[FireBeyond]

Certainly I do not mean to imply that Phase 1 and Phase 2 failures are cost-free. But it is challenging to measure. As seen elsewhere in this thread, Gilead essentially included the acquisition of another company who had a whole retinue of drugs and product lines as "R&D" for Truvada, I believe. That is creative accounting that would not pass an audit or SEC filing, which is why Gilead only counts it as an R&D cost in their press releases...

[pfdietz]

It certainly should count; that company didn't get delivered for nothing by the Drug Discovery Fairy. And even more: the companies that didn't get bought by Gilead should also count, since the funders of all those small companies could not tell ahead of time which would succeed enough to be bought out.

[FireBeyond]

No, it really shouldn't. If I acquire a drug company that has, say, 100 patents on a suite of drugs for $1B (just using nice round numbers), I don't get to say "I spent $1B on "R&D" for 1 drug" as a sunk cost.

R&D is a sunk cost. Presumably acquiring an active company with a portfolio is an investment.