A recent study in the Journal of the American Medical Association (JAMA) has concluded that R&D costs a company just USD 648 million on average to bring a cancer drug to the market -- a small fraction of the USD 2.7 billion the industry claims is the average cost of drug discovery.
Though the study was restricted to cancer drugs, it raises questions about whether R&D costs are much lower than claimed by the pharma industry and if so whether patent terms need to be so long and drug prices this high to recover these costs.
The study published on Monday showed that within about four years of drug approval, revenue from the sale of the drugs studied was on average nine-fold higher than the R&D spending. Even accounting for what the money would have earned if invested in the market, the returns are seven times the costs.
The paper authored by Dr Vinay Prasad of the Knight Cancer Institute, Oregon Health and Science University in Portland, and Dr Sham Mailankody of Memorial Sloan Kettering Cancer Center in New York analysed filings of R&D expenditure by 10 publicly traded pharma companies with the US Securities and Exchange Commission (SEC).
Prior estimates for the cost to develop one new drug ranged from USD 320 million, as estimated by the civil society group Public Citizen, to USD 2.7 billion, as estimated by the industry-funded Tufts Center for the Study of Drug Development. Since the Tufts study used private data provided by 10 pharmaceutical firms, it lacked transparency and independent replication.
Public Citizen used publicly available US SEC R&D filings for all major pharmaceutical firms during a seven-year period, but divided the total expenditure across all companies by the number of new drugs approved for them in the subsequent seven years.
The authors of the latest study argued that this did not reflect the actual spending to bring these drugs to market.
Hence, they focused on companies that had brought a single drug to the market so that they could total R&D filings that led to a single approval. Their analysis included the cost of pursuing a portfolio of candidate compounds to yield one drug, thereby accounting for the cost of failed attempts.
The study was conducted from December 10, 2016, to March 2, 2017.
From the time of approval of a drug to December 2016 (or until the compound was sold or licensed to another company), the total revenue of the 10 drugs studied was USD 67.0 billion, against a total cost of USD 7.2 bn -- or USD 9 billion if the cost of capital was taken into account.
"Some companies boasted more than a 10-fold higher revenue than R&D spending, a sum not seen in other sectors of the economy," the authors observed. With market exclusivity in oncologic drugs averaging 14.3 years, these revenues would continue to increase over time, they pointed out.
An editorial in the same journal stated: "The implications of the present study seem clear. 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." – TOI