What’s the price tag for bringing a drug to market? The standard answer, based on a study by the Tufts Center for the Study of Drug Development, is $2.7 billion. But not all experts are convinced that’s the correct total, and a study in JAMA Internal Medicine adds fuel to that fire.
The study found that it cost $648 million each to bring 10 cancer drugs to market. Together, the 10 drugs cost a total of $7.2 billion in research and development (R&D) but have earned the manufacturers about $67 billion so far.
“In a short period, development cost is more than recouped, and some companies boast more than a 10-fold higher revenue than R&D spending—a sum not seen in other sectors of the economy,” the study states.
The study, by researchers at Oregon Health and Science University in Portland and Memorial Sloan Kettering Cancer Center in New York, looked at the estimated R&D spending for developing a cancer drug. The authors analyzed Securities and Exchange Commission filings for 10 medications from companies with no drugs on the U.S. market that received FDA approval from January 1, 2006, through December 31, 2015. The study found that the median cost of developing a single cancer drug was $648 million and the median revenue after approval for such a drug was $1.7 billion.
Cumulative R&D spending was estimated from initiation of drug development activity to date of approval. Earnings were identified from the time of approval to the present. The study was conducted from December 10, 2016, to March 2, 2017.
The 10 companies included in this analysis had a median time to develop a drug of 7.3 years (range, 5.8–15.2 years). Five drugs (50%) received accelerated approval from the FDA, and five (50%) received regular approval. Drug development costs ranged from $157 million to $1.95 billion.
The authors estimated the median cost grew to $757.4 million (range, $203.6 million to $2,601.7 million) when they added a 7% per year cost of capital (opportunity cost, that is, the amount of money that would have been earned had the same sum been invested in the hands of money managers rather than used for drug development) and $793.6 million (range, $219.1 million to $2,827.1 million) for a 9% opportunity cost.
With a median of 4.0 years (range, 0.8–8.8 years) since approval, the total revenue from sales of these 10 drugs since approval was $67.0 billion compared with total R&D spending of $7.2 billion ($9.1 billion, including 7% opportunity costs).
A common justification for high cancer drug prices is the sizable R&D outlay necessary to bring a drug to the U.S. market. While the $2.7 billion estimate is widely cited, the authors write, “this analysis lacks transparency and independent replication.”