How Much Does It Cost to Develop a Drug?

Not as much as the pharmaceutical industry wants you to believe

New analysis estimates the median cost of developing a new cancer drug at $648 million US. (Shutterstock/Phonlamai Photo)

Drugs are developed behind a curtain of corporate secrecy. But one group has been permitted to peek inside and see the data.

And for decades, those controversial estimates from the Tufts University Centre for the Study of Drug Development have been cited to show how much industry spends to develop a new drug.

In 2003, it was $800 million US for a new pill. Today, the estimate has grown to $2.6 billion US.

But the Tufts researchers have never named the companies or the drugs they studied.  

The black box of corporate confidentiality makes it impossible for independent researchers to check those numbers, but the Tufts' estimate is often used to justify why new drug prices are so high.

So when two oncologists published an analysis this week setting the development costs for new cancer drugs at a fraction of the Tufts' estimate, it sparked controversy.

"I did not set out to create this ruckus," said Dr. Sham Mailankody from the Memorial Sloan Kettering Cancer Center. "I was surprised at how much attention it got, both positive and negative."

'There's room here to lower cancer drug prices.'

- Dr. Sham Mailankody, study author 

The new analysis used publicly reported data from 10 companies that developed new cancer drugs (including one non-cancer drug Soliris, dubbed "the world's most expensive drug.")

The conclusion: the median cost to develop a cancer drug is $648 million, about a quarter of the Tufts' estimate.

I wonder if anyone knows who pays for the research done at Tufts, and how much they pay? Yes, I am cynical, but I wonder if the pharmaceutical industry paid Tufts researchers for an expected outcome? Justification for grossly higher prices would be worth trillions of dollars to the industry.

"There is room here to lower cancer drug prices, such that we continue to maintain reasonable margins for profits, but at the same time make these drugs widely available for patients," Mailankody said.

Canadian health economist Steve Morgan waded into the controversy by tweeting that the cost of research and development shouldn't dictate the final price.

"You don't pay firms for the cost of bringing something to market. You pay them for the value of what they brought to market," he told us.

At the University of British Columbia, Morgan has studied drug development costs, and said most estimates don't include public investment, the millions of government dollars that subsidize new drugs through basic research and tax subsidies.

"It's a healthy debate," Morgan said. But he understands why the new analysis  touched a nerve.

"Probably because this is getting close to the truth, and the truth may be dangerous for these firms that have used this narrative in the past."

It would be nice if the industry policed itself and 'outed' those companies that are breathtakingly greedy and dishonest. But that would start a war between pharmaceutical companies. Still, it calls into question the integrity of the entire industry which tolerates the extreme overpricing of medication making it often unaffordable to many who need it.