Drug company profits from cancer drugs

A recent article in the Times of India noted that the cost of a new cancer drug is actually $648 million in R&D, a "small fraction of the $2.7 billion the industry claims is the average cost of drug discovery", leading to "a more than 10-fold higher revenue than R&D spending, a sum not seen in other sectors of the economy" [ see http://timesofindia.indiatimes.com/india/pharma-companies-inflating-rd-costs/articleshow/60505689.cms ; and thanks to Paul Susman for bringing this to my attention]. I will review the original article as it appeared in JAMA Internal Medicine (see doi:10.1001/jamainternmed.2017.3601).

Details:
--the researchers make the above comment that a recent estimate of R&D spending is $2.7 billion in 2017 dollars, but "this analysis lacks transparency and independent replication":
--they looked at US Securities and Exchange Commission filings for drug companies with no drugs on the US market that then received approval by the FDA for a cancer drug, between January 2006 until January 2016
--they tabulated earnings from the time of approval til the present

Results:
--10 companies and drugs included in analysis
--5 drugs received accelerated approval by the FDA; 5 regular approval
--median time to develop a drug was 7.3 years (range 5.8 to 15.2 years)
--median cost of drug development was $648.0 million (range $157.3M to $1950.8M)
--median cost with a 7% annual cost of capital ("opportunity costs") was $757.4million (range $203.6M to $2601.7M)
--median cost with a 9% annual cost of capital was $793.6million (range $219.1M to $2827.1M)​
--and, the median cost for a 5% annual cost of capital (probably closer to reality) was $723.0 million (range $189.1M to $2395.1M)​
--with median of 4.0 years since approval (range 0.8-8.8), the total revenues from these 10 drugs was: $67.0 billion compared to total R&D costs of $7.2 billion ($9.1 billion including 7% opportunity costs)
--so, for median cost of development of $648.0 million, revenue since approval was median of $1658.4 million (range $204.1 million to 22,275.0 million), though the mean cost of development was $719.8M, and the mean revenue was $6699.1M

Commentary:
--the costs of new cancer drugs (up to $100-200K/year and climbing) has been justified by drug companies because of development costs. but estimates vary from the private Tufts Center at $2.7 billion for a single drug to $320.0 million by the group Public Citizen. Hence the above study. The Tufts estimate includes $1.2 billion for cost of capital/ opportunity cost (this typically exaggerated figure, see 2012 BMJ article noted below, is the amount of money the drug companies would have earned if they had just invested the money instead of spending it for the drug development. The Public Citizen estimate includes all US SEC R&D filings in a 7-year period divided by total expenditure across all companies by the number of new drugs approved in the subsequent 7 years
--notably, 60% of these approved drugs were approved solely because of a surrogate endpoint: progression-free survival or response rate; as opposed to the 40% approved because of overall survival benefit, patient-reported outcomes, etc
--the median time of market exclusivity (ie having a patent, not allowing for competition) is 14.3 years (!!!) for oncology drugs
--the article also mentions some more shenanigans: a drug (ponatinib) for CML, found to cause arterial/venous thromboembolism, was withdrawn from the market, then reintroduced with a narrower indication, but generated huge profits because of aggressive price increases; another (eculizumab) used for paroxysmal nocturnal hemoglobinuria, a rare condition, subsequently got an indication for atypical hemolytic uremic syndrome, then a huge market increase in price and profits.
--also, of note, R&D spending by drug companies can be written off as tax breaks by up to 15% (vs if they had invested money, for which would have been taxed!!)
--this analysis was limited in that it included only companies bringing a single drug to market (though this made it easier to sum the R&D filings that led to a single approval), and the small data set was further limited by looking only at cancer drugs.

so, 
--this study does supplement a prior one: see doi:10.1136/bmj.e4348 - a remarkable BMJ article from 2012 which really debunks the myth that drug company prices are high because of the huge cost of R&D: noting that the real costs are highly inflated by them (grossly exaggerating the actual costs and especially the "opportunity" costs if they had just invested the money they spent), the vast majority of "new drugs" are really just another ACE-inhibitor etc and not a novel class of drug, and that therefore drug company claims of "unsustainable R&D” is largely hogwash (to use a technical term)
--and cancer drugs are in some ways very special, in that it is really hard for any insurer, including public sector ones, to deny coverage, or else they elicit the wrath of angry patients and really bad press (it’s that scary “C” word).  And even despite the frequent lack of clear clinical endpoints. A poignant case-in-point is getting bone marrow transplants for breast cancer. Never great data to support it. But there was a public outcry, leading to laws requiring its approval. And, subsequent studies showed no benefit. (see http://www.nejm.org/doi/full/10.1056/NEJMbkrev58584#t=article )
--but to further their profits, some drug companies have recently moved beyond  the "high cost of R&D" mantra in favor of "we will charge what the market will bear", ie much more, as with the new hepatitis C drugs.

see http://blogs.bmj.com/bmjebmspotlight/?s=pharma&submit=Search​ for the slew of prior blogs on big pharma