Expert Commentary

Do drug companies under-invest in long-term cancer research? Research analysis

2015 study in the American Economic Review examining whether private firms are dis-incentivized from investing in long-term cancer research.

Colorectal cancer cells (
Colorectal cancer cells (

An estimated 1.7 million new cases of cancer are predicted for 2015, according to an American Cancer Society report. The report notes some additional grim predictions: “In 2015 about 589,430 Americans are expected to die of cancer, or about 1,620 people per day. Cancer is the second most common cause of death in the U.S.” Overall, it accounts for nearly one in four deaths.

Finding effective cancer treatment and prevention measures has been the focus of numerous studies. As scientists and physicians continually try to refine and improve interventions, some research has questioned some common practices and treatments, such as the use of mammograms and lymph node removal in cases of breast cancer. Despite advances in modern medicine, however, much work remains to be done and research continues. The U.S. National Institute of Health’s web database currently lists 193,756 clinical studies being conducted across the country and world.

In a July 2015 paper in the American Economic Review, “Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials,” Eric Budish of the University of Chicago and Benjamin N. Roin and Heidi Williams of MIT examine whether private firms are dis-incentivized from investing in long-term research. The researchers note that cancer drugs targeted to late-stage patients are typically developed with much greater frequency. For example, eight drugs have been approved for late-stage lung cancer over the past five years; by contrast, no drug has ever been approved to prevent lung cancer. “While this pattern could solely reflect market demand or scientific challenges,” they write, “in this paper we investigate an alternative hypothesis: private firms may invest more in late-stage cancer drugs — and too little in early-stage cancer and cancer prevention drugs — because late-stage cancer drugs can be brought to market comparatively quickly, whereas drugs to treat early-stage cancer and to prevent cancer require a much longer time to bring to market.”

By using data from the pharmaceutical industry and cancer clinical research trials, the authors investigate potential policy interventions to better align private funding with socially optimal levels of research and development (R&D) investment. To do so, the authors use patient data from the National Cancer Institute’s Surveillance, Epidemiology, and End Results (SEER) patient-level database, which covers 1973 to 2009. Among other variables, they examine type and stage of cancer, and survival rates — in particular, five-year survival.  They use R&D data from the U.S. National Cancer Institute’s (NCI) Physician Data Query Cancer Clinical Trials Registry to develop a new dataset on clinical research. The study sample uses 80 cancer types and three main cancer stages with increasing severity: localized, regional, and metastatic.

The study’s findings include:

  • The “commercialization lag,” is the time between the invention of a product and when the product is brought to market. The authors present a model to explain why privately funded R&D may favor shorter commercialization lags, causing a distortion in the market. The authors ascribe this to both the structure of the patent system, which often starts patent duration at idea conception, rather than commercialization, and the tendency for firms to favor short-term gains and thus engage in excessive discounting.
  • Cancer clinical trials are particularly useful because there is a significant amount of high-quality R&D data that tracks key variables such as survival time, and has an existing classification system for cancers, such as the organ affected and the severity of disease. This “facilitates a relatively clean match between aggregated patient-level clinical data and information on clinical trial investments relevant to different groups of patients.”
  • Overall, the authors observed a negative correlation between commercialization lags and investments in R&D. Patient groups with higher survival rates, and thus longer commercialization lags, are associated with less R&D investment as compared to those with lower survival rates. Metastatic cancer patients, for example, have about a 10% five-year survival rate and were the focus of approximately 12,000 clinical trials, whereas localized cancer patients had a drastically higher five-year survival rate of 70%, with just over 6,000 trials. The authors also looked at cancer prevention, in situ (preliminary) cancer, and recurrent (severe) cancer, without well-defined five-year survival rates. Fewer than 500 trials focused on cancer prevention, and fewer than 200 at in situ cancers; but over 17,000 aimed at recurrent cancer, the most of any other phase.
  • By using the number of life-years lost to cancer as a proxy for market size in this analysis, the authors attempt to control and adjust for the effect of market size on investment. When adjusting for this, the pattern remains nearly the same. The relationship found “implies that a 10 percentage-point increase in the five-year survival rate is associated with an 8.7% decrease in R&D investments.”
  • The authors postulate that this relationship would remain the same even if surrogate endpoints — non-mortality-based endpoints such as tumor shrinkage, or other faster measures with less definitive correlations — were used in clinical trials. (Overall survival is the best measure of a drug’s effectiveness, but to test this in a scientifically valid fashion often takes a great deal of time.) However, the model predicts that using surrogate endpoints makes this correlation less negative, suggesting that lack of scientific opportunities and other demand factors are not causing the negative correlation observed between survival rates and R&D investment.
  • When comparing private and public investments in R&D, the authors state that commercialization lags reduce both, although there is a more dramatic decrease for private investment: A “10 percentage-point increase in the five-year survival rate results in an additional 4.4% decrease in privately financed clinical trials, in addition to the 8.6% decrease observed for publicly financed clinical trials.” The findings show a 35% larger relationship for private firms, as compared to publicly funded investment.
  • The authors consider three policy interventions to alleviate the distortion: using surrogate endpoints in clinical trials; changing the patent system to begin patents at commercialization rather than conception; and providing R&D subsidies for those projects with longer commercialization lags. They note that surrogate endpoints have additional societal benefits, as it is beneficial to society overall to reduce clinical trial lengths. Additionally, as the analysis could not determine the relative impacts of corporate short-termism and the patent system on the distortion, the authors caution that their findings on patent system changes are suggestive and would affect just patent-fueled distortion.

Using surrogate endpoints, the authors also estimate and quantify the increase in survival rates linked to a reduction in commercialization lags: “We estimate that among one cohort of patients — U.S. cancer patients diagnosed in 2003 — longer commercialization lags resulted in around 890,000 lost life-years. Valuing these lost life-years at $100,000 (Cutler 2004) suggests that the estimated social value of the life-years lost in this one cohort of patients is on the order of $89 billion per year.”


Keywords: clinical research, cancer, research and development

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