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The REAL Cost of Drug Development

The REAL Cost of Drug Development
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Published on September 20, 2017

It felt like a bizarre version of “THE PRICE IS RIGHT”—guess the actual price without going over. Except, when we’re talking about life-saving cancer medications, it’s not a game show!

It began with a recent article in JAMA, the Journal of the American Medical Association, that concludes it costs, on average, $650 million to develop a new cancer drug. That’s far, far lower than the cost cited by the pharmaceutical industry of $2.7 billion to develop each new drug.   

However, a reputable healthcare economist we know says the study’s lead author demonstrates a clear bias against the pharmaceutical industry throughout his writings, and this economist told us, “I re-ran the numbers, and the study is wrong.”

We won’t get into the weeds about the calculations, and I haven’t mentioned either name, because I don’t want to attack either side. It’s not about experts; it’s about patients, and how are we supposed to respond?

Here’s What We DO Know

A press release from a biotech start-up company said it raised $28 million dollars in its first round of financing just to get started. That included paying for the technology it was intending to turn into a proven pharmaceutical, putting together a management team, and beginning clinical trials that would be acceptable to regulatory authorities for approval.

That money came from private investors who could have put their money into anything. As it is, it can take 10 years for a new drug to be approved, so they wanted a healthy a return in return for their contribution to improving our health. Of course, it doesn’t always cost that much to start a biotechnology company, but with additional rounds of funding to support later stage clinical trials, the total cost may be a lot more.

The High Price of Failure

In this case, the drug did not perform as expected in clinical trials! Now the investors have to expect even more from the next drug they support, or just not invest in new drugs at all. As patients, we don’t want that to happen.

In fact, an NPR report about the JAMA study quotes the Tufts Center for the Study of Drug Development, estimating that “only one drug in eight makes its way through testing to the marketand the new study doesn't account for that degree of failure.” BIO, the biotechnology trade organization agrees: “The study only looked at companies which successfully secured FDA approval for a drug, while leaving unexamined R&D spending at companies which didn’t secure an approval … The vast majority95 percentof potential new cancer drug programs that enter clinical trials end up failing.” For the investors who make new drugs possible, failure is expensive.

Bottom Line?

The pharmaceutical industry says it costs more than $2 billon to develop a new drug. The JAMA study says it costs “only” $650 million. In the end, the answer may be in the headline from a trade publication called The Pink Sheet, quote: “The Cost of Drug Development: Can We All Just Agree It’s Expensive?” Yes, it is.

One more point: should the government be more of a leader in cancer research? Maybe so. But the money Congress allocates for cancer research is paltry compared with pharma. What about what’s investment by the governments of other countries? Again, it’s relatively small. So it’s capitalism that reigns. Private investors put money in and expect a return whether from a single new drug or the one of money that succeeds. One can argue about cost, and we can work hard to lower the expenseslike years of testing and FDA reviewbut right now part of the debate is whether pushing for lower prices, whatever the development cost is, will scare investors away and dampen our hope for cures.

~Andrew Schorr
Patient Power Co-Founder

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Please remember the opinions expressed on Patient Power are not necessarily the views of our sponsors, contributors, partners or Patient Power. Our discussions are not a substitute for seeking medical advice or care from your own doctor. That’s how you’ll get care that’s most appropriate for you.


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