[Ip-health] Economist- Pharmaceuticals: The price of failure

Thiru Balasubramaniam thiru at keionline.org
Fri Nov 28 00:20:51 PST 2014


http://www.economist.com/news/business/21635005-startling-new-cost-estimate-new-medicines-met-scepticism-price-failure
?

This piece quotes UACT, KEI, MSF and GSK's Andrew Witty.

<SNIP>

It is not only patients’ groups and aid charities that are sceptical about
the startlingly high estimates for drug-development costs that are bandied
about. The boss of one of the largest drugmakers, Sir Andrew Witty of
GlaxoSmithKline, last year said that even when the industry talked of a
figure as low as $1 billion, this was a “myth”. He said it was “entirely
achievable” for drugmakers to make their research more efficient: “If you
stop failing so often you massively reduce the cost of drug development.”
Indeed, what patients and policymakers need to know is not what it does
cost the industry to produce a new medicine, but what it ought to.



--

PharmaceuticalsThe price of failureA startling new cost estimate for new
medicines is met with scepticismNov 29th 2014 | From the print edition
<http://www.economist.com/printedition/2014-11-29>



IN THE pharmaceuticals business there are few issues more loaded than the
cost of developing a new drug. For a number of years estimates from
industry groups on either side of the Atlantic have put it at $1.2
billion-1.8 billion. A new study by the Centre for the Study of Drug
Development at Tufts University in Massachusetts reckons the average cost
for drugs developed between 1995 and 2007 was $2.6 billion. Among those
rejecting this new figure as highly misleading are Médecins Sans
Frontières, a charity, and the Union for Affordable Cancer Treatment, a
patients’ group.

The main point of controversy over such estimates is that they roll in the
costs of those drugs that failed to win approval and, for good measure, the
cost of capital required for the R&D. Tufts’s estimate includes $1.2
billion for the return on capital forgone while a drug is in development,
on the assumption it would have otherwise earned a generous 10.5% a year.
The remaining $1.4 billion is the average R&D cost of a random selection of
drugs, multiplied by risk factors that account for the chances of failure
at each stage.


Another criticism of Tufts’s work is that it is based on secret data
provided by a self-selected group of drug companies. The Tufts study group
gets much of its funding from the industry; it says the group’s members are
independent academics. Another criticism is that although such estimates
embrace all the risks of developing drugs, they say little of the
rewards.Successful
drugs cost far less than even the lower, $1.4 billion figure. But the road
to approvals is littered with casualties such as the $800m that Pfizer blew
on torcetrapib, a potential treatment for high cholesterol, before giving
up in 2006. Jeff Williams, the boss of Clinipace, a contract-research
organisation, has said that the small to medium-sized drugs firms his
company works for manage to get their candidate drugs through development
for less than $500m.

The industry inevitably quotes such figures whenever it is suffering
criticism for the high price of patented drugs. James Love, the head of
Knowledge Ecology International, a group that studies and comments on
issues of social justice, says drugs giants have used these big estimates
of average costs to try to talk developing countries like India out of
breaking the patents on specific medicines that, in practice, cost a lot
less to develop.

Joseph DiMasi, director of economic analysis at the Tufts centre, says the
most useful aspect of the $2.6 billion figure in his study is that it is
comparable with previous figures. In 2003 his centre put the cost of drug
development at $802m. This implies that in real terms costs have risen by
145%. Mr DiMasi says the increase has been caused by larger and more
complex trials, a greater focus on chronic and degenerative diseases, and
higher failure rates.

However, the life-saving cancer drugs that feature in many of the most
emotional disputes over pricing are far from typical. Regulators often pass
them after far smaller clinical trials than for other, less urgent
medicines, thereby greatly reducing the most costly element of their
development. Such drugs are also likely to qualify for “orphan drug” tax
credits—an issue the Tufts study does not consider. It may be that the
average is being inflated by other types of new drug, such as
psychotropics, which may be only a bit more effective than existing ones
but require big, expensive trials to gain approval.

It is not only patients’ groups and aid charities that are sceptical about
the startlingly high estimates for drug-development costs that are bandied
about. The boss of one of the largest drugmakers, Sir Andrew Witty of
GlaxoSmithKline, last year said that even when the industry talked of a
figure as low as $1 billion, this was a “myth”. He said it was “entirely
achievable” for drugmakers to make their research more efficient: “If you
stop failing so often you massively reduce the cost of drug development.”
Indeed, what patients and policymakers need to know is not what it does
cost the industry to produce a new medicine, but what it ought to.



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