# Addendum: Low-value approvals and high prices might incentivize ineffective drug development

Nature Reviews Clinical Oncology (2018) https://doi.org/10.1038/s41571-018-0030-2 Published online 15 May 2018

In hindsight, we realize that we could have been more precise when using the terms ‘profit’ and ‘revenue’ in our article ‘Low-value approvals and high prices might incentivize ineffective drug development’. Total revenue is defined as the receipts from sales1. Profit is defined as the excess of the receipts from sales over the spending of a business during any period1. Hence, profit is the total revenue minus the costs of a business, over a given period. Profit calculations include credit transactions and asset revaluations as well as cash transactions and changes in the value of real assets1.

Nevertheless, this imprecision does not affect the validity of our insight. In our analysis we show that the break-even point for revenue and cost of development (under the specific conditions of our ‘thought experiment’) would be US$440 million. The annual revenue from the sale of many approved cancer drugs now routinely exceeds$1 billion, and thus we conclude that “pharmaceutical companies could, hypothetically, turn a profit by testing inert chemical compounds in phase III trials”. In the conditions we define in our thought experiment, companies would therefore receive sufficient revenues to make a profit.

## References

1. 1.

Black, J., Hashimzade, N. & Myles, G.A. A dictionary of economics, 4th edn online. (Oxford, 2013).