You have to spend money to make money.
That adage may be more true in the pharmaceutical industry than any other business.
Especially when it comes to cancer drugs.
Researchers say the median cost for a pharmaceutical company to successfully develop a new cancer drug is close to $650 million.
It also takes slightly more than seven years to go from initial research to using the drug in a medical setting.
After that, those new drugs bring in a median of $1.6 billion in revenue.
That’s a profit of nearly $1 billion on each new cancer drug.
Consumer groups say the study reveals the true picture of research and development (R&D) for new drugs.
“This study sheds much-needed light on the disconnect between price hikes and R&D expenditures, and puts to rest Big Pharma’s oft-cited rationalization for blocking policies designed to rein in out-of-control drug prices,” William Holley, a spokesperson for the Campaign for Sustainable Rx Pricing, told Healthline. “Congress should take this new information to heart and act on the bipartisan proposals, such as the CREATES Act, that will stimulate competition and result in lower drug prices for all.”
However, representatives from the pharmaceutical industry point out the study failed to take into consideration the money companies spend researching drugs that do not get approval.
“This study significantly understates the incredible investment biopharmaceutical companies make in the development of new cancer therapies by focusing only on companies that have been successful, and omitting the significant early-stage research and development costs for many of the companies analyzed,” Holly Campbell, a spokesperson for the Pharmaceutical Research and Manufacturers of America (PhRMA), told Healthline.
The research numbers
The study was overseen by Sham Mailankody, MBBS, of Memorial Sloan Kettering Cancer Center in New York.
Mailankody and his fellow researchers analyzed drug company filings from records of the Securities and Exchange Commission (SEC).
Those companies had no drugs on the U.S. market from 2006 to 2015 that had received approval from the Food and Drug Administration (FDA).
The researchers looked at 10 pharmaceutical companies that have recently marketed new drugs.
The researchers said it took a median time of 7.3 years for those drugs to be developed.
The median cost of drug development was $648 million.
The total revenue of those drugs was $67 billion from the time of approval to December 2016, or until the company sold or licensed the drug to another company.
The average revenue for those drugs during that time was $6.7 billion due to some “outliers” with high revenue totals. The median revenue was $1.6 billion.
The researchers acknowledged their study was from a small set of data.
They also noted the survey involved only cancer drugs and couldn’t be extrapolated into other pharmaceutical fields.
However, the researchers do think their study has some relevance.
“This analysis provides a transparent estimate of R&D spending on cancer drugs and has implications for the current debate on drug pricing,” the researchers wrote.
The debate over prices
The debate over the cost of pharmaceutical drugs has been raging for a number of years now.
A surge in the price of hepatitis C drugs in 2014 led some people to ask why some drugs cost so much and others don’t.
In 2015, Turing Pharmaceuticals raised the price of its drug Daraprim from $13 to $750 per pill overnight. The outrage eventually led to congressional hearings that included testimony from Turing Chief Executive Officer, Martin Shkreli.
Last year, a report revealed that the price of cancer drugs has skyrocketed six-fold since 2000.
This summer, concerns were raised about the $475,000 price tag Novartis placed on its new cancer-fighting drug, Kymriah.
Also this summer, Sen. Bernie Sanders (I-Vt.) said he would support two pieces of legislation to help lower prescription drug prices.
One bill would put price caps on drugs in which taxpayers helped fund the research. The other would make it easier to import medications from Canada and other countries.
David Mitchell, president of Patients for Affordable Drugs, would welcome such changes.
Besides overseeing his consumer group, Mitchell is also being treated for the blood cancer multiple myeloma. His drug treatments cost $450,000 per year.
“Drug prices punish people for being sick,” Mitchell told Healthline.
He said the study dispels the “inflated costs” the pharmaceutical industry has used in the past to justify their prices.
However, pharmaceutical officials once again point out that there are astronomical research and development costs in their industry.
“Ignoring the R&D costs from the many companies that have not received a U.S. Food and Drug Administration approval indicates a lack of understanding of the risk companies face at the outset of an uncertain project and the role of economic incentives in ensuring investment despite steep odds,” Campbell said. “The risk inherent in R&D is the key reason why 90 percent of publicly-traded biopharmaceutical companies in 2014 did not make a profit.”
Campbell added that pharmaceutical companies used the research obtained in tests of drugs that aren’t marketed to develop new and even better medications.
“Thanks to the tenacity of biopharmaceutical companies, we have therapies unimaginable just a decade ago that attack cancer at the molecular level and are tailored to the unique needs of individual patients,” she said.
Mitchell said he is in favor of a “robust R&D pipeline,” but he feels the prices for cancer drugs more than make up for those research costs.
“They’re asking consumers and patients to cover their risk,” he said. “There has to be a line where the prices meet the criteria for patients and for drug companies to make a profit.”
A new era
Dr. Len Lichtenfeld, deputy chief medical officer for the American Cancer Society, said the study will certainly spark debate over drug prices.
However, we are in a new era in pharmaceutical research.
Lichtenfeld told Healthline that biologic drugs and targeted therapies like immunology are more expensive to research.
In addition, they serve a smaller patient base than the more general drugs of the past such as penicillin.
That means companies need to charge more to make a profit.
He said society may have to choose over how aggressive they want research and development to be in these fields, given the costs.
“That’s a much larger question,” he said.
In the past, initially high drug prices have gone down after they receive widespread use.
That’s no longer the case with our more specialized drugs.
“Now, it’s a matter of spreading cost over only hundreds, perhaps a few thousand, people,” Lichtenfeld said. “It’s a different world.”