Time to Give Pharma a Break?

The pharmaceutical industry has been under attack again this week. It’s not unusual for people to complain about the price of medicines and the fat profits of pharma, yet even when the industry tries to reduce the payment burden, or provide educational assistance, it is criticized.

First, there was a series of lawsuits filed by several union health plans against eight large drugmakers. They charge that, rather than save consumers money, prescription drug coupons illegally subsidize co-pays for brand-name meds and can actually increase health insurance premiums.

Then the US Department of Veteran Affairs issued a tough ruling on how sales reps can promote drugs to VA medical facilities in the future. One of the new restrictions concerns educational programs. Starting next month, reps will have to submit educational materials for VA review 60 days in advance of any scheduled meeting.  Additionally, materials will be approved only if industry sponsorship is adequately disclosed; if industry-sponsored data is adequately compared with non industry-sponsored data and if materials do not contain a company name or logo.

Both of these developments are worrying.  The pharmaceutical industry is already the most regulated business in the world. Further restrictions will result in fewer incentives to bring new drugs to market and will further stifle innovation.

Not convinced that it’s time to give pharma a break?  Then consider this:

During the Super Bowl, a representative of Eli Lilly posted the on the company’s corporate blog that the average cost of bringing a new drug to market is $1.3 billion. A price that would buy 371 Super Bowl ads, 16 million official NFL footballs, two pro football stadiums, pay almost all NFL football players, and every seat in every NFL stadium for six weeks in a row. This is, of course, is ludicrous.

Ludicrous and wrong!   In fact, the average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much as close to $12 billion.

Company N° of approved drugs R&D Spending Per Drug ($Mil) Total R&D Spending 1997-2011 ($Mil)
AstraZeneca 5 11,790.93 58,955
GlaxoSmithKline 10 8,170.81 81,708
Sanofi 8 7,909.26 63,274
Roche 11 7,803.77 85,841
Pfizer 14 7,727.03 108,178
Johnson & Johnson 15 5,885.65 88,285
Eli Lilly & Co 11 4,577.04 50,347
Abbott Laboratories 8 4,496.21 56,202
Merck & Co Inc 16 4,209.99 67,360
Bristol-Myers Squibb Co. 11 4,152.26 45,675
Sources: InnoThink Center For Research In Biomedical Innovation; Thomson Reuters Fundamentals via FactSet Research Systems

However, in all fairness to our Lilly rep, the drug industry has been tossing around the $1 billion number for years. It is based largely on an industry sponsored study by Joseph DiMasi of Tufts University performed 12 years ago. It’s always been a nice number for the pharmaceutical industry because it seemed to justify the idea that medicines should be pricey without making it seem that inventing new medicines is so expensive an endeavor as to be ultimately futile.

But as can be seen from the table above, that figure is badly outdated.

The range of money spent is stunning. AstraZeneca has spent $12 billion in research money for every new drug approved, as much as the top-selling medicine ever generated in annual sales. Bristol-Meyers Squibb spent just $3.7 billion. At $12 billion per drug, inventing medicines is a pretty unsustainable business. At $3.7 billion, you might just be able to make money –assuming it can keep generating revenue for at least ten years.

So, why is the cost of drug development so high?  Well, a single clinical study can cost $100 million, at the high end. But the main expense, and the main reason for the differences noted above, is failure of potential new drugs during their development.

Has this blog helped to change your views on the industry? As always, SRxA’s Word on Health would love to hear from you.

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