Sunday, July 8, 2012

Cost of Cancer Drug Development, 4 Billion. Cost to Patient, 0.1 Million. Benefit, Priceless! Business Model, Unsustainable

I recently rediscovered an article by Forbes's Mathew Herper, "The Truly Staggering Cost Of Inventing New Drugs." In this article, Mathew pegs the true cost of bringing drugs to market at 4 billion dollars.

For years, 1 Billion figure had been tossed around based on the 2003 study by Joseph DiMissi of Tufts University who estimated the pre-tax cost of new drugs at 802 million in year 2000 dollars which at that time was more than double what the cost was ten years earlier. Access PDF of this paper here.

However, others have dissected DiMissi's numbers and methods, and after including all the tax breaks pharma gets, and cutting inflated preclinical costs in DiMissi's calculations, they have put the actual cost as mere $75 million average. Read the paper here or via scholar. Actually, the controversy regarding "true cost" had been swirling since 2000 and increased with the publication of a book $800 Million Pill in 2004. However, these sparrings never took into account the cost of all the failed drugs (see below).

Bernard Munos of the InnoThink Center for Research in BioMedical Innovation divided the total R&D costs by the average number of drugs approved--the total R&D cost includes monies spent on failed drugs which are nearly 90% of all drugs tested--and arrived at 4 billion $ estimate.  Mathew and his colleague Scott DeCarlo decided to take this analysis a step further.  They took R&D data from preceding 15 years, adjusted for inflation, and--surprise, surprise!--the numbers were all the way up to 12 billion dollars for AstraZeneca (they had just 5 new drug approvals) and other big guys (GSK, Sanofi, Roche and Pfizer) were in 8 billion $ league, but costs for majority of pharma was around 4 billion.

Now, the $100,000 per-patient per-year price tag for cancer drugs doesn't look excessive anymore.
  • Adcetris (Seattle Genetics) is $120,000
  • Yervoy (Bristol-Myers Squibb) is also $120,000
  • Provenge (Dendreon) costs $93,000
  • Folotyn (Allos Therapeutics) is $30,000 per month (=$360,000 per year!)

But, $100,000 price tag may be closer to the last straw that will break the camel's back.  Already, oncology practices around the country are under financial strain because insurance companies fail to pay the pharma's asking price forcing oncology practices to cover the cost elsewhere.  Since healthcare infrastructure is finite, increasing cost of cancer has negative impact on rest of the healthcare system.  Today, the question, "what will insurance pay," is increasingly being considered in boardrooms.

Since cancer drugs cannot be sold as iPads, the economics of scale will not work.  The WalMart model is the one to consider--bring R&D costs down.  Suggestions include increasing the drug approval rates, open-access patent-free early-research R&D models, public-private partnerships where pharma is increasing relocating to biotech and big university hubs, such as Boston or San Francisco, and performing clinical drugs regardless of national boundaries.  The realignment of big planets in the business has been happening since the big recession began in Bush era, and it's not over yet.  The pharma of 2020 will probably look nimbler and work much smarter. 


This post borrowed heavily from Methew Herper's article, "The Truly Staggering Cost Of Inventing New Drugs." Forbes Blog. February 10, 2012.


28% of Phase III Failures are in Oncology Trials. December 4, 2011.
OncoBrands We Used to Know in 2011. December 31, 2011.

1 comment:

  1. also a good read:

    Do oncologists have an incentive to prescribe expensive treatments?
    by PETER UBEL, MD at

    A recent economic analysis concluded that patients with metastatic cancer value their treatments significantly more than regulators recognize, with many expensive new therapies looking like veritable bargains to most patients. Yet the study ignored the values really driving oncology spending—the warped incentives oncologists have to promote their own bottom line by prescribing expensive treatments...