$1.3 b. to develop a new drug? It’s a myth!
By Shlomo Maital
Some numbers, with no basis in fact, become truth simply through repetition. Take, for instance, this one: It costs $1.3 b. to develop a new drug. We all know that, right? That’s why medicine is so expensive.
Wrong. Here is how two eminent doctors (1) debunk that number. And at the same time, prove that “pharmaceutical companies are price-gouging”, with the biggest 11 pharma firms piling up ever-rising net income – nearly $85 b. in 2012.
* Half the $1.3 b. is the opportunity cost of capital invested in developing drugs. An inflated unrealistically high rate of return is used. Right now, the risk-free rate of return on bonds is about 1 per cent. So – knock off fully half of that $1.3 b. We’re at $650 m.
* Taxpayers finance pharma’s research costs, through tax credits and deductions. This brings the $650 m. cost down to $325 m.
* That $1.3 b. is based on the most costly one-fifth of new drugs, NOT the average of all drugs. Correcting this brings the cost down to $230 m.
* A few expensive drugs inflate the average. So it’s best to use the median, not the average. The median: the point at which half of the research projects cost more, and half less. This brings company research costs down to $170 m.
* Pharma inflates the cost of basic research underlying the new drugs. The net median corporate research cost comes down to just $125 m., when the figure is adjusted for more realistic basic research costs. Pharma invests only 1.3 per cent of revenues in basic research; the rest goes to developing new drugs with very little advantage over existing ones, just to inflate profits.
For cancer drugs, most of the cost of clinical trials are paid for by the U.S. National Cancer Institute.
What is worse – big pharma raises the prices on some of their older drugs by 20-25 per cent a year, and in the past decade, they have almost doubled their prices for cancer drugs. This is a ‘market spiral pricing strategy’, at a time when most other new products, like iPhones, fall rapidly in price.
Someone has to blow the whistle on Big Pharma. They are ripping us off, and people are dying because they cannot afford costly medicine. This is inexcusable.
(1) Cancer Rx: The $100,000 Myth. By Donald Light and Hagop Kantarfian. AARP Bulletin: May 2014, p. 22.
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May 30, 2014 at 10:59 pm
Eelker
All these related problems would easily be solved if the business of patents would be ended.
The earning modell is based on “in house research” contaminated into “the frame” of a single company, “forcing” that company to both carry the complete investment and earning back that complete investment.
That earning modell is based on competition on “knowledge”, rather then on competition of the production process.
Getting rid of intellectual property would end the complete loss of investment in case of a loss in a competing environment for the same drug. Open access to all data would allow for small investments by a lot of companies, based on availability of all previous research data, allowing no research money effectively go to waste and allowing each of the collaborating firms for a piece of the famous pie.
This would increase opportunities for research into “non popular” read “rare” diseases that under commercial pressure run at risk of not being sought for. If Open Source as a business model would be the primal earning model in pharma, it would increase the accuracy of its results. Currently statistical analysis is at risk of being too much motivated by commercial interest. Contradicting findings can’t be tested scientifically against one another for commercial interest in combination with the confidentiallity of the data makes the choice between contradictory findings a consumer choice and the freedom of information allows both parties to equally question eachothers data without having complete access to it.
The Open source model would take away all current restrictions to the one academic rule that has benefited human kind the most: prove of anything can only be prove of anything if the results of the research into it can be reproduced. The possibility of reproduction is at the heart of the success of every medicine we’ve ever taken. Still any economic modell that has at the heart of it, the difference in knowledge to be its primal earning model, will face the consequences of the information needed to reproduce and verify to be too profitable to share.
Medical research data being required to be open accessible, will solve all current crises regarding commercial interests influencing “biased outcome”. Something in the line of the truth will outrun any lie and we just gave the truth a transparency kickstart.
Research areas will still be both defined by the academic world as by commercial interests, it just leaves a little more room for their different perspective on things; what’s needed versus what’s wanted.
Whould that mean the end of pharma? No way, their investment decisions just need a little rethinking. How does that work in an environment where all research data is available; you still divide your money over several research areas, except they don’t have to be start to finish anymore. You can pick up any project someone left behind when running out of ideas, and so will you. You’re able to stop at any point, when progress falls behind. Anyone with a better idea can pick it up at any time and that still wouldn’t mean your research investment got “sucked” away by that other company, you’ll have access to their results as well, leaving room to step in again at any moments notice. Of course that would mean a radical change in investments schemes for farma and big farma, but hey, if they’re all equally bound by it, they’ll start competing at getting better at these business decisions, that’s what competion does, doesn’t it? It might take a little time to have the new competences for these business decisions in place, it mist certainly doesn’t mean the competitive advantage of making money with it, never gets lost in a process like that, however the commercial value of secrets drops that quickly, it might just have the same effect on lies. Lies or myths like the one Mr. Maital mentions. A myth for which many lobbyists around the world are paid to keep repeating to authorities that are handling legislation on health care. Legislation, all of which are at our constant attention due to the growing costs of Health Care. If that were truely the case we would not allow for any research money spent, going to waste due to the economic value of secrecy. We would demand for every dollar spent, to reach its maximum economic potential: access to every brain in the world with the right ideas and gutts to go ahead with it.