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Do Firms Underinvest In Long-Term Research? Evidence From Cancer Clinical Trials

May 2014
Policy Brief
By  Eric Budish, Benjamin Roin, Heidi Williams
A survey of drugs approved by the U.S. Food and Drug Administration (FDA) over the past five years reveals that eight new drugs have been approved to treat lung cancer, the leading cause of cancer deaths in the US. All eight of those drugs were approved on the basis of evidence that each generated incremental improvements in survival among patients with the most advanced form of lung cancer. A well-known example is Genentech’s drug Avastin, which was estimated to extend the life of late-stage lung cancer patients on average from 10.3 months to 12.3 months. In contrast, no drug has ever been approved to prevent lung cancer, and only six drugs have ever been approved to prevent any type of cancer. This pattern of drug development could be explained by any number of factors. More patients could be diagnosed with late-stage lung cancer than are diagnosed with early-stage lung cancer, or the scientific challenges associated with treating early-stage lung cancer could be extremely difficult. This brief summarizes the results of a study that investigated an alternative idea: Private firms may invest more in late-stage cancer drugs — and “too little” in treatments for early stage cancers and cancer prevention drugs — because late-stage cancer drugs can be brought to market comparatively quickly, whereas drugs to treat early-stage cancers and to prevent cancers require a much longer time to bring to market.