New data show that cancer drugs cost less to make than big pharma has claimed

Life as Laboratory
Life as Laboratory

Typically, cancer drugs cost hundreds of thousands of dollars for a year’s supply. Drug companies argue that they need to charge that much to make back all the money they poured into years of research and development. For example, a new gene therapy for leukemia recently approved by the US Food and Drug Administration (FDA) reportedly will cost $475,000 a year, and that’s considered a steal (paywall) by analysts’ estimates.

However, a new analysis published Sept. 11 in the Journal of the American Medical Association suggests it’s a lot cheaper to develop cancer drugs than pharmaceutical companies previously claimed. The study lays out the cost of 10 cancer drugs that have been created by companies that had no previous cancer drugs on the market—meaning they were essentially starting from scratch with the development process. They looked at each drug, the cost of development, and then the revenue brought in by the drug once it had FDA approval.

According to these data, the average cost of developing a cancer drug is about $720 million. The average annual revenue is about $2.7 billion. Within just one year, the annual revenue of the top five drugs on this list—which treat lymphoma, prostate, leukemia, and colorectal cancers—covers the total costs of research and development.

Previously, the most commonly cited number for the cost bringing a new drug to market was $2.6 billion (and ten years). That’s an estimate based off a 2016 report from the Tufts Center for the Study of Drug Development that examined over 100 drugs (including some for cancer), and factored in both dollars and time spent in the animal and clinical testing pipeline. But that report doesn’t say which drugs it actually used in its calculus, nor does it explain how costs were distributed over different types of drugs. While the more recent study is smaller, it more clearly lays out the details of each of the 10 drugs included.

Understandably, big pharma isn’t too pleased with the latest estimates. “Ignoring the R&D costs from the many companies that have not received a US Food and Drug Administration approval indicates a lack of understanding of the risk companies’ face at the outset of an uncertain project,” a representative from Pharmaceutical Research and Manufacturers of America told NPR. In other words, they argue, drug prices are typically higher to make up for the sunk costs in drugs that ended up failing before making it to market.

It’s hard to apply this analysis of cancer drugs to the rest of the pharmaceutical industry, as data on drug research costs and revenue are hard to come by. However, the study still suggests it may be misleading to ascribe the high price tag of drugs to the money spent conducting research.

“Current pharmaceutical industry pricing policies are unrelated to the cost of research and development,” writes Merrill Goozner, a former editor of Modern Healthcare, wrote in an accompanying piece in JAMA. Legislation that limits the price of drugs, he argues, would only make them more affordable for patients without harming funds for future research.

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