Bringing Drugs to Market Costs Less Than Previously Thought, Study Finds

How much does it cost for a drug maker to develop a new drug? Prior estimates have put this figure as high as $2.7 billion, but a new study indicates that the median cost of development for 10 cancer drugs was actually $648 million—a substantial discrepancy.

Some pharmaceutical companies cite the costs of research and development to justify the high prices of specialty drugs, but analyses of those costs have yielded dramatically different estimates of the price to bring a single drug to market. A study published in JAMA Internal Medicine tackles this question through a different approach by examining financial filings for companies that have a single FDA-approved product.

Using publicly available data filed with the federal Securities and Exchange Commission, the researchers calculated research and development costs for companies producing 10 oncologic drugs, from the first year of drug activity through FDA approval. Each company was developing other compounds during the same period as the approved drug, so the analysis includes total development costs for the entire drug portfolio, even for failed drugs that were not approved.

Among these 10 drugs, the median time in development was 7.3 years, and the median cost to develop a single drug was $648.0 million. When including opportunity costs, calculated as a 7% return on capital, the median cost of development rose to $757.4 million. The researchers determined that novel drugs cost more to develop than next-in-class drugs, and self-originated drugs cost more than those acquired from other companies.

The total revenue for these 10 drugs from their time of approval to December 2016 was $67 billion. A total of $9 billion, including opportunity costs, was spent to research and develop the drugs, meaning that the amount of total revenue was over 7 times higher than the costs of development.

Study authors acknowledged the small sample size as a shortcoming, but ultimately concluded that the greatest limitation to this study and previous estimates is the lack of transparency around research and development costs.

“Future work regarding the cost of cancer drugs may be facilitated by more, not less, transparency in the biopharmaceutical industry,” they wrote.

An editorial by Merrill Goozner, MS, editor emeritus of Modern Healthcare, was published in the same issue of JAMA Internal Medicine. He praised the new analysis as a “much-needed corrective” to prior estimates of drug development costs, as it focuses on spending by newer drug developers instead of large pharmaceutical companies. According to Goozner, the study’s findings also contradict some lines of reasoning used to justify high drug prices.

“Current pharmaceutical industry pricing policies are unrelated to the cost of research and development,” Goozner concluded. “Policymakers can safely take steps to rein in drug prices without fear of jeopardizing innovation.”