The Cost of Cancer Drugs

There’s an incredibly interesting Q&A in today’s Wall Street Journal with Arthur D. Levinson, the CEO of biotech pioneer Genentech, mostly concerning the topic of the company’s cancer drugs. (There is a lot of interesting cancer news in the papers these days, mainly because of the annual meeting of the American Society of Clinical Oncology in Chicago.)

Levinson regularly deals with complaints about the expense of certain cancer drugs. (There is a larger issue to be discussed here: why it’s medically and socially acceptable to spend so much money to extend life by only a few months — but that is a discussion for another time.) Here is something he said that, while certainly a defense of his own company, also presents an intriguing way of costing out the amount we spend on cancer medicine:

You don’t just crank these drugs out. My lab cloned a portion of the breast-cancer gene in 1982. And we started making antibodies to it in the mid-’80s. Then we got cell-culture results in the late ’80s and by the early ’90s we were getting animal results. And then approval was in December ’98. So this goes back a long, long time. Unless these companies can get a return, we are not going to get the new medicines that are making such a difference to patients’ lives right now.

There’s another way to look at it — look at how much society is investing in cancer. In the absence of better care, 42% of everybody out there is going to get cancer. And half of those 42% are going to die of cancer. It’s the leading cause of death among Americans under age 85. So how much are we spending on drugs for cancer? We have a $12 trillion GDP [gross domestic product]. And we’re spending $15 billion. If I do that math, 1/800th of GDP for the leading cause of death. And people say cancer drugs are bankrupting America! Give me a break.

Keep in mind that the reason that “42% are going to die of cancer” is, in a twisted way, good news: many people are living long enough to die of cancer thanks to improvements in treating heart disease and stroke. That said, Levinson makes his point forcefully. The Journal is also hosting a discussion forum on the topic of drug costs.


Although I don't necessarily agree with Levison's justification, I don't really think he should be under such fierce attack either.

Drug companies don't have any more social responsibility to provide cheap meds for cancer patients then grocery stores have to provide discounted food for the hungry.

There might be instances of companies in both industries doing so, but I don't think there is any obligation to do so. It would be nice.

Eventually, market forces will combine to make those drugs cheaper. Generic brands, public outcry and a few other factors will suddenly make it a good idea. Until then, why should they?


-repost. I'm not sure where the original went.

Although I think Levinson's argument is fairly poor, I don't think he has any social responsibility to lower the price of cancer drugs.

Drug companies have no more social responsibility to lower the cost of meds for cancer patients then grocery stores do to lower the cost of food for the hungry.

Although it would be nice and I'm sure there are instances of companies in both industries doing so, I don't think they are really obligated to.

Market forces will one day cause them to lower costs through competition, public image and whatever else. However until then, why should they?


It's interesting how quickly the cost of R&D is forgotten when it comes to lambasting a company because it is "profiteering."

Look at this profit calculator that's popular today on Click the drug company link. I'm sure Pfizer wishes their profits were 60%!!



What in Levnson's argument is flawed? The cost of R&D, with it's thousands of dead ends and millions of dollars in clinical and pre-clinical trials, is the principal cost of a pharmaceutical company. Look at Nutropin, now awaiting FDA approval for Ideopathic Short Stature. It's an offshoot of recombiant DNA research from 1979.

And let's, please, discuss Canada and Europe, who seem to get along fine with price controlls on drugs. What they are actually doing is forcing americans to subsidise their purchases. We pay the R&D, they pay only what they feel like.


The flaw in Levinson's argument is that, for the vast majority of drugs, the company doesn't pay for all that research. In his scenario, cloning a gene, generating an antibody, cell culture results, and animal results can be all paid for by federal NIH grants.



I didn't say it was flawed, I just said it was poor. I take issue with two parts:

1. The implied premise that R&D is their primary reason behind the high costs, when R&D is not their highest expense.

Looking at Genentech's 2006 annual statement we see that R&D made up 19% of it's operating revenue while Marketing, General and Administrative made up 22% of it's operating revenue.

2. The comparison of what is spent on drugs for cancer to the GDP.

I don't see how this is relevant. If the consumer was only spending 1/800th of their annual income then this would be a valid argument. We know that's not true.

Like a good CEO he attempts to deflect and mislead. I honestly wouldn't expect anything else, but I still think it's poor show.

I completely understand it's his job to paint a rosy picture and he would be sacked if he did anything else.


As a cancer statistician, I feel the need to point out a few facts. Cancer is now occurring at younger ages and yes, 1 out of every 3 persons will be diagnosed with cancer at some point during their lifetimes. Many cancers are curable and others are manageable as chronic illnesses over long time frames with periods of excellent quality of life between therapy sessions. The comment regarding people surviving heart disease is not necessarily true as most of the patients we are currently seeing are too young for heart disease and many older patients do not have it at all at the point they are diagnosed. Heart disease received a great monetary push during the 80's and the resulsts are that now cancer has surpassed heart disease as the number one killer of adults under 65. Given that a diagnosis of cancer has a profound effect not only on the patient, but on the entire family, don't you really think this is a problem worth throwing some money at?

In response to the concerns regarding 3rd world countries, effective therapies have a trickle down effect and tend to become available at lower cost at a later date, but the benefits do become available, and yes, we do a large amount of the research for Europe and other developed countries as well. Also not all principle investigators are employed by pharmaceutical firms. NIH/NCI grants are very involved and a certain level of proof needs to be offered to obtain the grant in the first place depending upon the study.



Raymond pointed out something that has always bothered me- haven't I as a taxpayer subsidized this reasearch? (through grants, etc) haven't I contributed to the Cancer societies and the like which funneled the money for research? Why aren't the drug companies reimbursing that money? Or else offering a "Taxpayer discount".
The research didn't take place in a vacuum. Or am I missing something?


I always felt that people living in US subsidized cost of medicines for other countries - it is not fair that they do not chip in to recover the investment and just want to pay marginal price for drugs
Unfortunately I do not see a solution - if we classify them as secret then they will become even more expensive as the company makes some profit from them albeit small and the added volume provides economies of scale

As fas as the cost, one reason new drugs cost so much is that demand is limited - not everyone can afford them (even in rich countries) and insurance or national services do not always cover them because they try to mange cost - leading to reduced demand and hence higher cost

In a perverse way - other countries and insurers may be better off in long term by covering treatment for more people early on

Bruce Hayden

The flaw in Levinson's argument is that, for the vast majority of drugs, the company doesn't pay for all that research. In his scenario, cloning a gene, generating an antibody, cell culture results, and animal results can be all paid for by federal NIH grants.

The flaw there is that R&D is only the start. After that are all the clinical trials. And they drarf the actual R&D costs. Plus, you have to take into account all the drugs that don't make it through the clinical trials. They have to be rolled in to the costs too.



The clinical trials are listed under R&D in their financial statements. Including post marketing trials, etc. So that cost is being considered when talking about R&D.


During the clinical trial phases (1, 2, & 3, the drug company supplies all the drugs free of charge. Clinical Trials can run for years. Then, even when the drug is approved, Medicare and the insurance carriers decide what price they will reimburse the drug at, and that is how the drug companies are paid. They can pick a price and attempt to charge for it, but if it is significantly higher than other drugs of the same class, they won't get the asking price. If it is a totally new class of drug, patients usually don't get reimbursed, as Medicare likes to look at long-term performance, so if the company wishes the drugs to be used, they must provide them free of charge again to lower income patients (80%).

Modern medicine does not necessarily follow happy, Republican, capitalist rules. Medicare calls most of the shots.


The major obstacle in controlling cancer drug prices is the widespread inappropriate use of anti-cancer drugs. As the increasing numbers and types of anti-cancer drugs are developed, oncologists become more and more likely to misuse them in their practice. There is seldom a "standard" therapy which has been proven to be superior to any other therapy. What may work for one, may not work for another.

The needed change in the "war on cancer" will not be on the types of expensive drugs being developed, but on the understanding of all the drugs that are already out there. The system is overloaded with drugs (hundreds of them) and underloaded with the wisdom and expertise for using them.

Targeted therapeutics provide mostly small benefits to patients. Each of these new targeted drugs are not for everybody. The study of cell function analysis tells us that even when the disease is the same type, different patients' tumors respond differently to the same agents. These "smart" drugs do not work for everyone, and a test to determine the efficacy of these drugs in a patient is the first crucial step in personalizing treatment to the individual.

Cancer chemotherapy could save more lives if pre-testing were incorporated into clinical medicine. The respected cancer journals are publishing articles that identify safer and more effective treatment regimens, yet few oncologists are incorporating these synergistic methods into their clinical practice. Cancer patients often suffer through chemotherapy sessions that do not integrate all possibilities.

It is impossible to design a single chemotherapy protocol that is effective against all types of cancer. The oncologist might need to administer several chemotherapy drugs at varying doses because tumor cells express survival factors with a wide degree of individual cell variability. The objective of pre-testing is to provide the patient with more options to discuss with their oncologist and to bring about multimodality approaches to improve the probability of a successful outcome.

It is highly desirable to know what drugs are effective against your particular cancer cells before these toxic agents are systemically administered into your body. Having a good tumor-drug match not only would improve survival rates, it would be cost-effective, and the high cost of the newer cancer therapies reinforces the necessity of choosing the right therapy the first time around.

Pre-testing on "fresh" specimens of your cancer cells to determine the optimal combination of chemotherapy drugs could be more beneficial for many cancer patients. A failed attempt at chemotherapy is detrimental to the physical and emotional well being of patients, is financially burdensome, and may preclude further effective therapies.

Patients, physicians and insurance carriers are all calling for predictive tests that allow for rational and cost-effective use of chemotherapeutic drugs. Given the technical and conceptual advantages of "functional profiling" with cell culture assays together with their performance and the modest efficicay of therapy prediction on analysis of genome expression, there is reason for a renewal in the interest for these assays for optimized use of medical treatment of malignant disease.



A couple additional observations/suggestions:
a. What drug companies fail to mention is that a great deal of their research is funded by NIH grants, not just their own funds.

b. There are two ways this might be more equitable:
1. Let the free market behave naturally, but the government subsidize drugs to anyone earning under a certain minimum-
2. Obligate drug companies to reflect NIH grants in their financial statements and deduct them from the cost of R&D. Then let their return reflect THEIR investment only!