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Pharmaceutical companies say one reason new cancer drugs can cost more than a hundred thousand dollars a year is that companies spend billions to develop each new product. But some scientists argue that figure is vastly inflated. NPR's Richard Harris reports on the latest twist in this ongoing argument.
RICHARD HARRIS, BYLINE: This latest analysis comes from two cancer doctors who not only prescribe new drugs but worry about why they are so expensive. Sham Mailankody at the Memorial Sloan Kettering Cancer Center in New York has been trying to get to the bottom of this with Vinay Prasad at the Oregon Health and Science University. Their latest paper calculates the cost of research and development - R&D - for new cancer drugs. They studied federal investment filings from 10 companies each with a single drug on the market. Here's Sham Mailankody.
SHAM MAILANKODY: We show that R&D spending required to develop a drug is substantially lower than previously thought. And further, the revenues post-approval for these drugs is considerably higher than the R&B spending.
HARRIS: They calculate that a typical new cancer drug costs $650 million to develop plus another 100 million or so in lost opportunities if that money had been invested elsewhere. That's sharply lower than the $2.7 billion figure that the pharmaceutical industry often cites. And Mailankody says the new high-priced drugs generate plenty of revenue.
MAILANKODY: Total revenues from the sales of these 10 drugs was $67 billion so far in our study, which is about sevenfold higher than the total R&D spending for these same 10 drugs.
HARRIS: And these drugs have years to go on their patents, he says, so they'll continue to generate big earnings for these companies.
MAILANKODY: So we think that these results would suggest that pharmaceutical drug development is extremely lucrative, and the current drug prices are not necessarily justified by the R&D spending on these drugs.
HARRIS: The study is published in JAMA Internal Medicine. The pharmaceutical industry group PhRMA disputes these findings. In a written statement, they say, quote, "this study significantly understates the incredible investment biopharmaceutical companies make in the development of new cancer therapies." And the economist who runs the numbers that the industry cites agrees. Joseph DiMasi is at the Tufts University Center for the Study of Drug Development.
JOSEPH DIMASI: The methodology is flawed.
HARRIS: DiMasi says the new analysis downplays the fact that 7 times out of 8, a drug fails before getting to the market.
DIMASI: They're not including companies that have had only cancer drug failures or have had a high percentage of their cancer drugs fail.
HARRIS: The authors say they tried to account for that failure rate by including research and development costs at these companies for drugs that haven't hit the market. But a head-to-head comparison is impossible because the Tufts group doesn't publish the names of the drugs it studied or its methods. One thing is not up for debate. U.S. pharmaceutical companies have some of the highest profit margins of any industry. Richard Harris, NPR News.
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