What Does It Cost to Create a Cancer Drug? Less Than You’d Think

October 18, 2017

What does it really cost to bring a drug to market?

The question is central to the debate over rising health care costs and appropriate drug pricing. President Trump campaigned on promises to lower the costs of drugs.

But numbers have been hard to come by. For years, the standard figure has been supplied by researchers at the Tufts Center for the Study of Drug Development: $2.7 billion each, in 2017 dollars.

Yet a new study looking at 10 cancer medications, among the most expensive of new drugs, has arrived at a much lower figure: a median cost of $757 million per drug. (Half cost less, and half more.)

Following approval, the 10 drugs together brought in $67 billion, the researchers also concluded — a more than sevenfold return on investment. Nine out of 10 companies made money, but revenues varied enormously. One drug had not yet earned back its development costs.

The study, published Monday in JAMA Internal Medicine, relied on company filings with the Securities and Exchange Commission to determine research and development costs.

“It seems like they have done a thoughtful and rigorous job,” said Dr. Aaron Kesselheim, director of the program on regulation, therapeutics and the law at Brigham and Women’s Hospital.

“It provides at least something of a reality check,” he added.

The figures were met with swift criticism, however, by other experts and by representatives of the biotech industry, who said that the research did not adequately take into account the costs of the many experimental drugs that fail.

“It’s a bit like saying it’s a good business to go out and buy winning lottery tickets,” Daniel Seaton, a spokesman for the Biotechnology Innovation Organization, said in an email.

Dr. Jerry Avorn, chief of the division of pharmacoepidemiology and pharmacoeconomics at Brigham and Women’s Hospital, predicted that the paper would help fuel the debate over the prices of cancer drugs, which have soared so high “that we are getting into areas that are almost unimaginable economically,” he said.

A leukemia treatment approved recently by the Food and Drug Administration, for example, will cost $475,000 for a single treatment. It is the first of a wave of gene therapy treatments likely to carry staggering price tags.

“This is an important brick in the wall of this developing concern,” he said.

Dr. Vinay Prasad, an oncologist at Oregon Health and Science University, and Dr. Sham Mailankody, of Memorial Sloan Kettering Cancer Center, arrived at their figures after reviewing data on 10 companies that brought a cancer drug to market in the past decade.

Since the companies also were developing other drugs that did not receive approval from the F.D.A., the researchers were able to include the companies’ total spending on research and development, not just what they spent on the drugs that succeeded.

One striking example was ibrutinib, made by Pharmacyclics. It was approved in 2013 for patients with certain blood cancers who did not respond to conventional therapy.

Ibrutinib was the only drug out of four the company was developing to receive F.D.A. approval. The company’s research and development costs for their four drugs were $388 million, the company’s S.E.C. filings indicated.

The drug ibrutinib was developed to treat chronic lymphocytic leukemia, shown here in a CT reconstruction of a patient’s neck. The manufacturer’s return on investment was quite high, according to a new study. Credit LLC/Science Source

After the drug was approved, AbbVie acquired its manufacturer, Pharmacylics, for $21 billion. “That is a 50-fold difference between revenue post-approval and cost to develop,” Dr. Prasad said.

Accurate figures on drug development are difficult to find and often disputed. Although it is widely cited, the Tufts study also was fiercely criticized.

One objection was that the researchers, led by Joseph A. DiMasi, did not disclose the companies’ data on development costs. The study involved ten large companies, which were not named, and 106 investigational drugs, also not named.

But Dr. DiMasi found the new study “irredeemably flawed at a fundamental level.”

“The sample consists of relatively small companies that have gotten only one drug approved, with few other drugs of any type in development,” he said. The result is “substantial selection bias,” meaning that the estimates do not accurately reflect the industry as a whole.

Ninety-five percent of cancer drugs that enter clinical trials fail, said Mr. Seaton, of the biotech industry group. “The small handful of successful drugs — those looked at by this paper — must be profitable enough to finance all of the many failures this analysis leaves unexamined.”

“When the rare event occurs that a company does win approval,” he added, “the reward must be commensurate with taking on the multiple levels of risk not seen in any other industry if drug development is to remain economically viable for prospective investors.”

Cancer drugs remain among the most expensive medications, with prices reaching the hundreds of thousands of dollars per patient.

Although the new study was small, its estimates are so much lower than previous figures, and the return on investment so great, that experts say they raise questions about whether soaring drug prices really are needed to encourage investment.

”That seems hard to swallow when they make seven times what they invested in the first four years,” Dr. Prasad said.

The new study has limitations, noted Patricia Danzon, an economist at the University of Pennsylvania’s Wharton School.

It involved just ten small biotech companies whose cancer drugs were aimed at limited groups of patients with less common diseases.

For such drugs, the F.D.A. often permits clinical trials to be very small and sometimes without control groups. Therefore development costs may have been lower for this group than for drugs that require longer and larger studies.

But, Dr. Danzon said, most new cancer drugs today are developed this way: by small companies and for small groups of patients. The companies often license or sell successful drugs to the larger companies.

The new study, she said, “is shining a light on a sector of the industry that is becoming important now.” The evidence, she added, is “irrefutable” that the cost of research and development “is small relative to the revenues.”

When it comes to drug prices, it does not matter what companies spend on research and development, Dr. Kesselheim said.

“They are based on what the market will bear.”

Correction: September 14, 2017
An earlier version of this article incorrectly identified the company that acquired a drug maker. It was AbbVie, not Janssen Biotech (which jointly develops the drug). Additionally, the article incorrectly described what AbbVie acquired. It was the company Pharmacylics, which developed the drug Imbruvica, not the drug itself.

Original source: https://www.nytimes.com/2017/09/11/health/cancer-drug-costs.html

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2 thoughts on “What Does It Cost to Create a Cancer Drug? Less Than You’d Think

  1. There needs to be a new mechanism for funding pharmaceutical research so that patients only pay the actual manufacturing costs of the products they use.

    For example: It is legislatures (ie taxpayers and electors) that require the regulatory approval that makes up the bulk of the so called “development costs”. Maybe treatments that have been shown to work under laboratory conditions should get approval at the collective expense.

    Maybe there are sound reasons why this wouldn’t work.

    If so, then think of something else. What exists at present is ridiculous. It is a waste of scientists’ time to develop any product that few people could afford to use. Imagine where computer industry would be today if computers still cost what they did in the 1950s.

    Gene therapy is the obvious way to treat cancer. It is after all a genetic disease. It is ludicrous that each treatment should cost half a million dollars. Considering the billions of people on the planet and given that a third of them will die of cancer, there should be enough customers to pay an affordable price per treatment. This is analogous to the fact that there are enough people who can afford a pocket computer (so called smartphone) to make developing them worthwhile.

    It is also ludicrous that early adopters should pay the bulk of research costs. Isn’t research what stock markets should be raising money for? Not for the opportunity to legally blackmail dying rich patients.

  2. Alexandros Morelas says:

    Hi John and thank you for your comment. I think that some points in your argument are wrong. A very few treatments cost so much like half million dollars. The treatment the article is referring is not only a novel treatment but it is the first of a whole new category of treatments. Its like the first chemo. Most of the others treatments are quite affordable. Also its exaggeration to say that 2 billion people (1/3) of world population will dye from cancer. I think its about 20 millions nowadays.
    But I agree with you that a better look on pharma economics should be made. Some companies for sure are talking advantage of their patients. And this had to change.

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