A watchdog group has challenged the US pharmaceutical industry's claim that drugs cost an average of $500 million to develop. The actual cost, according to a report from Washington-based Public Citizen, is closer to $100 million. The group charges that industry lobbyists have misled Congress and the public to justify high prices.

According to the report, financial risks are lower because companies cherry-pick research from publicly funded laboratories. An internal document obtained by Public Citizen from the National Institutes of Health estimates that over half the research that led to development of the top five new drugs in 1995 came from the public sector.

But this ignores the gap between lab bench and pharmacy, says Iain Cockburn, an economist at Boston University. The report's authors “are too ready to discount the risk of trying to turn promising lab research into a marketable drug”, he says.

Public Citizen claims that the often-cited cost of $500 million ignores tax breaks on research and development. Bob Young, who directed the project, says it is also inflated by a theoretical value for the 'opportunity cost' of capital, or what it would have earned if invested elsewhere. But Joseph DiMasi, the economist at Tufts University in Boston on whose 1991 study the higher figure is based, says: “Opportunity cost is a real factor.”

Public Citizen has called on Congress to institute price caps for prescription drugs supplied by Medicare, the federal insurance programme for retired people.