• Myth-busting pharma at the BMJ

    There’s a piece in BMJ this week that’s likely causing some heartburn in the pharmaceutical industry. There’s very little in there that should make pharma happy. First the article questions the “innovation myth” perpetuated by many, even though companies like Pfizer have denied it. Then it starts to get good. I talks about the real innovation crisis being a lack of actually novel drugs being developed (discussed on TIE here). It dismantles the research and development cost claims of the industry (discussed on TIE here and here). It discusses how the low hurdles for approval are resulting in insubstantial improvements (discussed on TIE here). It discusses how much is spent on promotion, and seen in revenue, compared to research and development (emphasis mine):

    Complementing the stream of articles about the innovation crisis are those about the costs of research and development being “unsustainable” for the small number of new drugs approved. Both claims serve to justify greater government support and protections from generic competition, such as longer data exclusivity and more taxpayer subsidies. However, although reported research and development costs rose substantially between 1995 and 2010, by $34.2bn, revenues increased six times faster, by $200.4bn. Companies exaggerate costs of development by focusing on their self reported increase in costs and by not mentioning this extraordinary revenue return. Net profits after taxes consistently remain substantially higher than profits for all other Fortune 500 companies.

    This hidden business model for pharmaceutical research, sales, and profits has long depended less on the breakthrough research that executives emphasise than on rational actors exploiting ever broader and longer patents and other government protections against normal free market competition. Companies are delighted when research breakthroughs occur, but they do not depend on them, declarations to the contrary notwithstanding. The 1.3% of revenues devoted to discovering new molecules compares with the 25% that an independent analysis estimates is spent on promotion, and gives a ratio of basic research to marketing of 1:19.

    By the way, I’ve discussed that on TIE here and here.

    You absolutely should go read the piece. Evidently, this kind of stuff can’t be said often enough.

    UPDATE: You should also read this rebuttal from Derek Lowe.


    Comments closed
    • With regards to your first bolded point, what are R&D costs as a percentage of pharma’s expenditures? If they are only 16%, I’m wouldn’t be as outraged as the authors are that revenues aren’t growing as fast as R&D expenditures. Then again, if they are only 16%, something in the industry needs to change.

    • It is an argument against all patent and copyright. For more on that see the work of Dean Baker.

    • The rebuttal you link to is spot on. I particulary appreciated the comment

      ” The reason that some new drugs make only small advances on existing therapies is not because we like it that way, and it’s especially not because we planned it that way. This happens because we try to make big advances, and we fail. Then we take what we can get.”

      If it is true that one of the authors of the BMJ article has seriously estimated drug development costs at $43m, the article instantly loses all credibility for me. I personally managed the budget for developing dosage forms and manufacturing processes in 6 different pharma companies. Simply running the experiment to determine the shelf life of the final product costs a lot more than $43m for many drugs. I spent $50m building a facility that just barely make enough biotech drugs to support a Phase I program. And clinical costs dwarf the pharmaceutics budget.

      Another important comment in the article is about concurrent development across companies:

      “…whichever of these antibodies that makes it though second is a “me-too” drug that offers only an incremental advance, if anything. Even though all this Alzheimer’s work was started on a risk basis, in several different companies, with different antibodies developed in different ways, with no clue as to who (if anyone) might come out on top.”

      Lipitor was the 6th statin to hit the market. It quickly became the number one statin, not because Pfizer spent more on marketing than its competitors, but because it offered real advantages to patients: lower cholesterol levels at lower doses, and with few and less severe side effects.

      • “If it is true that one of the authors of the BMJ article has seriously estimated drug development costs at $43m, the article instantly loses all credibility for me.”

        Not looking (again) at the article, I think that’s the cost netting out the subsidies and other accounting gimmicks. Not saying it’s right. Just saying it’s not the gross cost, which may be what you have in mind.