[Ip-health] John LaMattina​ in Forbes on why R&D costs are irrelevant to drug prices

Jamie Love james.love at keionline.org
Tue Mar 22 05:39:15 PDT 2016


This
​quote from
Former Pfizer Global R&D President John LaMattina
​, in Forbes.​

"​
​
Witty once said that it might be possible to lower drug costs if the costs
of R&D and manufacturing were to drop. It is true that the cost of
discovering and developing a new drug continues to escalate. The Tufts
Center for the Study of Drug Development has published a papershowing that
the average cost to develop and gain marketing approval for a new drug is
$2.6 billion. It is hard to believe that breakthroughs will be made to
lower this cost. But to a certain extent, it is irrelevant. The price of
drugs really has nothing to do with how much a company spends on R&D. Nor
should it.​"

​........

My comment is that high prices are designed to induce R&D investments, but
they rarely if ever determine prices, so I partly agree with LaMattina, and
partly disagree.  But on the issue of value pricing, it is our view that a
rational pricing system has to consider three issues:  1. Value of products
to patients, 2. R&D costs to bring products to market, and 3. budget
constraints, as elaborated, explained and partly modeled in our comments to
the Senate Finance Committee on Sovaldi pricing:
http://www.keionline.org/node/2438.  But no matter how hard one tries to
make the monopoly price system work for financing R&D, it is always
inferior to a well designed delinkage approach, for a number of well known
reasons, including the price system's misapplication of resources to
innovations that match rather than improve outcomes.

​Here is the LaMattina blog:​

http://www.forbes.com/sites/johnlamattina/2016/03/22/what-gsk-ceo-andrew-witty-doesnt-get-about-drug-pricing/

​What GSK CEO Andrew Witty Doesn't Get About Drug Pricing
March 22, 2016
John LaMattina​

Last week GSK announced that its CEO, Sir Andrew Witty would be stepping
down from his post in early 2017. As outlined by the Financial Times, his
tenure at GSK has been turbulent. Nowhere has that been more evident than
in his stance on drug pricing. His concerns that the high drug prices in
the U.S. aren’t sustainable have led GSK away from producing drugs to treat
cancer and rare disease drugs. Instead, Witty has repositioned GSK’s
portfolio to one made up of high-volume businesses. This was most evident
in 2014 when GSK traded its cancer drug business to Novartis in exchange
for the latter’s vaccine and consumer health care businesses. As described
by Andrew Ward of the Financial Times: “Just as peers such as Bristol-Myers
Squibb and Merck were soaring in value on the back of breakthroughs in
oncology, GSK was reducing its exposure in pharma in favour of low-margin
toothpaste and nicotine patches.”

There is no doubt that Witty’s concerns about drug pricing are justified.
Every day a new story appears in the press on this topic, exacerbated by
the U.S. presidential campaign rhetoric as well as the biopharmaceutical
industry’s poor reputation. But pulling GSK’s efforts from these important
areas of medical need is not the answer.

​​
Witty once said that it might be possible to lower drug costs if the costs
of R&D and manufacturing were to drop. It is true that the cost of
discovering and developing a new drug continues to escalate. The Tufts
Center for the Study of Drug Development has published a papershowing that
the average cost to develop and gain marketing approval for a new drug is
$2.6 billion. It is hard to believe that breakthroughs will be made to
lower this cost. But to a certain extent, it is irrelevant. The price of
drugs really has nothing to do with how much a company spends on R&D. Nor
should it.

It is often correctly pointed out that nine out of ten experimental
medicines that enter clinical trials fail. This fact is used to justify the
high price of a new drug. But this, too, is irrelevant. Why should it be
expected that payers and patients pay for the failures of an industry?
Using this rationale, you would expect that a company with a lot of
failures would be justified to charge a higher price for a drug than a
company with a better success rate.

Who cares how much the R&D program for a drug costs? Who cares how hard R&D
is? What should matter is whether the drug adds value, whether it is an
improvement over existing drugs and/or medical procedures, and whether
patients benefit. If your new medicine isn’t adding value, the rest is
moot. BUT, when a drug truly does add value and the company can demonstrate
tangibly the medical AND economic benefits, then a price should be set that
reflects this.

The hepatitis C cures clearly fit this paradigm. Even at $1,000/pill,
Gilead’s Sovaldi has been shown to be fairly priced because it cures the
disease in twelve weeks and in doing so saves live and avoids the
downstream complications of liver cancer and the need for liver
transplants. Sovaldi meets the test of adding value medically and
economically, independent of R&D costs and success rates. And, in reality,
most pay substantially less than $1,000/pill.

The medical/economic dual hurdle is a high one. It forces drug makers to
compare its new drug candidate to existing, established medications. If you
want a high price, you must justify it. This makes drug R&D harder than
ever before. But, if the drug meets such rigorous standards it should get a
favorable price. This is what motivates all of those who invest in the
pursuit of new medicines: biotech companies, big pharma, investors, and
increasingly, universities and research institutes.

Unfortunately, Witty and GSK have eschewed this whole topic by focusing on
drugs that would be profitable based on high volume sales. Certainly the
world needs such drugs. However, GSK is one of the few companies in the
world that can go from an idea through the entire process to get a new
drug. It has great scientists with a proven track record in doing this. Yet
these scientists, given the company’s new direction, will not be seeking
new drugs to treat cancer or rare diseases. It is a shame that they
couldn’t be unleashed to do both.


--
James Love.  Knowledge Ecology International
http://www.keionline.org/donate.html
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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