Have drug companies been lying about their development costs to justify high prices? You’d be forgiven for thinking so, given the media’s portrayal of a new study published in the prestigious journal JAMA Internal Medicine. The study reaches a shocking conclusion — it costs just $648 million to develop a cancer drug. The prevailing estimate, from Tufts University, is $2.7 billion.
This finding sparked media condemnation of the drug industry. Business Insider declared that the study “undermines Big Pharma’s justification for charging high drug prices.” Bloomberg warned the industry is “ignoring its price problem.”
Reporters are grossly misrepresenting the study’s findings. The study focuses on a handful of companies pursuing unusual lines of research that are not representative of the overall drug industry. The authors looked at 10 publicly traded drug companies that won their first-ever FDA approvals between 2006 and 2015. Each company funneled all of its money and manpower into creating one successful drug.
The 10 companies did have a few experimental drugs fail in clinical trials before winning FDA approval for their first medicines. But even when counting these failures, the companies studied enjoyed a clinical trial success rate of 23 percent. This is a much higher success rate than the average company that’s researching multiple drugs — and sees many of those drugs fail.
Just as it’s unreasonable to extrapolate conclusions from research on dolphins to all mammals, it’s irresponsible to take findings about cancer drugs and apply them to all drugs. Oncology drugs often have cheaper clinical trials than other drugs. That’s because many cancer drugs can win FDA approval after going through only two phases of clinical trials on a few hundred participants. Other drugs must go through three phases of testing on thousands of participants. That extra phase extends the approval process by several years and raises development costs by hundreds of millions of dollars.
Consider the pharmaceutical company GlaxoSmithKline, which is in its third phase of testing an asthma drug, in addition to testing 87 other drugs. The asthma drug’s phase three clinical trial involves nearly 2,300 patients and began in December 2016. The trial isn’t projected to wrap up until February 2018. This high number of subjects and long duration drives up development costs.
The authors of the study even acknowledge the limitations posed by the companies they considered, stating that their results “cannot be extrapolated to other sectors.” Even among companies focused on cancer research, these 10 companies weren’t remotely representative.
Between 1998 and 2014, only seven of the 103 melanoma drugs that entered clinical trials earned FDA approval. Ten out of 177 lung cancer drugs made it through the approval process. Just three out of 78 brain cancer drugs did, a 96 percent failure rate.
The study also doesn’t account for billions of dollars in research spending at firms that fail to produce an FDA-approved medicine. Consider the biopharmaceutical company Advanced Life Sciences, which sought to develop an antibiotic to treat pneumonia. While waiting for FDA-approval, Advanced Life Sciences lost so much money it had to dismiss 30 percent of its staff. Experts ultimately deemed the drug ineffective and Advanced Life Sciences was forced to suspend operations.
Those failures, while awful news for biotech investors, help advance scientific progress. They provide researchers new insights into the nature of diseases, which serves as the foundation for real breakthroughs. No doubt the 10 companies heavily leaned on this foundation when researching their drugs.
Willfully or not, the study’s authors distorted the true costs of drug development by analyzing a selective sample of drugs. Patients can only hope that policymakers don’t respond to the supposedly damning findings by implementing research-stifling regulations.
Sandip Shah is the founder and president of Market Access Solutions. Helen Shao is an analyst in the same company.