image missingTrue Value Metrics (TVM)
Meaningful Metrics for a Smart Society
image missing Navigation ... HOME
SITE
NAV
CONTEXT
ISSUES
POSSIBILITIES
HOW THE
WORLD
WORKS
SECTOR
PROCESS
IMPACT
STATE
ALL THE
CAPITALS
ACTORS
PEOPLE
ORGANIZATIONS
PRODUCTS
STUFF
CONSUMPTION
PLACE
COMMUNITIES
COUNTRIES
PEOPLE
QUALITY
OF LIFE
NATURE
SOURCE of
all VALUE
ECONOMY
MONEY
LIQUIDITY
TRUEVALUE
DATA at
the CENTER
ABOUT
VISION
STRATEGY

HOME ISSUES
CONTEXT
GLOBAL
SYSTEM
STATE
CAPITALS
FLOW
ACTIVITIES
FLOW
ACTORS
PROGRESS
PERFORMANCE
POLICY
POSSIBILITIES
MANAGEMENT
TVM CONCEPTS
PETER
BURGESS
SiteNav SiteNav (1) SiteNav (2) SiteNav (3) SiteNav (4) SiteNav (5) SiteNav (6) SiteNav (7) SiteNav (8) SiteNav (9)
Date: 2019-06-18 Page is: DBtxt001.php txt00002860

Health
Pharmaceutical research and development

Pharmaceutical research and development: what do we get for all that money?

COMMENTARY
The question: Pharmaceutical research and development: what do we get for all that money? is one that the executives of big pharmaceutical companies want to avoid at all costs. I am an accountant ... a former corporate CFO ... and it has been an open secret as far as I have been able to see that pharmaceutical research and development had rather little to do with science and medical outcomes, but a lot about how the activity would help to subsidize the quarter to quarter profit growth for investors.

Accordingly I not at all surprised to find serious research that concludes that the following is the real crisis in the pharmaceutical industry ... not merely in pharmaceuitical research

  • The number of new drugs licensed remains at the long term average range of 15-25 a year
  • However, 85-90% of new products over the past 50 years have provided few benefits and considerable harms
  • The pharmaceutical industry devotes most research funds to developing scores of minor variations that produce a steady stream of profits
  • Heavy promotion of these drugs contributes to overuse and accounts for as much as 80% of a nation’s increase in drug expenditure
  • Overinflated estimates of the average cost of research and development are used to lobby for more protection from free market competition


Peter Burgess

Donald W Light, professor 1, Joel R Lexchin, professor2 Correspondence to: D W Light dlight@princeton.edu

Accepted 18 May 2012


ANALYSIS Pharmaceutical research and development: what do we get for all that money? BMJ 2012; 345 doi: 10.1136/bmj.e4348 (Published 7 August 2012) Cite this as: BMJ 2012;345:e4348 Author Affiliations

Data indicate that the widely touted “innovation crisis” in pharmaceuticals is a myth. The real innovation crisis, say Donald Light and Joel Lexchin, stems from current incentives that reward companies for developing large numbers of new drugs with few clinical advantages over existing ones

Since the early 2000s, industry leaders, observers, and policy makers have been declaring that there is an innovation crisis in pharmaceutical research. A 2002 front page investigation by the Wall Street Journal reported, “In laboratories around the world, scientists on the hunt for new drugs are coming up dry . . . The $400 billion a year drug industry is suddenly in serious trouble.”1 Four years later, a US Government Accounting Office assessment of new drug development reported that “over the past several years it has become widely recognized throughout the industry that the productivity of its research and development expenditures has been declining.”2 In 2010, Morgan Stanley reported that top executives felt they could not “beat the innovation crisis” and proposed that the best way to deal with “a decade of dismal R&D returns” was for the major companies to stop trying to discover new drugs and buy into discoveries by others.3 Such reports continue and raise the spectre that the pipeline for new drugs will soon run dry and we will be left to the mercies of whatever ills befall us.4

The “innovation crisis” myth

The constant production of reports and articles about the so called innovation crisis rests on the decline in new molecular entities (defined as “an active ingredient that has never been marketed . . . in any form”5) since a spike in 1996 that resulted from the clearance of a backlog of applications after large user fees from companies were introduced (fig 1⇓). This decline ended in 2006, when approvals of new molecular entities returned to their long term mean of between 15 and 25 a year (fig 2⇓).6 Even in 2005, an analysis of the data by a team at Pfizer concluded that the innovation crisis was a myth “which bears no relationship to the true innovation rates of the pharmaceutical industry.”7 So why did the claims and stories not abate?


View larger version:In a new windowDownload as PowerPoint Slide
Fig 1 The innovation crisis starting in 1997 is a return to the long term average range of new approvals from an artificial spike caused by political factors8


View larger version:In a new windowDownload as PowerPoint Slide
Fig 2 The rate of approval of new molecular entities returned to the long term average range by 2006

A subsequent analysis also concluded that the innovation crisis was a myth and added several insights.8 Based on US Food and Drug Administration records, Munos found that drug companies “have delivered innovation at a constant rate for almost 60 years.” The new biologicals have been following the same pattern “in which approvals fluctuate around a constant, low level.”8 These data do not support frequently heard complaints about how hard it is to get any new drug approved. They also mean that neither policies considered to be obstacles to innovation (like the requirement for more extensive clinical testing) nor those regarded as promoting innovation (like faster reviews) have made much difference. Even the biotechnology revolution did not change the rate of approval of new molecular entities, though it changed strategies for drug development.9 Meanwhile, telling “innovation crisis” stories to politicians and the press serves as a ploy, a strategy to attract a range of government protections from free market, generic competition.10 11

The real innovation crisis

More relevant than the absolute number of new drugs brought to the market is the number that represent a therapeutic advance. Although the pharmaceutical industry and its analysts measure innovation in terms of new molecular entities as a stand-in for therapeutically superior new medicines, most have provided only minor clinical advantages over existing treatments.

The preponderance of drugs without significant therapeutic gains dates all the way back to the “golden age” of innovation. Out of 218 drugs approved by the FDA from 1978 to 1989, only 34 (15.6%) were judged as important therapeutic gains.12 Covering a roughly similar time period (1974-94), the industry’s Barral report on all internationally marketed new drugs concluded that only 11% were therapeutically and pharmacologically innovative.13 Since the mid-1990s, independent reviews have also concluded that about 85-90% of all new drugs provide few or no clinical advantages for patients.14 15 16 17 18 19

This small, steady increase in clinically superior drugs contrasts with the FDA granting “priority” review status to 44% of all new drugs from 2000 to 2010.20 The percentage of drugs with a priority designation began to increase in 1992 when companies started funding the FDA’s approval process. Other regulatory agencies have classified far fewer of the same medicines as needing accelerated reviews.21 Post-market evaluations during the same period are much less generous in assigning significant therapeutic advances to medications.18 21

This is the real innovation crisis: pharmaceutical research and development turns out mostly minor variations on existing drugs, and most new drugs are not superior on clinical measures. Although a steady stream of significantly superior new drugs enlarges the medicine chest from which millions benefit, medicines have also produced an epidemic of serious adverse reactions that have added to national healthcare costs.22

How much does research and development cost?

Although the pharmaceutical industry emphasises how much money it devotes to discovering new drugs, little of that money actually goes into basic research. Data from companies, the United States National Science Foundation, and government reports indicate that companies have been spending only 1.3% of revenues on basic research to discover new molecules, net of taxpayer subsidies.23 More than four fifths of all funds for basic research to discover new drugs and vaccines come from public sources.24 Moreover, despite the industry’s frequent claims that the cost of new drug discovery is now $1.3bn (£834m; €1bn),25 this figure, which comes from the industry supported Tufts Center,26 has been heavily criticised. Half that total comes from estimating how much profit would have been made if the money had been invested in an index fund of pharmaceutical companies that increased in value 11% a year, compounded over 15 years.26 While used by finance committees to estimate whether a new venture is worth investing in, these presumed profits (far greater than the rise in the value of pharmaceutical stocks) should not be counted as research and development costs on which profits are to be made. Half of the remaining $0.65bn is paid by taxpayers through company deductions and credits, bringing the estimate down to one quarter of $1.3bn or $0.33bn.27 The Tufts study authors report that their estimate was done on the most costly fifth of new drugs (those developed in-house), which the authors reported were 3.44 times more costly than the average, reducing the estimate to $90m. The median costs were a third less than the average, or $60m. Deconstructing other inflators would lower the estimate of costs even further.

Hidden business model

How have we reached a situation where so much appears to be spent on research and development, yet only about 1 in 10 newly approved medicines substantially benefits patients? The low bars of being better than placebo, using surrogate endpoints instead of hard clinical outcomes, or being non-inferior to a comparator, allow approval of medicines that may even be less effective or less safe than existing ones. Notable examples include rofecoxib (Vioxx), rosiglitazone (Avandia), gatifloxacin (Tequin), and drotrecogin alfa (Xigris).

Although the industry’s vast network of public relations departments and trade associations generate a large volume of stories about the so called innovation crisis, the key role of blockbuster drugs, and the crisis created by “the patent cliff,”28 the hidden business model of pharmaceuticals centres on turning out scores of minor variations, some of which become market blockbusters. In a series of articles Kalman Applbaum describes how companies use “clinical trial administration, research publication, regulatory lobbying, physician and patient education, drug pricing, advertising, and point-of-use promotion” to create distinct marketing profiles and brand loyalty for their therapeutically similar products.29 Sales from these drugs generate steady profits throughout the ups and downs of blockbusters coming off patents. For example, although Pfizer lost market exclusivity for atorvastatin, venlafaxine, and other major sellers in 2011, revenues remained steady compared with 2010, and net income rose 21%.30

Applbaum contends that marketing has become “the enemy of [real] innovation.”31 This perspective explains why companies think it is worthwhile paying not only for testing new drugs but also for thousands of trials of existing drugs in order to gain approval for new indications and expand the market.32 This corporate strategy works because marketing departments and large networks of sponsored clinical leaders succeed in persuading doctors to prescribe the new products.33 An analysis of Canada’s pharmaceutical expenditures found that 80% of the increase in its drug budget is spent on new medicines that offer few new benefits.16 Major contributors included newer hypertension, gastrointestinal, and cholesterol drugs, including atorvastatin, the fifth statin on the Canadian market.

Myth of unsustainable research and development

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.25 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.34

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 23 compares with the 25% that an independent analysis estimates is spent on promotion,35 and gives a ratio of basic research to marketing of 1:19.

Towards more cost effective, safer medicines

What can be done to change the business model of the pharmaceutical industry to focus on more cost effective, safer medicines? The first step should be to stop approving so many new drugs of little therapeutic value. The European Medicines Agency (EMA) does Europe a disservice by approving 74% of all new applications based on trials designed by the companies, while keeping data about efficacy and safety secret.36 37 Twenty nine per cent of new biologicals approved by the EMA received safety warnings within the first 10 years on the market,38 and therapeutically similar drugs by definition have no advantages to offset their unknown risk of increased harm. We need to revive the Norwegian “medical need” clause that limited approval of new drugs to those that offered a therapeutic advantage over existing products.39 This approach led to Norway having seven non-steroidal anti-inflammatory drugs on the market compared with 22 in the Netherlands.40 Norway’s medical need clause was eliminated in 1996 when it harmonised its drug approval process with that in the EU. EU countries are paying billions more than necessary for drugs that provide little health gain because prices are not being set to reward new drugs in proportion to their added clinical value.

We should also fully fund the EMA and other regulatory agencies with public funds, rather than relying on industry generated user fees, to end industry’s capture of its regulator. Finally, we should consider new ways of rewarding innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137, rather than through the high prices generated by patent protection.41 The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again. This approach would save countries billions in healthcare costs and produce real gains in people’s health. The true crisis in pharmaceutical research

  • The number of new drugs licensed remains at the long term average range of 15-25 a year
  • However, 85-90% of new products over the past 50 years have provided few benefits and considerable harms
  • The pharmaceutical industry devotes most research funds to developing scores of minor variations that produce a steady stream of profits
  • Heavy promotion of these drugs contributes to overuse and accounts for as much as 80% of a nation’s increase in drug expenditure
  • Overinflated estimates of the average cost of research and development are used to lobby for more protection from free market competition

Notes

Cite this as: BMJ 2012;344:e4348

Footnotes

Analysis, doi:10.1136/bmj.e4261

Contributors and sources: DWL is professor of comparative health care policy and has published several studies on pharmaceutical policy gathered at www.pharmamyths.net. For his work, he has been selected as a fellow at the Safra Center for Ethics at Harvard University for 2012-13. JRL is the author or coauthor of over 115 peer reviewed articles on all aspects of pharmaceutical policy. The authors made use of their knowledge from their individual and collaborative work on pharmaceutical economics including material from a variety of industry and government publications and their extensive personal libraries. DWL conceived, researched, and wrote the initial draft. JRL researched and revised, making substantial changes.

This article was supported by the Escher project (T6-202), a project of the Dutch Top Institute Pharma. The funder had no role in the concept, research, or drafting of this paper.

Competing interests: Both authors have completed the ICMJE unified declaration form at www.icmje.org/coi_disclosure.pdf (available on request from the corresponding author) and DWL declares support from the Escher project; they have no financial relationships with any organisation that might have an interest in the submitted work in the previous three years; JRL has been a consultant to the Canadian federal government in its defence of a lawsuit challenging the ban on direct to consumer advertising. He appeared as an expert witness for the family of a patient who allegedly died from the side effects of a drug made by Allergan. He is on the management board of Healthy Skepticism and is the chair of Health Action International’s Europe Association Board.

Provenance and peer review: Not commissioned; externally peer reviewed.


References
  1. ↵Harris G. For drug makers, good times yield to a new profit crunch. Wall Street Journal2002 Apr 18.
  2. ↵United States Government Accounting Office. New drug development. GAO, 2006.
  3. ↵Morgan Stanley. Pharmaceuticals: exit research and create value. Morgan Stanley, 2010.
  4. ↵Wilson D. Drug firms face billions in losses in ’11 as patents end. New York Times2011 Mar 6. www.nytimes.com/2011/03/07/business/07drug.html?_r=1&pagewanted=all.
  5. ↵US Food and Drug Administration. Drugs@FDA glossary of terms. 2012. www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htm?utm_campaign=Google2&utm_source=fdaSearch&utm_medium=website&utm_term=“glossary%20of%20terms”&utm_content=2.
  6. ↵US Food and Drug Administration. New molecular entity approvals for 2010. Silver Spring: FDA, 2011. www.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/DrugandBiologicApprovalReports/UCM242695.pdf.
  7. ↵Schmid E, Smith D. Is declining innovation in the pharmaceutical industry a myth? Drug Discov Today2005;10:1031-9.CrossRefMedlineWeb of Science
  8. ↵Munos B. Lessons from 60 years of pharmaceutical innovation. Nature Rev Drug Discov2009;8:959-68.CrossRefMedlineWeb of Science
  9. ↵Hopkins MM, Martin PA, Nightingale P, Kraft A, Mahdi S. The myth of the biotech revolution: an assessment of technological, clinical, and organizational change. Res Policy2007;36:566-89.CrossRefWeb of Science
  10. ↵Adamini S, Maarse H, Versluis E, Light DW. Policy making on data exclusivity in the European Union: from industrial interests to legal realities. J Health Politics, Policy Law2009;34:979-1010.FREE Full Text
  11. ↵Gagnon M-A. The $2 billion extra price tag of brand-name drugs in Canada. 2011. www.hilltimes.com/policy-briefing/2011/02/07/the-%242-billion-extra-price-tag-of-brand-name-drugs-in-canada/25433.
  12. ↵Kaitin KI, Phelan NR, Raiford D, Morris B. Therapeutic ratings and end-of-phase II conferences: initiatives to accelerate the availability of important new drugs. J Clin Pharmacol1991;31:17-24.FREE Full Text
  13. ↵Barral PE. 20 years of pharmaceutical research results throughout the world: 1975-94. Rhone-Poulenc Rorer Foundation, 1996.
  14. ↵Angell M. The truth about the drug companies: how they deceive us and what to do about it. Random House, 2004.
  15. ↵Hunt MI. Prescription drugs and intellectual property protection. National Institute for Health Care Management, 2000.
  16. ↵Morgan SG, Bassett KL, Wright JM, Evans R, Barer M, Caetano P, et al. “Breakthrough” drugs and growth in expenditure on prescription drugs in Canada. BMJ2005;331:815-6.FREE Full Text
  17. ↵Motola D, DePonti F, Poluzzi E, Martini N, Rossi P, Silvani MC, et al. An update on the first decade of the European centralized procedure: how many innovative drugs? Br J Clin Pharmacol2006;62:610-6.CrossRefMedlineWeb of Science
  18. ↵Prescrire Editorial Staff. A look back at 2009: one step forward, two steps back. Prescrire Int2010;19:89-94.Medline
  19. ↵Van Luijn J, Gribnau F, Leufkens HGM. Superior efficacy of new medicines? Eur J Clin Pharmacol2010;66:445-8.CrossRefMedlineWeb of Science
  20. ↵US Food and Drug Administration. Drug and biologic approval reports. 2012. www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/DrugandBiologicApprovalReports/default.htm.
  21. ↵Lexchin J. International comparison of assessments of pharmaceutical innovation. Health Policy2012;105:221-5.CrossRefMedlineWeb of Science
  22. ↵Light DW, ed. The risks of prescription drugs. Columbia University Press, 2010.
  23. ↵Light DW, Lexchin J. Foreign free riders and the high price of US medicines. BMJ2005;331:958-60.FREE Full Text
  24. ↵Light DW. Basic research funds to discover important new drugs: who contributes how much. In: Burke MA, ed. Monitoring the financial flows for health research 2005: behind the global numbers. Global Forum for Health Research, 2006:27-43.
  25. ↵Pharmaceutical Research and Manufacturers of America. 2011 profile: pharmaceutical industry. PhRMA, 2011.
  26. ↵DiMasi JA, Hansen RW, Grabowski HG. The price of innovation: new estimates of drug development costs. J Health Econ2003;22:151-85.CrossRefMedlineWeb of Science
  27. ↵Light DW, Warburton RN. Demythologizing the high cost of pharmaceutical research. Biosocieties2011;6:1-17.CrossRefWeb of Science
  28. ↵Harrison C. The patent cliff steepens. Nature Rev Drug Discov2011;10:12-3.CrossRefMedline
  29. ↵Applbaum K. Pharmaceutical marketing and the invention of the medical consumer. PLoS Med2006;3:e189.CrossRefMedline
  30. ↵Pfizer. Performance report—fourth quarter. Pfizer, 2012.
  31. ↵Applbaum K. Is marketing the enemy of pharmaceutical innovation? Hastings Center Report2009;39:13-7.Medline
  32. ↵Applbaum K. Getting to yes: corporate power and the creation of a psychopharmaceutical blockbuster. Culture Med Psychiatry2009;33:185-215.CrossRefWeb of Science
  33. ↵Steinman MA, Bero LA, Chen M-M, Landefeld CS. Narrative review: the promotion of gabapentin: an analysis of internal industry documents. Ann Intern Med2006;145:284-93.MedlineWeb of Science
  34. ↵Kaiser Family Foundation. Profitability of pharmaceutical manufacturers, 1995-2009. 2009. http://facts.kff.org/chart.aspx?ch=218.
  35. ↵Gagnon M-A, Lexchin J. The cost of pushing pills: a new estimate of pharmaceutical promotion expenditures in the United States. PLoS Med2008;5:e1.CrossRefMedline
  36. ↵Abraham J. Partial progress: governing the pharmaceutical industry and the NHS, 1948-2008. J Health Politics Policy Law2009;34:931-77.FREE Full Text
  37. ↵Regnstrom J, Koenig F, Aronsson B, Reimer T, Svendsen K, Tsigkos S, et al. Factors associated with success of market authorisation applications for pharmaceutical drugs submitted to the European Medicines Agency. Eur J Clin Pharmacol2010;66:39-48.CrossRefMedline
  38. ↵Giezen TJ, Mantel-Teeuwisse AK, Straus SMJM, Schellekens H, Leufkens HGM, Egberts ACG. Safety-related regulatory actions for biologicals approved in the United States and the European Union. JAMA2008;300:1887-96.CrossRefMedline
  39. ↵Jøldal B. Regulation for need—the Norwegian experience. J Soc Admin Pharmacy1984;2:81-4.
  40. ↵Dukes M, Lunde I. The regulatory control of non-steroidal anti-inflammatory agents. Eur J Clin Pharmacol1981;19:3-10.CrossRefMedlineWeb of Science
  41. ↵Love J. Senator Sanders introduces two medical innovation prize bills in US Senate to de-link R&D costs from drug prices. Knowledge Ecology International 27 May 2011. http://keionline.org/node/1147.

The text being discussed is available at
http://www.bmj.com/content/345/bmj.e4348.full?ijkey=Y1g4ZVUImIbtXOI&keytype=ref


TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative.
It has been funded by family and friends plus donations from well wishers who understand
the importance of accountability and getting the management metrics right.
SITE COUNT
Amazing and shiny stats
Blog Counters Reset to zero January 20, 2015

The information on this website may only be used for socio-enviro-economic performance analysis, personal information, education and limited low profit purposes
Copyright © 2005-2019 Peter Burgess. All rights reserved.