September 26, 2017

What It Really Costs to Develop New Cancer Drugs

Bringing a new drug to market is expensive, but it costs far less than we have supposed.

The cost of the drugs used to treat medical conditions is one of the primary drivers of healthcare expenses. Consumers are told that the development costs of these drugs — from research to clinical testing to FDA approval — are what makes it so costly to bring a drug to market.

Actually, it costs a lot less to develop drugs than pharmaceutical companies claim. That's the conclusion of an analysis just published in JAMA Internal Medicine.

In the four years or so that these ten drugs have been on the market, each has produced profits ranging from $204 million to $22 billion.

The analysis looked at ten different drugs from ten different companies and used financial statements filed with the Security and Exchange Commission to determine what was spent on development. It found that each of the drugs cost, on average, $648 million to develop, less than one-quarter of the $2.7 billion cost most often cited by the drug industry, a rather large discrepancy.

The numbers used by the authors of the current study are from publicly-available information, while those from the older study cited by pharmaceutical companies are not. They are based on a study first conducted in 1979 by the Tufts Center for the Study of Drug Development and updated several times since. Because of confidentiality agreements connected to the information in that study, however, it isn't known which companies and which drugs served as the basis for the financial calculations that, when put in 2017 dollars, show that it takes $2.7 billion to develop a single drug.

Each of the drugs cost, on average, $648 million to develop, less than one-quarter of the $2.7 billion cost most often cited by the drug industry, a rather large discrepancy.

The current study looked at ten cancer drugs developed by ten start-up companies with financial information that is publicly available from Securities and Exchange Commission filings. On average, it cost the companies $648 million dollars to bring one drug to market. While this represents a considerable investment, the profits are considerable, too: In the four years or so that these 10 drugs have been on the market, each has produced a median revenue of $1.6 billion, ranging from $204 million to $22 billion.

Cancer is one of the most expensive diseases to treat. Recently, a new cancer drug with a $475,000 price tag, Kymriah, was approved by the FDA.

In an interview, coauthors of the JAMA study, Vinay Prasad, a hematologist-oncologist and Assistant Professor of Medicine at the Oregon Health and Sciences University and Sham Mailankody, of Memorial Sloan Kettering Cancer Center, offered some thoughts on the high cost of drugs. “…The price of cancer drugs is currently rising higher and higher each year. The cost of one drug for one year of treatment is now routinely in excess of $100,000…” With the most recent cancer therapies coming on the market at a treatment cost of around half a million dollars, they believe we are fast reaching a tipping point where we can no longer accept the status quo and must find a way to lower prices.

The study's findings strongly suggest that lower prices would spell the end of innovation or profitability. There is room to cut prices, and Prasad and Mailankody encourage policymakers to experiment with different proposals to lower the price of drugs, so that we can find an effective way to lower drug prices while still preserving innovation.

As an invited commentary also appearing in the journal puts it, “Current pharmaceutical industry pricing policies are unrelated to the cost of research and development. Policymakers can safely take steps to rein in drug prices without fear of jeopardizing innovation.”

There's a wealth of material available for anyone who's interested in further study details. The analysis, author interview and invited commentary are all freely accessible.

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