- A study reported this week in JAMA Internal Medicine estimated the cost of developing a single cancer drug to be significantly lower than previously thought.
- The analysis took data from the Securities and Exchange Commission filings for ten cancer drug companies and found the median cost of development to be $648 million. Median revenue for the group from approval through December 2016 was $1.66 billion.
- The researcher's estimate for the cost of development is about one quarter of a commonly cited $2.7 billion estimate produced by the Tufts Center for the Study of Drug Development. That figure, however, includes the cost of capital (or opportunity cost) to drugmakers' investment in R&D.
The study is particularly notable because some of the highest priced drugs in the world were included in the analysis, including Alexion Pharmaceuticals, Inc.’s Soliris (eculizumab) and Ariad Pharmaceuticals’ Iclusig (ponatinib).Soliris, approved for two ultra-rare diseases, was once even considered the world’s most expensive drug, although a few have come along since that have stripped it of that title.
"Both these uses concern small market sizes, yet, largely through pricing, eculizumab has been able to generate more than $12 billion in revenue, 15-fold higher than the R&D spending to develop the drug," the report noted.
While no one is downplaying the large cost associated with bringing a drug to market, the research published in JAMA suggests it may not be large enough to justify the price tags seen on many cancer drugs.
The analysis looked at SEC filings for ten oncology companies that previously had no other drugs on the market before receiving approval from the Food and Drug Administration between January 2006 and December 2015. The report tracked costs from the initiation of drug development through approval.
The researcher found that the median time of development was 7.3 years, with five of the drugs getting accelerated approval and the remainder undergoing the normal approval process.
Development costs ranged from $157 million to $1.95 billion. Yet, revenues made on the drugs since approval ranges from $204 million to more than $22 billion.
The analysis was conducted because the cost of development is frequently cited by industry as justification for high drug prices. The major trade group PhRMA has even gone as far as to create ad campaigns to further hammer home this point to consumers.
Yet, virtually all other analysis of R&D spending has been seriously flawed. The Tufts research, for example, used only private data that could not be verified or duplicated.
The cost of failure — because innovation is often marked by repeated failures — has also been used as a justification for the high cost of drugs.This report tries to take that into account.
"Because, in all instances, these companies were simultaneously developing several compounds, our analysis considers the cost of failure (ie, we include R&D costs for each company’s entire portfolio of drugs, of which only one drug was ultimately approved)," researchers wrote in JAMA.