OBJECTIVES: Current estimates on the cost of developing a new drug are largely based on proprietary data limiting other researchers from validating or testing underlying assumptions. This study presents two transparent methods for estimating the cost of developing a new drug using publicly available data. METHODS: The first approach is a micro approach that utilizes drug company specific levels of research and development expenditures, sales, and drugs on the market. A series of calculations uses this input data and estimates the cost per marketed drug for each company. The second approach is a macro approach and utilizes industry aggregate research and development expenditures and recent approved drugs from the Food Drug Administration (FDA). This data is inputted into a quasi-Markov model of a drug’s pre-approval life cycle and calculates the cost per FDA approved drug. A cost of capital is estimated for both approaches using an amortization model. The rates for the cost of capital were either the weighted average cost of capital rate or the rate as suggested by the Congressional Budget Office. RESULTS: The micro approach yields a direct cost of $1.65 billion, and the cost was similar across the three large pharmaceutical companies. The macro approach yields $1.43 billion. Using a 3% cost of capital rate, the indirect cost is another $.31 billion and $.26 billion for the micro and macro approach respectively. Using the industry weighted average cost of capital rate, 7.72%, increases the indirect cost to $.57 billion using the micro approach and $.62 billion using the macro approach. CONCLUSIONS:  Our results were similar to previously reported cost estimates for developing a new drug with one caveat-we had much lower cost of capital. Understanding the level of investment necessary to develop a drug is critical for policymakers who attempt to balance innovation with price regulation.