[Ip-health] The Office of Health Economics study

Jamie Love james.love at keionline.org
Sat Nov 15 20:18:03 PST 2014


This is a slideshow prepared by the Office of Health Economics (OHE) which
recently published its own estimate of the cost of developing a new drug.

The Office of Health Economics sounds like a government agency, but it is a
consulting operation that mostly works for drug companies, like the center
affiliated with Tufts  where Joe DiMasi works.

I liked the Jan 2013 study by the OHE, because the data was presented in an
easy to understand way (compare to the 2003 DiMasi paper which reads as if
it was designed to confuse people), and they gave a lot of useful cites to
other studies.  The OHE study estimated the cost of cash outlays to
register a drug at $234.6 million (Slide 26), and the risk adjusted version
of this at $899 million, including pre-clinical costs.  (Slide 26).   After
adding an 11 percent real return, the total is $1.506 billion.  (Page 27).

I call Joe's attention to slides 31 and 32, which discuss the issue of
licensed in compounds.   Licensed in compounds have a higher success rate.
In these models where risks drive costs, higher success means lower costs.

I also liked slide 29, which reminds us of the dangers at looking at means
(particularly when your sample is not representative of all approvals).
This is why having more disclosure of the underlying data (something that
DiMasi has not done in the past) is important.

When Joe releases his new study this week, people may want to compare some
of his parameters and assumptions with those in the OHE study.  While both
studies were designed to give policy makers the impression that drug
development costs are high, the OHE study was at least designed so one
could easily follow the methodology and test the assumptions.

I will say from the outset that the notion that clinical trials are this
expensive ($235 million ON AVERAGE in the OHE study) seems pretty far off
the mark, but I look forward to hearing Joe or the OHE people try to
justify this as an average, and give us some per patient numbers, for a
reality check.  In this regard, note that more than 60 percent of new
cancer drugs qualify as Orphan Drugs, and have pretty small trials,
according to the FDA medical reviews.

Oh, and sometimes easy to forget, the Orphan Drug Tax Credit pays for half
the cost of qualifying trials, which is a big subsidy for most cancer drugs
these days, and these assumptions that companies spend a fortune on
pre-clinical research don't make much sense when the NIH does the heavy
lifting for early research (like, for example, several nibs).

James Love.  Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love

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