Revenue from new cancer-drugs substantially greater than cost of development

1. The cost of research and development (R&D) for a company to develop their first FDA approved cancer medication is estimated to be $648.0 million, while revenue was substantially greater despite relatively short time on the market.

2. In-house preclinical development and first-in-class medications required greater research and development cost.

Evidence Rating Level: 3 (Average)

Study Rundown: The rising cost of cancer therapeutics has become a notable point of controversy with cost of new cancer drugs routinely exceed $100,000/year primarily driven by prices set by pharmaceutical companies. The prices of medications have been justified due to the substantial cost of development for a single therapeutic agent and relatively small target populations. Estimates of R&D cost have varied widely based on source of data and are often complicated by the difficulty attributing cost of drug development attempts that never obtain FDA approval. The current study focused solely on companies that developed one FDA approved medication for cancer therapy and used securities and exchange commission (SEC) filings to estimate total R&D costs including failed drug development attempts. The study found that for 10 companies, the development of one FDA-approved drug had a median cost of $648.0 million but median revenue of $1658.4 million after a median of 4 year on market. In-house preclinical development and first-in-class medications were shown to have increased R&D cost.

The study provides useful estimates for the development of cancer therapeutics that can help inform policy makers with regards to possible regulation of drug costs. The main advantage of this analysis is the focus on companies that have developed one FDA approved drug; thereby attributing all cost and revenue for a single successful drug. The main limitations of the analysis include the reliance on secondhand SEC data for analysis. The focus on companies that have developed a successful drug eliminate the companies that failed to successfully obtain FDA approval from cost and risk estimates. Finally, the study is not generalizable to medications used for non-oncologic purposes which may have different cost and revenue potentials.

Click to read the study, published in JAMA Internal Medicine

Relevant Reading: The $2.6 Billion Pill — Methodologic and Policy Considerations

In-Depth [retrospective cohort]: This study included all companies that developed their first FDA-approved medication from January 1, 2006 to December 31, 2015 if that medication was for an oncologic indication. R&D cost was estimated using publically available data from SEC 10 K filings and included the time from the first year of R&D spending to data of FDA approval. Companies were excluded if data for R&D cost were not available.

A total of 13 companies received first FDA drug approval during the study period, with 10 having R&D spending data available through the SEC. The median number of drugs in development for 1 approval was 3.5, with median time of development of 7.3 years. The median cost of drug development was $648.0 million (range, $157.3 million to $1950.8 million), and significantly greater for first in class medications ($899.2 million [range, $328.1 million to $1950.8 million] vs $473.3 million [range, $157.3 million to $815.8 million]; p = 0.047) and self-originated drugs (median, $899.2 million [range, $480.1 million to $1950.8million] vs $328.1 million (range, $157.3million to$815.8 million]; p = 0.02). Total cost for development of the 10 drugs was $9 billion, while total revenue after median 4 years on market was $67 billion.

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