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

Reviewed by Dr. Neil Keshvani
Prasad V et al. JAMA Intern Med. 2017 Sep 11;177(2):1549-51

The cost of anticancer drugs has risen to extraordinary levels, with some drugs nearing $200,000 per year. An argument supporting these high costs is the significant research & development (R&D) investment from pharmaceutical companies. However, official R&D expenses are not known. A widely cited previous study estimated $1.4 billion for a single drug, however, this was calculated using industry-sponsored data that was not made available to the public.1 The authors in this study utilized a different approach – focusing on publicly traded companies with only one FDA-approved anticancer drug. They calculated the entire R&D investment including all failed drugs as only one drug made it to market. Expenses were totaled from 2 years before initial mention of the chemical compound in published literature. The authors utilized independently audited SEC K-10 filings for the study. Ten drugs were included: eculizumab, pralatrexate, brentuximab, ruxolitinib, enzalutamide, vincristine liposome, cabozantinib, ponatinib, ibrutinib, and irinotecan liposome. Five of these drugs act on a novel target, and the other five are next-in-class drugs.

The median time to development was 7.3 years (range 5.8-15.2 years). The median cost of development of a single drug was $648 million (range $157.3 million to $719.8 million), and the mean was $719.8 million (95% CI, $336.0 million to $1104.0 million). R&D spending on novel drugs was significantly higher than next-in-class drugs (mean of $899.2 million vs mean of $473.3 million). The median revenue was $1658.4 million (range $204.1 million to $22,275 million), and the mean was $6691 million (95% CI, $403.0 million to $12996 million). In total, 9/10 drugs had higher revenues compared to R&D spending, and 4/10 drugs had a revenue 10-fold higher than R&D spending.

The authors describe eculizumab in detail. The drug was approved for paroxysmal nocturnal hemoglobinuria and later received approval for atypical hemolytic uremic syndrome. Since the prevalence of these diseases is low, the expectation is that the drugs would have difficulty in generating profit. However, with aggressive pricing, eculizumab has generated $12 billion in revenue.

The United States has a substantial problem with healthcare expenditures, and a significant component is drug cost. Because companies do not explicitly provide data on actual drug costs, the authors estimate that a drug on average costs $757.4 million when the cost of capital is included. This is significantly lower than the median revenue of $1.7 billion, and all of these revenues will continue to rise throughout the lifespan of the exclusivity patent (which has been estimated at 14.3 years for anticancer drugs).2 All of the above drugs are protected by patents.

This analysis is advantageous to prior studies that attempted to investigate this issue. Previous studies have relied on private data from pharmaceutical companies, and this data was secured with nondisclosure agreements. This lack of transparency is a significant issue. Pharmaceutical companies may have included the cost of phase 4 trials under the cost to develop a drug, but these trials are used to booster off-label sales and should not be included in the initial analysis. However, there are some criticisms with this approach. Importantly, this study only analyzes companies that have successfully brought a drug to market. This ignores the many drugs that fail, which would bankrupt a one-drug company. This may impact the estimation of the total drug development cost. Full transparency in R&D expenditures is required to precisely measure the actual cost of drug development.

1. DiMasi JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry: New estimates of R&D costs. J Health Econ. 2016;47:20-33.
2. Wang B, Liu J, Kesselheim AS. Variations in time of market exclusivity among top-selling prescription drugs in the United States. JAMA Intern Med. 2015;175(4):635-637.


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