How Much Do Cancer Drugs Cost?

The line from the pharmaceutical manufacturers have always been that it costs billions to develop new drugs. And they have to recoup their costs for the drugs that don't make it. This is why we have cancer treatments that cost well over $100,000 each year.

But now the truth is out.

Tufts Center for the Study of Drug Development conducted a study on development costs of cancer drugs.What they found is a much lower total for development of a cancer drug.

"A new analysis finds the magic number is $648 million, which is substantially less than an earlier albeit controversial estimate of $2.6 billion for the cost to develop any and all new medicines, in general. 

As with that earlier estimate by the Tufts Center for the Study of Drug Development, though, this latest analysis is already engendering criticism, a reflection of an ongoing debate over true development costs and how these should be calculated. This is important because the pharmaceutical industry has often used R&D costs to justify its pricing."

“These results suggest that pharmaceutical drug development is extremely lucrative and the current drug prices are not necessarily justified by the R&D spending on these drugs,’’ the researchers who conducted the new analysis — Dr. Vinay Prasad of Oregon Health and Science University and Dr. Sham Mailankody of Memorial Sloan Kettering Cancer Center — wrote in JAMA Internal Medicine. 

To arrive at their $648 million estimate, the researchers chose 10 publicly traded drug makers with only one cancer medicine that, at the time of regulatory approval, had no other treatments on the market. They reviewed eligible candidates during a 10-year period beginning in January 2006, some of which were developed internally and others that were acquired. 

They calculated total R&D spending from the first R&D work to the year of approval and also accounted for failures — the cost of drugs that never made it to market. In addition, the researchers assigned 7 percent opportunity costs, which is the return that investors could be expected to forgo if the money had been invested elsewhere while a drug is being developed. This raised median costs to $757 million. 

“The total revenues from the sales of these 10 drugs after approval were $67 billion, more than 7-fold higher than the total R&D spending,’’ Prasad wrote in an e-mail. “The median time on the market for these drugs was four years. Since the median duration of market exclusivity for oncologic drugs is about 14 years, these drugs will earn billions more. Nine out of 10 companies had higher revenues than R&D spending and four companies had more than 10-fold higher revenues than spending.’’ He also maintained that the cost to develop cancer medicines is unrelated to the novelty of the mechanism of action or the efficacy of the drugs. "

Of course there are dissenters to this study's results as always. Personally I believe any study will have its dissenters. It is not that difficult to find something to disagree with on any topic.

But I digress. Although this number may seem astonishingly low compared to the previously cited $2.6 billion, I still think that the truth is much closer to this latest number of $648 million than to $2.6 billion. This latest study, while under scrutiny is probably a new