billion net) for the five years between 2009 and 2015. Some of the discrepancy between the amounts of net R&D added to the gross and net values of invested R&D is due to differences in how the four companies track invested R&D over time. In addition to the increase in numbers and value, a second reason for the rise in R&D costs was the addition of new drugs to the market in 2016, which contributed to the substantial increase in R&D costs.