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Why Do New Cancer Drugs Cost So Much?

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Covering the financial costs of care is an increasing problem for cancer patients, and especially for those receiving some of the newer medications which are often extremely highly priced.

More patients are finding that they have to struggle with how they’re going to pay for their medications at the same time as they’re dealing with the physical and emotional challenges of going through treatment. Some are even forced to declare bankruptcy.

In fact, research shows that one of the top quality of life issues for breast cancer patients today is economic burden. I discussed a presentation about this research at the San Antonio Breast Cancer Symposium in this recent post.

Of course, economic burden is more than just the cost of medicines and includes, for example, the loss of income from not being able to return to work. But a major part of the problem is the exponentially rising cost of cancer drugs to patients.

Even for patients with health insurance, when a medicine is priced at thousands of dollars per month, the required co-payments can be so high as to make the medicine unaffordable. And when out-of-pocket expenses become too much of a burden patients often skip doses or stop taking their medication altogether.

Drug prices vs. drug costs

The prices that are charged for medicines become their costs to patients or their insurers. But do these prices reflect the actual costs of making the drugs?

Siddhartha Mukherjee, the author of “The Emperor of All Maladies” says this about the mounting costs of new cancer therapies:*

There is a difference between the “cost” of a drug and the “price” of a drug. A pill of Gleevec–I mean the chemical that we call Gleevec–can be synthesized for pennies. That is its real “cost.” But the price of Gleevec is something else. It is set by a series of social arrangements, by our willingness or ability to pay this set “price” and, of course, by the profit motives of the pharmaceutical industry.

Pharmaceutical companies claim that they need to recoup their investments in research and development–and they do. But we must find a middle ground between the cost and price, and we are nowhere close to it.

Are high prices for new cancer drugs justified?

In an article in the May 2014 AARP Bulletin, Donald W. Light and Hagop Kantarjian** point out that 11 of the 12 new cancer drugs approved in 2012 were priced above $100,000 annually. Yet, they note that only one of those new drugs actually helps patients survive more than two months longer.

There’s a frequently-mentioned industry estimate that the cost on average to get a new drug developed and approved is about $1.3 billion. This estimate is often given as justification for the high prices charged.

Light and Kantarjian took a closer look at the $1.3 billion estimate based on the information that drug companies make public. They uncovered a number of distortions that make this figure so large. They note these three big ones, along with a few others, in their article:

  • Half of the $1.3 billion estimate is not research cost at all, but rather a high figure for profits that companies estimate they would have made if they had invested their research money in stocks and bonds instead. Eliminating it brings the actual research costs down from $1.3 billion to $650 million.
  • Drug companies receive tax subsidies for about half of their actual research costs.  Adjusting for this lowers the estimate for real research costs to $325 million.
  • The industry’s $1.3 billion is based on a sample of the most costly fifth of new drugs, not the average for all drugs. Adjusting for this distortion brings real research costs down to $230 million.

They also point out that for cancer drugs most of the basic research and thousands of clinical trials are paid for by the National Cancer Institute and foundations.

Based on the information drug companies make available to the pubic, Light and Kantarjian do not believe the high prices that are being charged for cancer drugs are justified. They conclude, “we find no credible evidence that the real research costs to major companies themselves for cancer research are higher than for developing other drugs.”

How can cancer treatment costs be made more affordable?

Many pharmaceutical companies have patient-assistance programs which can help cover the cost of medications. But this is not going to be a long-term solution to what will be a growing problem, with many new cancer drugs expected to be approved for treatment of patients in the coming years.

Some doctors are now speaking out about the problem of high drug prices, and even declining to prescribe new medications that offer little benefit at astronomical prices compared to what’s already available. For example, this article published in New York Magazine last October tells the story of how a decision was made by Memorial Sloan-Kettering Cancer Center not to carry one such cancer drug.

One approach that some researchers have suggested is to price drugs according to how well they prolong life. This approach is recommended by Dr. Kantarjian and a co-author in a recent article as well as by experts from Johns Hopkins, as discussed in this article.

Germany was experiencing spiraling drug prices up through 2009 and, in 2010, put in place a system based on the concept that new drugs must actually be better than their predecessors to merit a higher price. This system has helped to bring prices under control there and is covered in this recent story in The Atlantic.

At the recent annual meeting of the American Society of Clinical Oncology, attendees discussed barriers to the delivery of high-quality cancer care, including increasing out-of-pocket costs, sometimes referred to as “financial toxicity.” In addition, the organization’s website reports that it has launched a task force to develop “a methodology for determining the relative value of cancer therapies and interventions to help physicians make the best decisions with and for their patients.”

Where these kinds of discussions and initiatives will lead is of critical importance to cancer patients. At a minimum, we’re going to need clear and easily accessible information about medications–including benefits as well as costs and alternatives–so we can make informed decisions with our doctors about which medicines are right for us.

Related Post
Breast Cancer Quality of Life Issues: A Researcher Asks “Are We Doing Better?”

*From “An Interview with Siddhartha Mukherjee” in The Emperor of All Maladies. New York: Scribner, 2010

**The article notes that Donald W. Light is a network fellow at Harvard University’s E.J. Safra Center for Ethics and a professor at Rowan University School of Osteopathic Medicine, and Hagop Kantarjian is professor and chair of the Department of Leukemia at MD Anderson Cancer Center.

Photo credit: icsnaps via Shutterstock


  1. What i find disturbing are the press releases from drug companies encouraging people to buy shares as they are researching a new and profit making drug… An example of this is a drug to treat lymphedema… It states how many people have LE world wide!!!!

    1. Yes, I’ve seen releases like that and I know what you mean. The companies have to make profits or they wouldn’t be able to stay in business, but from the patient’s perspective we want new drugs that will reduce the burden of diseases and conditions. I don’t think these goals need to be mutually exclusive. Thanks for commenting!

  2. I have often wondered why the prices for some of these drugs are so high. It’s so important to distinguish between “cost” and “price”. The points you shared about how the drug companies skew the figures regarding costs were especially interesting and yes, troubling. Thanks for the eye-opening article.

    1. I happened to come across the article with the analysis about the drug companies’ cost calculations and was quite struck by it. It seemed like something that could be useful to share in a blog post as others might be interested in reading about it as well. Thanks for your comments Nancy.

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