New York Times Doesn't Understand Why Cancer Drug Prices Are Over $100,000

I recently read this New York Times article and was quite irritated. The story is about the high cost of cancer drugs. Even the American Society of Hematology said we need to lower the price of drugs in order to save lives.

The New York Times fails to understand why the drug prices are so high. First, the FDA makes it very costly to get a drug to market to help people. Phase I, II, and III trials have to be done. Even after the drug is approved the drug has Phase IV where the drug company monitors adverse reaction. As I mentioned in this post the number of patients required for cancer trials has drastically increased over the years which has made the cost of doing clinical test extraordinary. According to Tufts Center for Study of Drug Development the cost of developing just one drug has increased from $100 million in 1975 to $1.3 billion (both in 2000 inflated adjusted dollars). Meanwhile the number of patients required for clinical trials has increased over 160% (between just the 1970’s and 1990’s). Avik Roy from Forbes pointed out that 90% of the costs occur in the final phase (Phase III) of the clinical trials. A drug once it gets into Phase I has about less than a 16% chance of getting approved (note that drug companies test thousands of different compounds before the drug even goes into Phase I trials). So drug companies are spending $1.3 billion and have an 84% chance of their drug not getting approved. This is why they have to charge more for the drugs that do actually get approved. 

Dr. Brian Druker of the Knight Cancer Institute at Oregon Health and Science essentially does not like the profits drug companies are making and asks the question “if you are making $3 billion can you get by with $2 billion”. The profits drug companies make are used to research and develop other drugs. The reason why drug companies have profits are because they invested billions of dollars to develop drugs. Drug companies can’t sit idle with just a few good patents they have to constantly be innovating and developing newer drugs. Actually the FDA makes this worse because the general patent on a drug once it is approved is 10 years. I would be okay with shortening this patent life to say 5 years if the FDA allowed drugs to be marketed once they passed Phase I clinical trials. Phase I looks to see whether the drug is safe (which is what doctors and patients care about most). Researchers, individuals, and doctors can on their own figure out if the drug is effective (given everyone has a different body, different cells, and different DNA). If you shortened the patent life to 5 years and allowed drugs on to the market after Phase I clinical trials you would see a sharp decrease in the price of drugs. In an odd way the FDA does make drug companies riskier. If the FDA were to increase the number of drugs approved, and also shorten the patent life then drug companies would have a more diversified portfolio since they would have more products on the market (and not have to rely on just one or two drugs).

Doctors and the New York Times forget many horrible conditions have at least some form of treatment that is much cheaper than the $100,000 drugs. Many drug companies offer assistance programs to patients who can’t afford their drugs. True the alternative may not be as good as these new drugs but until the drugs go off patent they will be high. Somehow people want to live in world were we have first class health for a low price. I suggest the New York Times take an economics class at George Mason University.