This is one of the prickliest topics in the health care
industry, and it has been as long as I can remember. One of the publications I
worked with was called Product Management Today. Long defunct, this periodical
followed the pharmaceutical industry quite closely. As a result, we were
familiar with Tufts University’s Center for the Study of Drug Development. This
was the first organization to publish what was considered credible figures as
to what it cost to bring a drug to market.
In the early 1990s, that number was published in the Journal of Medical Economics to be about $231
million. Remember, these were generally small molecules, and the drug
industry consisted of dozens of big manufacturers identifying their molecular
targets, characterizing them, and cultivating them through the clinical trial
process. In 2003, this number was revised upward to somewhere north of $800
million. In 2016, the Tufts team recalculated the numbers, and it found
essentially a 10-fold difference (not accounting for the inflationary change in
the value of the dollar between 1991 and 2016). They indicated that it costs $2.7
billion to bring a product to the market today, which also considers the
cost of failed drug development. In other words, they added the opportunity
cost to a pharma company for a drug that was withdrawn or failed clinical
trials (any stage). In their 2016 analysis, they took as their drug sample, 106
investigational drugs, 87 being small-molecule compounds and the remaining 19
biologics. I’m guessing that if biologics represented more than 18% of the
sample, the total average estimate could have been even greater.
The cost to produce a biosimilar is considerably less. This
is partly the result of the lesser clinical trial requirements compared with
new chemical entities. Although this figure has not been convincingly
calculated, I’ve heard it cited to be anywhere up to $250 million. This seems
to be reasonable, based on the development requirements. Unfortunately, several
biosimilar manufacturers have to wait to market their agents because of patent
litigation, and that in itself represents a cost.
Today, the results of another study was released, which
offers a very different number. Published in JAMA Internal Medicine, authors from Oregon Health and
Sciences University and Memorial Sloan Kettering Medical Center found that the
cost to produce 10 cancer medications was really $648 million (range, $204
million to $2.602 billion)—add another $110 million or so for opportunity costs.
This included 5 drugs that received fast-track approval. Not only did the
researchers use US Securities and Exchange filings that cited
manufacturer-reported costs, but they limited the analysis to only
manufacturers without a previous approved drug on the market. The drugs evaluated
included several monoclonal antibodies, so it was reflective of complex
molecule development.
I’d like to point out another question that perhaps skews
the calculation. Rarely these days does “big pharma” get involved with new drug
identification and characterization. True, they are often involved in the
expensive clinical trial phase, but do we read in the paper weekly that a drug
discovery company has licensed or sold the product to a big pharma entity (or
even sold the company itself)? And what is the guarantee that they are not
overpaying for the price of the drug or the company?
The upshot of this is that the 10 companies evaluated in the
more recent study had cumulative revenues resulting from their new agents of
$67 billion from the time of approval (until December 2016 or the time it sold
or licensed the product to another company). The range per product was ranged
from $204.1 million to $22.3 billion. It sounds overall, that they were good buys
for the big pharma companies but not necessarily for the health care system.
In other words, whether it cost $648 million, $800 million,
or $2.7 billion, the research and development costs for these new agents are
made back in a year or less. It is hard for us to listen seriously to pharma
companies who use the cost to develop the agents, or their having to eat the
cost of failed agents, as credible justification for the prices being charged.