R&D costs for cancer drugs may be lower than previously thought

Photo courtesy of the CDC

New research has provided an updated estimate of the spending needed to bring a cancer drug to the US market.

In analyzing data from 10 companies bringing a cancer drug to market, researchers found that sales revenue from these drugs was roughly 7 times higher than the research and development (R&D) costs.

The total sales revenue for the drugs—during a median follow-up of 4 years—was $67.0 billion, and the total R&D spending was $9.1 billion (including 7% opportunity costs).

Researchers reported these figures in JAMA Internal Medicine.

“[T]he price of cancer drugs is currently rising higher and higher each year,” said study author Vinay Prasad, MD, of Oregon Health and Science University in Portland.

“The cost of 1 drug for 1 year of treatment is now routinely in excess of $100,000 . . . . One of the often-cited reasons why cancer drugs cost so much—one of the justifications for the high price—is that the outlay by the biopharmaceutical industry to bring these drugs to market is sizable, and there have been a wide range of estimates for what that R&D outlay is.”

“The most-cited estimate is one that comes out of the Tufts Medical Group¹ that puts the cost to bring a cancer drug to market, when adjusted for 2017 dollars, at $2.7 billion. Another estimate is from the group Public Citizen.² And that is a much lower estimate, finding the cost to bring a drug to market of $320 million.”

“Both of these estimates have limitations in the methods for how they estimated the cost to bring a drug to market. Notably, the Tufts group is rather non-transparent. Because of confidentiality agreements, we don’t know what drugs and what companies they’re looking at, and we can’t independently verify their analysis.”

“The Public Citizen group, in contrast, is comparing expenditures over a period of time against the number of drugs in a different period of time to make an estimate of the cost to bring a drug to market, but this isn’t exactly the cost of bringing those particular drugs to market.”

These issues prompted Dr Prasad and Sham Mailankody, MBBS, of the Memorial Sloan Kettering Cancer Center in New York, to conduct the current study.

Analysis

The researchers analyzed US Securities and Exchange Commission filings for 10 drug companies that received approval from the US Food and Drug Administration for a cancer drug from 2006 through 2015.

Prior to this, none of the companies had any drugs approved for use in the US. However, the companies had a median of 3.5 (range, 2-11) drugs in development during the study period.

The researchers said the fact that these companies had no prior drug approvals eliminated biases that may be present when analyzing larger drug companies, such as redundancies in R&D development and tax incentives for listing different endeavors as R&D spending.

In addition, the fact that the 10 companies were developing other drugs during the study period means this study takes into account the cost of failure in bringing a drug to market.

Results

For the 10 companies and drugs analyzed, the median duration of drug development was 7.3 years (range, 5.8 to 15.2 years).

The median cost of drug development (in 2017 US dollars) was $648.0 million (range, $157.3 to $1950.8 million). For a 7% per annum cost of capital (or opportunity costs), the median cost was $757.4 million (range, $203.6 to $2601.7 million).

The median time from approval to analysis in December 2016 (or until the company sold or licensed the compound to another company) was 4.0 years (range, 0.8 years to 8.8 years).

The total revenue from sales of the 10 drugs during this time was $67.0 billion.

The total R&D spending was $7.2 billion, or $9.1 billion when including 7% opportunity costs.

The following table includes data broken down by drug.

*Received accelerated approval. (The other 5 drugs received regular approval.)

**Did not receive orphan designation. (Nine of the 10 drugs received orphan designation.)

“So I think what we’re showing is . . .  a transparent analysis of cancer drugs and companies, looking at the cost to bring a drug to market,” Dr Mailankody said. “And our estimate of $648 million is substantially lower than the often-cited number of $2.7 billion.”

“We’re also showing that, for these 10 drugs, revenue since approval is quite a bit higher than the R&D spending, almost 7-fold higher, and some of these companies have already had revenue of 10-fold or higher, compared to the R&D expenses.”

The researchers acknowledged that this study is limited by a small data set and the fact that the findings cannot be extrapolated to other types of drugs.

1. DiMasi JA et al. Innovation in the pharmaceutical industry: new estimates of R&D costs. J Health Econ. 2016;47:20-33.

2. Young B et al. Rx R&D Myths: The Case Against the Drug Industry’s R&D “Scare Card.” Washington, DC: Public Citizen’s Congress Watch; 2001. https://www.citizen.org/sites/default/files/rdmyths.pdf.

Photo courtesy of the CDC

New research has provided an updated estimate of the spending needed to bring a cancer drug to the US market.

In analyzing data from 10 companies bringing a cancer drug to market, researchers found that sales revenue from these drugs was roughly 7 times higher than the research and development (R&D) costs.

The total sales revenue for the drugs—during a median follow-up of 4 years—was $67.0 billion, and the total R&D spending was $9.1 billion (including 7% opportunity costs).

Researchers reported these figures in JAMA Internal Medicine.

“[T]he price of cancer drugs is currently rising higher and higher each year,” said study author Vinay Prasad, MD, of Oregon Health and Science University in Portland.

“The cost of 1 drug for 1 year of treatment is now routinely in excess of $100,000 . . . . One of the often-cited reasons why cancer drugs cost so much—one of the justifications for the high price—is that the outlay by the biopharmaceutical industry to bring these drugs to market is sizable, and there have been a wide range of estimates for what that R&D outlay is.”

“The most-cited estimate is one that comes out of the Tufts Medical Group¹ that puts the cost to bring a cancer drug to market, when adjusted for 2017 dollars, at $2.7 billion. Another estimate is from the group Public Citizen.² And that is a much lower estimate, finding the cost to bring a drug to market of $320 million.”

“Both of these estimates have limitations in the methods for how they estimated the cost to bring a drug to market. Notably, the Tufts group is rather non-transparent. Because of confidentiality agreements, we don’t know what drugs and what companies they’re looking at, and we can’t independently verify their analysis.”

“The Public Citizen group, in contrast, is comparing expenditures over a period of time against the number of drugs in a different period of time to make an estimate of the cost to bring a drug to market, but this isn’t exactly the cost of bringing those particular drugs to market.”

These issues prompted Dr Prasad and Sham Mailankody, MBBS, of the Memorial Sloan Kettering Cancer Center in New York, to conduct the current study.

Analysis

The researchers analyzed US Securities and Exchange Commission filings for 10 drug companies that received approval from the US Food and Drug Administration for a cancer drug from 2006 through 2015.

Prior to this, none of the companies had any drugs approved for use in the US. However, the companies had a median of 3.5 (range, 2-11) drugs in development during the study period.

The researchers said the fact that these companies had no prior drug approvals eliminated biases that may be present when analyzing larger drug companies, such as redundancies in R&D development and tax incentives for listing different endeavors as R&D spending.

In addition, the fact that the 10 companies were developing other drugs during the study period means this study takes into account the cost of failure in bringing a drug to market.

Results

For the 10 companies and drugs analyzed, the median duration of drug development was 7.3 years (range, 5.8 to 15.2 years).

The median cost of drug development (in 2017 US dollars) was $648.0 million (range, $157.3 to $1950.8 million). For a 7% per annum cost of capital (or opportunity costs), the median cost was $757.4 million (range, $203.6 to $2601.7 million).

The median time from approval to analysis in December 2016 (or until the company sold or licensed the compound to another company) was 4.0 years (range, 0.8 years to 8.8 years).

The total revenue from sales of the 10 drugs during this time was $67.0 billion.

The total R&D spending was $7.2 billion, or $9.1 billion when including 7% opportunity costs.

The following table includes data broken down by drug.

*Received accelerated approval. (The other 5 drugs received regular approval.)

**Did not receive orphan designation. (Nine of the 10 drugs received orphan designation.)

“So I think what we’re showing is . . .  a transparent analysis of cancer drugs and companies, looking at the cost to bring a drug to market,” Dr Mailankody said. “And our estimate of $648 million is substantially lower than the often-cited number of $2.7 billion.”

“We’re also showing that, for these 10 drugs, revenue since approval is quite a bit higher than the R&D spending, almost 7-fold higher, and some of these companies have already had revenue of 10-fold or higher, compared to the R&D expenses.”

The researchers acknowledged that this study is limited by a small data set and the fact that the findings cannot be extrapolated to other types of drugs.

1. DiMasi JA et al. Innovation in the pharmaceutical industry: new estimates of R&D costs. J Health Econ. 2016;47:20-33.

2. Young B et al. Rx R&D Myths: The Case Against the Drug Industry’s R&D “Scare Card.” Washington, DC: Public Citizen’s Congress Watch; 2001. https://www.citizen.org/sites/default/files/rdmyths.pdf.

Photo courtesy of the CDC

New research has provided an updated estimate of the spending needed to bring a cancer drug to the US market.

In analyzing data from 10 companies bringing a cancer drug to market, researchers found that sales revenue from these drugs was roughly 7 times higher than the research and development (R&D) costs.

The total sales revenue for the drugs—during a median follow-up of 4 years—was $67.0 billion, and the total R&D spending was $9.1 billion (including 7% opportunity costs).

Researchers reported these figures in JAMA Internal Medicine.

“[T]he price of cancer drugs is currently rising higher and higher each year,” said study author Vinay Prasad, MD, of Oregon Health and Science University in Portland.

“The cost of 1 drug for 1 year of treatment is now routinely in excess of $100,000 . . . . One of the often-cited reasons why cancer drugs cost so much—one of the justifications for the high price—is that the outlay by the biopharmaceutical industry to bring these drugs to market is sizable, and there have been a wide range of estimates for what that R&D outlay is.”

“The most-cited estimate is one that comes out of the Tufts Medical Group¹ that puts the cost to bring a cancer drug to market, when adjusted for 2017 dollars, at $2.7 billion. Another estimate is from the group Public Citizen.² And that is a much lower estimate, finding the cost to bring a drug to market of $320 million.”

“Both of these estimates have limitations in the methods for how they estimated the cost to bring a drug to market. Notably, the Tufts group is rather non-transparent. Because of confidentiality agreements, we don’t know what drugs and what companies they’re looking at, and we can’t independently verify their analysis.”

“The Public Citizen group, in contrast, is comparing expenditures over a period of time against the number of drugs in a different period of time to make an estimate of the cost to bring a drug to market, but this isn’t exactly the cost of bringing those particular drugs to market.”

These issues prompted Dr Prasad and Sham Mailankody, MBBS, of the Memorial Sloan Kettering Cancer Center in New York, to conduct the current study.

Analysis

The researchers analyzed US Securities and Exchange Commission filings for 10 drug companies that received approval from the US Food and Drug Administration for a cancer drug from 2006 through 2015.

Prior to this, none of the companies had any drugs approved for use in the US. However, the companies had a median of 3.5 (range, 2-11) drugs in development during the study period.

The researchers said the fact that these companies had no prior drug approvals eliminated biases that may be present when analyzing larger drug companies, such as redundancies in R&D development and tax incentives for listing different endeavors as R&D spending.

In addition, the fact that the 10 companies were developing other drugs during the study period means this study takes into account the cost of failure in bringing a drug to market.

Results

For the 10 companies and drugs analyzed, the median duration of drug development was 7.3 years (range, 5.8 to 15.2 years).

The median cost of drug development (in 2017 US dollars) was $648.0 million (range, $157.3 to $1950.8 million). For a 7% per annum cost of capital (or opportunity costs), the median cost was $757.4 million (range, $203.6 to $2601.7 million).

The median time from approval to analysis in December 2016 (or until the company sold or licensed the compound to another company) was 4.0 years (range, 0.8 years to 8.8 years).

The total revenue from sales of the 10 drugs during this time was $67.0 billion.

The total R&D spending was $7.2 billion, or $9.1 billion when including 7% opportunity costs.

The following table includes data broken down by drug.

*Received accelerated approval. (The other 5 drugs received regular approval.)

**Did not receive orphan designation. (Nine of the 10 drugs received orphan designation.)

“So I think what we’re showing is . . .  a transparent analysis of cancer drugs and companies, looking at the cost to bring a drug to market,” Dr Mailankody said. “And our estimate of $648 million is substantially lower than the often-cited number of $2.7 billion.”

“We’re also showing that, for these 10 drugs, revenue since approval is quite a bit higher than the R&D spending, almost 7-fold higher, and some of these companies have already had revenue of 10-fold or higher, compared to the R&D expenses.”

The researchers acknowledged that this study is limited by a small data set and the fact that the findings cannot be extrapolated to other types of drugs.

1. DiMasi JA et al. Innovation in the pharmaceutical industry: new estimates of R&D costs. J Health Econ. 2016;47:20-33.

2. Young B et al. Rx R&D Myths: The Case Against the Drug Industry’s R&D “Scare Card.” Washington, DC: Public Citizen’s Congress Watch; 2001. https://www.citizen.org/sites/default/files/rdmyths.pdf.