Monday, February 21, 2011

New study dismantles myth of high drug development costs

I'm embarrassed to admit that when I was a medical reporter for The Boston Globe in the '90s, I (along with many other journalists) would unthinkingly use the $800 million that the pharmaceutical industry said it cost to develop a new drug product. Industry apologists routinely threw out that exorbitant figure whenever anyone complained about high drug prices, and they made sure to note that it was based on "real research," studies done by the Tufts Center for the Study of Drug Development.

What I didn't realize then was that the $800 million was a highly inflated cost estimate produced by a center that received substantial industry funding and has very little credibility. The same goes for the latest cost estimate of $1.3 billion per new drug bandied about by the same folks.

Now, in a newly published report in Biosocieties journal, researchers at Stanford and the University of Medicine and Dentistry of New Jersey have taken apart both of these inflated cost estimates and shown exactly where they are wrong. Don Light and Rebecca Warburton note, for instance, that neither the $800 million or $1.3 billion estimate includes the substantial contributions made by taxpayers through tax write-offs for research and development. As it turns out, taxpayers indirectly pay for about 39 of drug company R&D. In addition, the industry-based figures are based on clinical trials (and number of participants) much larger than actual trials reported by the FDA and the National Institutes of Health.

Perhaps most disingenous, half of the industry estimates are not real costs, but exaggerated estimates of profits that companies might have made if they had not developed the drugs but just put their money into the stock market. As Light and Warburton note, "even if one were to accept the argument that profits foregone should be included as a 'cost' (which no other industry does), US government guidelines call for using three percent, not the 11 percent used by (the Tufts group). Light and Warburton argue that the pharm industry "cannot have it both ways."
They cannot treat R&D costs as if they are a long-term capital investment when tax authorities do the industry the favor of treating them as an ordinary business expense, fully deductible each year.
In their report, Light and Warburton attempt to reach a more realistic estimate for drug development, which, as they acknowledge, is hampered by the fact that the pharmaceutical industry is exceedingly secretive about its R&D data. But building on some of the data gathered by the Tufts Center and research done by Merrill Goozner of gooznews among others, they conclude that the real cost per "self-originated" drug product is closer to $180-231 million, a big reduction from the estimates that continue to be thrown out by industry spokesmen whenever they want regulatory concessions or more government spending. The latest example of this can be found in Christoph Westphal's op-ed in The Boston Globe, which I blogged about here.

The myth of high R&D costs not only exerts a destructive influence on state and federal policy, but it provides drug companies with an excuse for focusing on high-priced me too drugs (like Paxil and Seroquel), instead of developing lower priced drugs that might really save lives -- such as vaccines and treatments for disease. As Light and Warburton note:
The mythic costs of R&D are but one part of a larger, dysfunctional system that gives us mostly new medicines that have few or no advantages and serious side adverse reactions that have become a leading cause of hospitalization and death.

I couldn't have said it better.

15 comments:

dlight said...

For the larger picture of the why so few new drugs are better than existing ones, yet produce an epidemic of 46 million adverse side effects, see THE RISKS OF PRESCRIPTION DRUGS, a short overview written for general readers (Columbia University Press $15).

boxcuttersinc said...

This goes to the heart of the justification for drug pricing. Anyone have a rebuttal to this report? Faulty logic, poor analysis, etc? Would love to hear from economist, research ... anyone?

Rich Meyer said...

This post s misleading. First let's remember that costs for R&D have increased as the FDA is requiring tighter protocols. In addition the FDA is requiring more clinical trials and data which in turn costs more. Only 1-2 drugs out of every 10 in development make it through clinical trials thus a lot of money is never recouped. Drug development today is more complex as new science is integrated into new products. In addition to all this tax payers do not subsidize drug development, that is a pure canard

Claire said...

While I agree with most of your article, I think that your last couple sentences are wrong. Mental health problems are potentially fatal. Without drugs that treat mental illness, many people would be unable to work, would be fearful of leaving their homes, would suffer from constant debilitating panic attacks, would be unable to quiet the terrifying voices in their heads, and so on. Living with these problems can quite often lead to suicide. So to say that drugs like Paxil are unnecessary is disingenuous. Perhaps they are overprescribed, but they do help millions of people.

SteveM said...

Agree with Rich Meyer. Rather than focusing on costing out developing a single entity, you have to consider the cost of the entire R&D function, both successes and failures.

I attended a conference a few years back and a Squibb manager who made a presentation noted that the previous year the company had an R&D budget of $2 Billion and registered 1 new compound with the FDA.

A crude approximation of R&D economic efficiency would be its cumulative cost over time divided by the cumulative number of new FDA registrations.

These days I gather the ratio pretty much stinks.

bamaboyinjax said...

It is not at all a surprise to learn that drug companies (multi national corporations) do not tell the truth in the estimates for R&D they dont tell the truth about the drugs themselves!! Listen up the fact is we are told that the corporate tax rate has damaged corporations to the point that in order to hire people they need more tax breaks, that is a lie. We are told it is not the corporate farms that are delivering unsafe food into our homes and it is a waste to have Agriculture inspectors in slaughterhouses, another lie. R&D cost more than the drugs can be sold for to allow for profit, yet another lie. At what point will the American people wake up a demand accountability from Corporations and their government?? WHEN?!!

longplainfirstnation said...

American die while getting robbed by the pharmaceutical companies.

longplainfirstnation said...

Citizens die while the rich fool us.

Funny how the US works.

Yana said...
This comment has been removed by the author.
Murfomurf said...

What is meant by Paxil and Seroquel being "me too drugs"?
What I object to with pharmaceutical companies is the money they spend on promotions staff who have wonderful junkets abroad, hold residential seminars at expensive resorts where they pay people like me hundreds of dollars to speak (and NOT about their particular drugs, which is a credit to some of them), and loads of GP representatives who go around handing out cute toys and freebies to doctors and their staff. Why don't they cut all this from their expenses, GIVE enough drug to research groups outside their control to do trials and price successful drugs in partnership with the health arm of the government who is going to pay for them? Health personnel in government already know how many people in the population suffer from each medical problem likely to benefit from a drug, they know how many other drugs the new one will compete with and they should know how much money any individual could afford to contribute in payment for the drug.As for side effects- sort them out in the trials AND the withdrawal effects. If you put a new chemical into a chemical cook-pot like the human body, you have to expect some chemical processes will go a bit weird. Medicos need to educate ordinary people that the allowable side effects are not going to kill them and it is well nigh impossible to cure a problem without at least a mild side effect. Those same medicos also need to work out some proper written guidelines on getting people off medications comfortably so that bad effects are kept to a minimum.
I'm all for reducing costs and hysteria!

Tina said...

Great post and informative. Finding the right abogado is very important when you need to deal with a law situation.

Dubai said...

I would like to introduce our site for Android app development and Android app developer just check it out.

Steve said...

Do you need some info on great plains software orange county? Then doing research on the internet should help you out. Good luck!

eDrugSearch said...

Sick of high drug prices? You may want to try ordering from a licensed online pharmacies based outside the U.S. It's not uncommon to save up to 90% on medication cost. eDrugsearch.com, compares drug prices and licensed pharmacies, you may want to check it out.

Joshua Daly said...

ePharmacies is also a drug cost comparison site. Its helps thousands of Americans save money on their prescription medications every day