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Cost of Cancer Drugs: R&D Spending vs Revenues

Cost of drugs has been matter of debate in recent years. It is often said that R&D costs to develop new medications are extremely high and this is one of the common arguments used to justify increasing drug prices. According to the estimate by the Tufts Center for the Study of Drug Development, it takes $2.7 billion for a company to bring a single drug to the U.S. market, which is much higher than the previous estimates. The perception of unjustified high costs, especially of anti-cancer drugs has a significant negative impact on research, manufacturers, insurances, and health authorities. Furthermore, groups of patients, regulatory bodies, and policymakers have started raising their voices opposing these high prices.

A recent analysis evaluates R&D spending to bring new treatments to the market and revenues after commercialization.

The Analysis

In order to provide a contemporary estimate of R&D spending for developing cancer drugs, a study was conducted from December 10, 2016, to March 2, 2017. During this study, an analysis was done on US Securities and Exchange Commission filings for 10 cancer drugs that received approval by the US Food and Drug Administration (FDA) from January 1, 2006, through December 31, 2015. The period between the beginning of drug development activity and the date of approval was considered for estimating the cumulative R&D spending. Total earnings were also known from the time of approval to the present.

It was identified in this study that the 10 drug-developing companies had a median time of 7.3 years for developing a drug. 50% of the drugs received regular approval from FDA, while the rest received accelerated approval. The results of this study revealed that the median cost for developing a cancer drug was $648 million, with the range from $157.3 million to $1.95 billion. The median revenue from sales of this oncologic drug was $1.6 billion, considering the median of 4 years since approval.

The Authors conclude the cost to develop a cancer drug is $648.0 million. This figure is substantially lower than prior estimates. The revenue since approval is also significant, confirming that the development cost is more than recouped in a short period. Some companies have even boasted more than 10-times higher revenue than its R&D spending.


It is important to mention however that a significant proportion of compounds going through clinical investigations fail to hit the market for lack of efficacy or safety issues. This high failure rate and the related costs manufacturers have to face should also be factored in the final cost of drugs. On top of that, pharmaceutical companies have a number of other costs related to market access, commercialization, medical education, etc. All these activities also contribute to increase the final cost of medication.

These kind of analyses are important to keep attention high on a very important matter and promote dialogue between the different stakeholders in the healthcare space.

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Luca Dezzani is a Novartis employee. All the views, analysis, and perspectives are fully independent and belongs to the author only. They do not represent the views or opinions of Novartis or any other company or organization. IgeaHub is a pharmaceutical blog created and curated by Luca Dezzani.  IgeaHub does not receive any funding or support from Novartis or any other pharmaceutical company. 


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