Pharmaceutical firms are using inflated development costs to gouge us

Research and Development Spending to Bring a Single Cancer Drug to Market and Revenues After Approval

By Vinay Prasad, MD; Sham Mailankody, MBBS
JAMA Internal Medicine, September 11, 2017

Key Points

Question: What is the estimated research and development spending for developing a cancer drug?

Findings: In this analysis of US Securities and Exchange Commission filings for 10 cancer drugs, the median cost of developing a single cancer drug was $648.0 million. The median revenue after approval for such a drug was $1658.4 million.

Meaning: These results provide a transparent estimate of research and development spending on cancer drugs and show that the revenue since approval is substantially higher than the preapproval research and development spending.

From the Introduction

The cost of anticancer drugs continues to increase, with drugs routinely priced more than $100, 000 per year of treatment and some nearing the $200, 000 per year threshold. High drug prices have negative effects on patients and society, and groups of physicians, patients, and policymakers have voiced their opposition to these prices. However, one persistent argument in justification of high drug prices is the sizable outlay made by biopharmaceutical firms to develop new drugs. In a widely publicized analysis from the Tufts Center for the Study of Drug Development, the authors estimate $2.7 billion (inflation adjusted for 2017 US dollars) is needed to bring a single drug to the US market. This figure is more than 8 times higher than the $320.0 million (inflation adjusted for 2017 US dollars) estimate to develop one drug reached by the group Public Citizen. Given such divergent estimates, closer examination is warranted.

We focused on publicly traded pharmaceutical companies with only one US Food and Drug Administration (FDA)–approved drug. We used SEC filings from the approximate time of discovery or initial acquisition of the compound to drug approval to estimate the cost to bring one drug to market. Because, in all instances, these companies were simultaneously developing several compounds, our analysis considers the cost of failure (ie, we include R&D costs for each company’s entire portfolio of drugs, of which only one drug was ultimately approved).


Prior estimates for the cost to develop one new drug span from $320.0 million to $2.7 billion. We analyzed R&D spending for pharmaceutical companies that successfully pursued their first drug approval and estimate that it costs $648.0 million to bring a drug to market. In a short period, development cost is more than recouped, and some companies boast more than a 10-fold higher revenue than R&D spending—a sum not seen in other sectors of the economy. Future work regarding the cost of cancer drugs may be facilitated by more, not less, transparency in the biopharmaceutical industry.



By Don McCanne, M.D.

This study confirms that the pharmaceutical firms are using inflated costs of bringing a product to market in order to gouge us. This cries out for government intervention. A well designed single payer system would fix this while addressing a great many of the other problems with our dysfunctional system of financing health care that results in us paying too much for too little.

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