So how much should the world's fifth largest economy pay toward drug development?


Depending upon exactly how you want to measure it the UK has around the fifth largest economy in the world. The creation of a new anti-cancer drug is of course a global (or at least rich world) public good. So, how much should that fifth richest society be asked to pay toward the creation of such a public good? Too much apparently:

The health secretary, Jeremy Hunt, has been challenged by a coalition of cancer patients, clinicians and campaigners to effectively tear up the patent on a breast cancer drug that has been dropped from the NHS because of its cost and allow the import or manufacture of a cheap generic copy.

The radical demand is reminiscent of what happened with Aids drugs in the early 2000s. The cocktail of antiretroviral medicines that now keeps millions of people with HIV alive was unaffordable in the developing world until a legal loophole was found enabling generics companies in India to make cheap copies.

The drug, Kadcyla, known generically as T-DM1, will not be available to new patients with advanced breast cancer from November on the NHS, although those already on it will be able to continue getting it.

It has been turned down for NHS use by the National Institute for Health and Care Excellence (Nice). Recently NHS England dropped it from the list that the Cancer Drugs Fund – set up to pay for drugs Nice rejected – is willing to reimburse.

The drug offers some 6 extra months of life to those with a particular form of breast cancer resistant to other treatments.

But here's the really important numbers. It costs some £70,000 for a course of it. It benefits perhaps 1,500 people a year. And the cost of development of a new anti-cancer drug is around and about $1 billion. That is, please do note, the cost of development. That doesn't cover manufacturing costs, marketing, training and the rest. Further, the few drugs that make it out of the development process have to also pay for all the ones that fail within it. Finally, note that this isn't about the profit driven nature of the industry. We can imagine alternative methods: say, governments pay for all drug development and testing. That wouldn't change those numbers: someone, somewhere, still has to pay for those costs.

So, that fifth largest economy in the world is being asked to pay some £100 million a year (recall, that's including all of the training, production, and marketing costs, not just the R&D) towards something that had an R&D cost of $1 billion.

Is that too much? Could be: but it doesn't seem wildly out of order either. The effective life of a patent is really only around 10 years (because of the time it takes to get approval) so it certainly wouldn't be appropriate for that fifth largest global economy to be paying £10 million a year for that global public good. Nor, obviously, £1 billion a year. So while there might be room to argue about this price it really doesn't look wildly disproportionate.

What we've really got here, with this call for the patent to be broken and then we can have puppies for all, is the economic equivalent of baying at the Moon. Because drugs cost a great deal to develop. Therefore, if the drug only benefits a small number of people it will be expensive to administer to each of that small number. It's simply a truism that a $1 billion cost amortised over few people has a high per capita cost. And that doesn't change whatever the financing method used in that development.