What does a new drug cost? Part II: The productivity problem

What does a new drug cost?

A few weeks ago I reviewed Ben Goldacre’s new book, Bad Pharma, an examination of the pharmaceutical industry, and more broadly, of the way new drugs are discovered, developed and brought to market. As I have noted before, despite the very different health systems that exist around the world, we all rely on private, for-profit, pharmaceutical companies to supply drug products and also to bring newer, better therapies to market. It’s great when there are lots of new drugs appearing, and they’re affordable for consumers and health systems. But that doesn’t seem to be the case. Pipelines seem to be drying up, and the cost of new drugs is climbing. Manufacturers refer to the costs of drug development when explaining high drug prices: New drugs are expensive, we’re told, because developing drugs is a risky, costly, time consuming endeavor. The high prices for new treatments are the price of innovative new treatments, both now and in the future. Research and development (R&D) costs are used to argue against strategies that could reduce company profitability (and presumably, future R&D), be it hospitals refusing to pay high drug costs, or changing patent laws that will determine when a generic drug will be marketed.

The overall costs of R&D are not the focus in Goldacre’s book, receiving only a short mention in the afterword, where he refers to the estimate of £500 million to bring a drug to market as “mythical and overstated.” He’s not alone in his skepticism. There’s a fair number of papers and analyses that have attempted to come up with a “true” estimate, and some authors argue the industry does not describe the true costs accurately or transparently enough to allow for objective evaluations. Some develop models independently, based on publicly available data. All models, however, must incorporate a range of assumptions that can influence the output. Over a year ago I reviewed at a study by Light and Warburton, entitled Demythologizing the high costs of pharmaceutical research, which estimated R&D costs at a tiny $43.4 million per drug – not £500 million, or the $1 billion you may see quoted. Their estimates, however, were based on a sequence of highly implausible assumptions, meaning the “average” drug development costs are almost certainly higher in the real world. But how much higher isn’t clear. There have been at least eleven different studies published that estimate costs. Methods used range from direct data collection to aggregate industry estimates. Given the higher costs of new drugs, having an understanding of the drivers of development costs can help us understand just how efficiently this industry is performing. There are good reasons to be critical of the pharmaceutical industry. Are R&D costs one of them?

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Bad Pharma: A Manifesto to Fix the Pharmaceutical Industry


“There is no medicine without medicines” write Ben Goldacre in his new book Bad Pharma. To Goldacre, an author, journalist and physician, this cause is personal. The title, a reference to both his first book, Bad Science, as well as the pharmaceutical industry’s nickname Big Pharma, is a bit of a misnomer. While the focus is pharmaceutical companies and their actions, there are a number of enablers in the health care system – medical journals, regulators, and even medical professionals, all of whom have put the industry’s needs ahead of good medicine. According to Goldacre, the damage is pervasive and deep, right to the roots of modern medicine. These problems know no borders, and affect us all. Despite the different health care systems that exist worldwide, we all depend on for-profit pharmaceutical companies to develop and market new medicines. These companies collectively wield enormous clout, due in part to the remarkable success of medicines over the past several decades. The global pharmaceutical market will probably top $1 trillion (yes, 12 zeros) this year. And Goldacre argues the industry is not only compromised, it is broken. And over 400 pages, he defends the following paragraph:

Drugs are tested by the people who manufacture them, in poorly designed trials, on hopelessly small numbers of weird, unrepresentative patients, and analysed using techniques that are flawed by design, in such a way that they exaggerate the benefits of treatments. Unsurprisingly, these trials tend to produce results that favour the manufacturer. When trials throw up results that companies don’t like, they are perfectly entitled to hide them from doctors and patients, so we only ever see a distorted picture of any drug’s true effects. Regulators see most of the trial data, but only from early on in a drug’s life, and even then they don’t give this data to doctors or patients, or even to other parts of government. This distorted evidence is then communicated and applied in a distorted fashion. In their forty years of practice after leaving medical school, doctors hear about what works ad hoc, from sales reps, colleagues and journals. But those colleagues can be in the pay of drug companies – often undisclosed – and the journals are, too. And so are the patient groups. And finally, academic papers, which everyone thinks of as objective, are often covertly planned and written by people who work directly for the companies, without disclosure. Sometimes whole academic journals are owned outright by one drug company. Aside from all this, for several of the most important and enduring problems in medicine, we have no idea what the best treatment is, because it’s not in anyone’s financial interest to conduct any trials at all. These are ongoing problems, and although people have claimed to fix many of them, for the most party they have failed; so all of these programs persist, but worse than ever, because now people can pretend that everything is fine after all.

We all have our own biases, and I should disclose mine. I’m a pharmacist who has seen HIV go from a death sentence to a chronic disease, thanks to newly developed drugs. I’ve watched cancers like leukemias be effectively cured, thanks to medication. And I’m amazed that surgeries like double-lung transplants, impossible in the past, are now a reality, thanks in part to drug treatments. Yet I’ve also spent more than a decade reviewing the efficacy and safety of prescriptions drugs. Regrettably few are truly innovative. Many are approved with lingering questions about long-term safety and effectiveness. The value some offer can be questionable. I’ve also seen tremendous harms caused by drugs – from individual patients who have suffered horrible adverse drug reactions to population-level disasters like the Vioxx (COX-2) debacle. And I haven’t ignored the countless fines levied on pharmaceutical companies for bad, and sometimes even criminal, behavior. With its repeated capacity for self-sabotage, the pharmaceutical industry is its own worst enemy. My colleagues who work in the pharmaceutical industry agree. They’re smart, honest people that genuinely want to help get good treatments to patients. They’re embarrassed by what they see. So while I have no doubts about the astonishing track record of innovative new drugs that have transformed medicine, I also have no illusions that drug companies always behave in ways that support science-based medicine. And I think there is the potential for the industry to do much better. So how do we get this? Continue reading