Unmasking the cost of cancer drug development

Cancer drug R&D spending may be a fraction of the estimate cited by the biopharmaceutical industry.

Sales revenue compared with total company R&D spending including an opportunity cost, or cost of capital, of 7 percent per year, as estimated by Prasad and Mailankody. (OHSU/Joe Rojas-Burke)

The average price of anticancer drugs has been rising by about 10 percent annually in recent years, with annual costs for a single drug now routinely running to $100,000 or more. The burden is falling hard on people with cancer. In one study, 34 percent of survivors went into debt (and 9 percent who went into debt filed for bankruptcy) even though 97 percent had health insurance. And when patients face unaffordable copayments, they’re more likely to delay or discontinue treatment.

One justification for the high price of cancer drugs is the required investment in research and development. But a new study co-authored by an OHSU physician estimates that R&D spending is a fraction of the cost cited by drug companies.

“What I would want patients to take away from it is to check your assumptions that these drug prices are warranted,” says Vinay Prasad, M.D., M.P.H., an assistant professor of medicine in the OHSU School of Medicine and member of the OHSU Knight Cancer Institute. “We have to speak up, and make our opinions known that we want drugs to be affordable, profits fair and R&D costs truthfully conveyed to us.”

“Policymakers can safely take steps to rein in drug prices without fear of jeopardizing innovation.”


Prasad and  Sham Mailankody, M.B.B.S., a hematologist and medical oncologist at Memorial Sloan Kettering Cancer Center, drew upon Securities and Exchange Commission financial reports from ten publicly traded firms with only one approved anticancer agent. Because all of the companies were simultaneously developing several compounds, the analysis took into account the cost of failure by tallying up the R&D costs for each company’s entire portfolio, not just the drug that won Food and Drug Administration clearance.

“We thought if we focused on the R&D spending of some pharmaceutical companies that have only one FDA-approved cancer drug in the market, we might be able to better estimate the cost of developing a cancer drug,” Mailankody said in a news release.

“We were surprised to see our analysis show this cost to be about $648 million.”

That’s about one-fourth the size of the widely cited $2.7 billion estimate given by the Tufts University Center for the Study of Drug Development as the average capital outlay needed to develop a single drug. The paper is published in the journal JAMA Internal Medicine.

Nine of the 10 drugs had higher revenues compared with R&D spending, and for four drugs (ponatinib, ibrutinib, enzalutamide, and eculizumab), the revenue from sales was more than 10 times higher than R&D spending (not including opportunity costs). The figure above shows revenue from sales of each drug after FDA approval and total company R&D spending including an opportunity cost, or cost of capital, of 7 percent per year.

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“The implications of the present study seem clear,” asserted an invited commentary in JAMA Internal Medicine. “Current pharmaceutical industry pricing policies are unrelated to the cost of research and development. Policymakers can safely take steps to rein in drug prices without fear of jeopardizing innovation.”

News outlets covering the research included the New York TimesNPR, Medscape and Business Insider.

Further reading:

Research and Development Spending to Bring a Single Cancer Drug to Market and Revenues After Approval by Vinay Prasad and Sham Mailankody. JAMA Internal Medicine (September 11, 2017)

A Much-Needed Corrective on Drug Development Costs by Merrill Goozner JAMA Internal Medicine (September 11, 2017)

Cost Sharing and Adherence to Tyrosine Kinase Inhibitors for Patients With Chronic Myeloid Leukemia by Stacie B. Dusetzina, Aaron N. Winn, Gregory A. Abel, Haiden A. Huskamp, Nancy L. Keating. Journal of Clinical Oncology (February 2014)

Pricing in the Market for Anticancer Drugs by  David H. Howard, Peter B. Bach, Ernst R. Berndt, and Rena M. Conti. Journal of Economic Perspectives (February 2015)

For Working-Age Cancer Survivors, Medical Debt And Bankruptcy Create Financial Hardships by Matthew P. Banegas, Gery P. Guy Jr., Janet S. de Moor, Donatus U. Ekwueme, Katherine S. Virgo, Erin E. Kent, Stephanie Nutt, Zhiyuan Zheng, Ruth Rechis and K. Robin Yabroff. Health Affairs (January 2016)