We have previously reported that the cost to develop a new drug is roughly $2.7B (inflation adjusted). This price tag was determined by the Tufts Center for the Study of Drug Development (CSDD). However, a new study published in JAMA Internal Medicine calls this number into question. The disparity in drug development cost estimates between the CSDD and other groups prompted the JAMA authors to conduct their own study. For instance, the independent group Public Citizen estimated the cost to be around $320M (inflation adjusted). Unlike other estimates, the JAMA study places the cost of developing a new cancer drug to be around $648M. The authors go into further detail to compare and contrast the metrics and methods by which other groups have calculated drug costs. Whereas the CSDD study used private information from ten large pharmaceutical companies, the Public Citizen study used publicly available Securities and Exchange Commission filings. Both analyses looked at companies with multiple drugs on the market. However, the JAMA study focused on ten companies that each only developed a single drug, which, the authors argue, yields a more “transparent” analysis.

It should be noted that whereas other studies have included drugs from different therapeutic areas, the JAMA study only included those drugs for treating cancer. This focus on cancer drugs significantly limits the scope of the study and possibly what can be generalized from it. Furthermore, it is difficult to compare the cost of cancer clinical trials to those of other indications, which may vary in length and cost. The JAMA study also included companies that acquired drugs from another company. The study further “assessed R&D costs from the year of acquisition of the drug.” This ignores the prior R&D costs necessary for the initial development of the drug. For those companies that developed the drugs in-house, the JAMA study “identified the first mention of the compound in the biomedical literature.” The authors “then designated the start of R&D expenses to be two years before the initial mention to include additional time for preclinical development.” However, the compounds could have been in preclinical development significantly longer than two years prior to the initial mention. Furthermore, this analysis includes total R&D expenditures, which is inclusive of those drugs that failed to get to market. It would be more beneficial to isolate the exact R&D expenditures allocated for the specific marketed drug, which would entail obtaining data from the companies themselves. These assumptions could potentially underestimate the actual time taken to develop the drug. Interestingly, nine out of the ten drug compounds listed are designated as “orphan drugs” by the FDA. Since the introduction of the Orphan Drug Act of 1983, the government has aided companies developing drugs to treat orphan diseases with tax incentives and clinical research subsidies (for example, in the form of the Orphan Products Clinical Trials Grants Program), which could ultimately decrease the total development costs.

Matthew Herper of Forbes further provides an in-depth examination of the JAMA paper. He argues that by looking at companies with only one FDA-approved drug, the JAMA authors do not have a large enough data set. Disregarding large companies with larger pipelines ignores the successes and failures that contribute to the higher overall cost of development (with the thought being that a larger company has more potential drugs in development and thus spends more on R&D per drug). Additionally, low-balling drug development costs calls into question drug prices and further tarnishes public perception of the pharmaceutical industry.

Although the numbers and analyses are slightly different, the takeaway message is that the drug discovery process is expensive and high risk. Companies recoup the costs of this process by driving sales of current FDA-approved drugs. Thus, both patent and regulatory exclusivity is essential for maximizing company profits on a specific drug. Regulatory exclusivity is partially ensured by the Hatch-Waxman Act, which provides certain periods of exclusivity for innovator drugs and a pathway for regulatory approval for generic copies. However, patent exclusivity is essential for protecting current products and investments. Similarly, given that the U.S. is “first-to-file” via the America Invents Act, swift patent protection is also important for securing the potential gains of future products and investments. Often, it is necessary to file on early drug discoveries, long before they have passed preclinical screening or entered Phase 1 human testing. Therefore, it is important to craft a patent strategy in order to mitigate the high overall risk of the drug discovery process.