Propaganda or cost of innovation? The high price of new drugs

Propaganda or cost of innovation? The high price of new drugs

Narcyz Ghinea, University of Sydney; Ian Kerridge, University of Sydney, and Wendy Lipworth, University of Sydney

Ever wonder how much it costs to develop a new drug? The independent, non-profit research group, The Tufts Center for the Study of Drug Development, estimates US$2.6 billion, almost double the centre’s previous estimate a decade ago. But how accurate is this figure?

While the details of the study remain a secret, a press release, slideshow and background document on the Tufts website provide some insight into how this figure was calculated. Interestingly, only slightly more than half of this cost is directly related to research and development (R&D). US$1.2 billion are “time costs” – returns that investors might have made if their money wasn’t tied up in developing a particular drug.

As expected, these costings have attracted the attention of policymakers, consumer advocates and critics of big pharma. In the New England Journal of Medicine, Harvard University Professor of Medicine Jerry Avorn questions several assumptions underpinning the Tufts costing – particularly the unverifiable claim that up to 80% of compounds are abandoned at some point during development.

Avorn is also unconvinced by the Tufts assertion that an annual return on capital of 10.5% (which was used to calculate the “time costs” component) is needed to attract investors, noting that “bonds issued by drug companies often pay only 1 to 5%”.

More broadly, Avorn questions the Tufts claim that its US$2.6 billion figure related to only “self-originated” products and wonders whether this includes contributions from the public purse for underlying basic science. If the Tufts figure didn’t include public contributions to research, the real cost of drug development would be even higher.

Finally, Avorn notes that pharmaceutical companies could fund much of their research themselves with the hundreds of billions of their own (untaxed) capital held outside of the United States.

Avorn’s criticisms echo those of the Union for Affordable Cancer, which complains that the study’s figures are already being used as a propaganda tool to justify high drug prices, particularly for cancer.

Like Avorn, the Union suggests that the Tufts figures also ignore the significant public contribution to drug development, particularly for cancer.

Others have argued the Tufts figure is grossly over-inflated. Rohit Malpani, director of policy and analysis at Doctors without Borders notes drugs can be developed for as little as US$50 million, and at most, for US$186 million when failures are taken into account.

Even Industry heavyweights such as GlaxoSmithKline’s CEO Andrew Witty have undermined the Tufts claims by suggesting in 2013 that the US$1 billion dollar figure was a myth.

So why is this debate important and why does it matter whether or not these estimate are correct?

These costs are used to justify high drug prices. These prices increasingly have the potential to disable health-care systems, create enormous opportunity costs (as funds that could be spent on other goods and services are diverted to purchase more and more expensive drugs), and place medicines out of reach of all but the most wealthy individuals or governments.

This is a reminder that the real issue is not how much it costs to develop a drug, but whether or not these drugs are worth the high prices pharmaceutical companies charge for them.

While advocates of a completely free market might see “just” pricing and all forms of price control as “medieval”, “socialist” or as suppressing innovation, others worry that drug prices bear little, if any, correlation with actual clinical value.

Rewarding innovation is necessary, but allowing drugs to be priced according to whatever the market will bear, rather than according to their benefits and cost-effectiveness, leads to inefficiencies, inequities and dramatic global inconsistencies.

Knowing how much it really costs to develop a drug might make it easier to negotiate drug prices on a global level and make revenues more predictable. This would not only be beneficial for society but could also ensure more predictable returns for the pharmaceutical industry.

At the moment, however, the industry seems entrenched in free-market thinking and has so far countered efforts by US lawmakers to shine a light on how much drug development really costs. While secrecy of this type may benefit industry, at least in the short term, this is simply not in the public interest.

Until we know more about the actual cost of drug development, we are in no position to meaningfully critique the corporate model promulgated by the pharmaceutical industry, the drug costs put before regulators, or the claims of groups such as Tufts. Ultimately, that leaves health systems at the mercy of industry.

The Conversation

Narcyz Ghinea is Postdoctoral Research Associate, Centre for Values, Ethics and the Law in Medicine at University of Sydney.
Ian Kerridge is Associate Professor in Bioethics & Director, Centre for Values and Ethics and the Law in Medicine at University of Sydney.
Wendy Lipworth is Senior Research Fellow, Bioethics at University of Sydney.

This article was originally published on The Conversation.
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Academics on the payroll: the advertising you don’t see

By Wendy Lipworth, University of Sydney and Ian Kerridge, University of Sydney

In the endless drive to get people’s attention, advertising is going ‘native’, creeping in to places formerly reserved for editorial content. In this Native Advertising series we find out what it looks like, if readers can tell the difference, and more importantly, whether they care.


Academic medical researchers are hot property for companies marketing pharmaceuticals, complementary medicines, medical devices, fitness equipment, weight loss products, “health foods” and other health-related goods and services. Their opinions are highly respected by the general public, and their endorsement in the media of a product can help to ensure consumers and patients purchase it, or at least discuss it with their “health care provider”.

But this raises a question: why would an academic researcher choose to endorse a health-related product in the general media?

The most worrying explanation is that the academic is being employed by the company to speak favourably about its product. Such commercial relationships are rarely made transparent and rely on a public perception that academics are objective observers and commentators. For the most part, however, this is unlikely to be the case.

A far more likely explanation is that any academic endorsement occurs in the context of a long and mutually productive relationship with the company concerned. Academics are frequently targeted by companies on the grounds that they provide authority and act as “key opinion leaders” who are able to influence the opinions, beliefs and behaviours of others in both professional and public arenas.

This relationship with industry is frequently one of many. Academics who comment on products have frequently partnered with the company in its clinical trials of the product; put his or her name to the resulting academic publications; provided strategic advice on how to have the product regulated and perhaps subsidised by the government; or given talks to other academics and clinicians about the research (if not the product itself). Continue reading

The Walking Wounded calls for a rethink of what we most value

By Paul Komesaroff, Monash University; Ian Kerridge, University of Sydney, and Wendy Lipworth, University of Sydney

Starting with Karl Marx, many thinkers have pointed out that the creative potential of the capitalist economic system comes at a cost – the lack of inherent ethical scruples to limit the inexorable logic of profit and growth.

ABC TV’s Four Corners’ exposé of the scandal about a defective medical hip replacement device known as “ASR” is a case in point. The Walking Wounded examines the case of a surgical treatment widely used to treat painful arthritic conditions, mainly in elderly people.

Designed, manufactured and marketed by DePuy (a subsidiary of Johnson & Johnson, the world’s largest medical device company), nearly 100,000 people received the implants over a six-year period. More than 5,000 of them were from Australia.

Originally launched in 2003, defects were soon apparent to many of the surgeons using the device. Some called for its withdrawal. But sales continued until 2009, and it was not until a year later that the company announced a worldwide recall. Continue reading

Do consumer groups really advocate for the public interest?

Wendy Lipworth, University of Sydney and Ian Kerridge, University of Sydney

The Guardian recently claimed to have exposed an attempt by a number of pharmaceutical companies to thwart efforts by the European drug regulator (the European Medicines Agency) to have all clinical trial data made available to the public.

The tactic is apparently being used by industry, and coordinated by the Pharmaceutical Research and Manufacturers of America (PhRMA) and the European Federation of Pharmaceutical Industries and Associations (EFPIA).

The idea is to mobilise patient advocacy groups to campaign against greater transparency on the grounds that information might be misinterpreted and cause health scares. Several companies have denied using such a strategy, while others have refused to comment. Continue reading