High cost of new drugs
BMJ 2016; 354 doi: https://doi.org/10.1136/bmj.i4136 (Published 27 July 2016) Cite this as: BMJ 2016;354:i4136
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In the BMJ editorial (High Cost of New Drugs, BMJ 2016; 354: i4136), Mazzucato argued that drug prices do not take into account the very large role of the public sector in co-financing drugs, effectively causing the tax payer to pay twice—and many patients to not getting the medicines they need. In his response to this editorial, Henk Jan Out takes issue with the amount of public finance for drugs. He cites an article by Stevens et al. (1), but cites only a portion of this study so that it supports a very different conclusion than what the article actually shows. Stevens et al state “Our data show that public sector research institutes have contributed to the discovery of 9.3 to 21.2% of all drugs involved in new-drug applications approved during the period from 1990 through 2007” and conclude that “Public-sector research has had a more immediate effect on improving public health than was previously realized”. Moreover, the study was designed to specifically look for public sector contributions “in the applied phase of research”, thus excluding earlier research stages where public sector contributions tend to be the largest (as affirmed by Stevens et al.), and focused only on “research that led to discovery of a drug if it created intellectual property specific to the drug that was subsequently transferred to a company through a commercial license”, thus excluding any public sector research that was not the subject of a patent. As the authors explain, this approach led them to exclude examples like “Julius Axelrod’s research at the National Institutes of Health regarding the basic mechanisms of neurotransmitters, for which he received the Nobel Prize in 1970. This research provided the foundation for the pharmaceutical industry’s discovery of an entirely new class of drugs, the selective serotonin-reuptake inhibitors (SSRIs), which have been important in the treatment of depression. All the major SSRIs were discovered by pharmaceutical companies with the use of Axelrod’s basic discoveries and are therefore not included in our study”
If Out reviewed the more comprehensive and well known study by Sampat and Lichtenberg that analyzed the contributions of public and private sectors in new FDA approvals between 1988-2005 (2), he would learn that 47.8% of all 379 new drugs were found to have benefited from direct or indirect public sector support. For drugs that received FDA priority review, an indicator of public health relevance, this figure was even higher: 64.5% of 155 such drugs approved. This contribution in outcomes reflects major investments by the public sector: in the US, $61 Mn or 47% of the estimated $130 Mn spent on medical and health research in 2012 came from public and philanthropic sources (mainly the federal government) (3).
The Di Masi et al. estimates on the cost of R&D have been extensively critiqued elsewhere (4,5), including because they are not based on independently verifiable data, so we won’t go into that here. It should suffice to say that this is a highly controversial figure, not an accepted fact, and even GSK CEO Andrew Witty has admitted that the (then) “$1 billion price tag was one of the great myths of the industry" (6). For example, it includes ‘opportunity costs’ as though pharma companies could realistically NOT spend on R&D, but simply invest their funds in the stock market. Looking at actual expenditures on R&D, one could also cite the experience of the Drugs for Neglected Diseases initiative, whose not-for-profit R&D outlays for developing a new chemical entity are €30-40 Mn (7). The ever increasing figures for R&D costs cited ($5 Bn in the Forbes piece) may reflect more the financialized business model of the pharmaceutical industry in which advanced drug candidates are acquired as part of a company’s financial speculation than actual research investments (8). It also remains true that drug companies spend more on marketing than on R&D, and also more on share buybacks to boost stock prices (9) Indeed, more transparency on R&D costs, and the need to achieve a better innovation model for both the public and private sector, was the key point of the editorial.
Finally on the quality of the medical innovation. While just 16 (36%) and not “nearly half” of the 45 novel drugs approved by the FDA in 2015 were first-in-class, Out mistakenly assumes that a first-in-class drug that receives regulatory approval represents useful medical innovation and provides added clinical benefit. Unfortunately, this is not the case. As the FDA observes on their website (9): “in some cases a new molecular entity may have actions similar to earlier drugs and may not necessarily offer unique clinical advantages over existing therapies”, and this is independent of being first-in-class. Notably, the FDA itself has only designated 10 of the 2015 novel drugs (22%) as “breakthrough therapies”, drugs with preliminary clinical evidence demonstrating that the drug may result in substantial improvement on at least one clinically significant endpoint over other available therapies (10). A series of independent studies have repeatedly demonstrated how a large majority of newly approved drugs has no or limited added therapeutic value (11,12,13,14). While the exact figures vary depending on the methodology used or the country/period under study, the overall trend is clear and widely accepted to be more than 70% (some studies suggest even close to 90%). The main reason for this is that, after intense lobby efforts from the pharmaceutical industry, the FDA and other regulatory authorities do not require the demonstration of added clinical benefit compared to what is already on the market (15), leading to an enormously wasteful R&D process. Unfortunately, the lack of added therapeutic value does not prevent a drug to be a blockbuster, as is illustrated in the high price of new cancer drugs, despite their often very limited clinical benefit (16). Meanwhile, the current short term profitability focused pharmaceutical business model is distorting research priority setting in ways that undermine the public health interest. For instance, high cancer drug prices are stifling progress by encouraging enormous expenditures of time, money, and resources on marginal therapeutic indications while promoting a me-too mentality that is stifling innovation and creativity (16). Similarly, pharmaceutical firms are thought to “underinvest” in drugs that would combat early-stage cancers and could have major long term benefits, partly because the corresponding clinical trials for such cancers simply take longer than those for drugs treating patients with late-stage cancers, where expected clinical benefits are much smaller (17).
Mariana Mazzucato, RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex
@mazzucatom
Els Torreele, PhD, Director Access to Medicines and Innovation, Open Society Foundations
@ElsTorreele
1. Stevens AJ et al. The Role of Public-Sector Research in the Discovery of Drugs and Vaccines. N Engl J Med 2011; 364: 535-41.
2. Sampat B and Lichtenberg F. What Are The Respective Roles Of The Public And Private Sectors In Pharmaceutical Innovation? Health Affairs 2011; 30: 332-339
3. Research America report. Truth and consequences: Health R&D spending in the US (FY11-12), available at http://www.researchamerica.org/sites/default/files/uploads/healthdollar1...
4. KEI comment on the new Tufts Study on Drug Development Costs, 2014, available at http://keionline.org/node/2127
5. Light D and Warburton R. Pharmaceutical R&D’s Costly Myths. PLoS Blog Speaking of Medicines 2012, available at http://blogs.plos.org/speakingofmedicine/2012/03/07/pharmaceutical-rds-c...
6. Hirschler B. GlaxoSmithKline boss says new drugs can be cheaper. Reuters 2013, available http://www.reuters.com/article/us-glaxosmithkline-prices-idUSBRE92D0RM20...
7. An Innovative Approach to R&D for neglected patients: ten year of experience & lessons learned by DNDi. Drugs for Neglected Diseases initiative, 2013, available at http://www.dndi.org/wp-content/uploads/2009/03/DNDi_Modelpaper_2013.pdf
8. Roy V and King L. Betting on hepatitis C: how financial speculation in drug development influences access to medicines. BMJ 2016;354:i3718
9. Lazonick, W. (2014). Profits without prosperity. Harvard Business Review, 92(9), 46-55
10. http://www.fda.gov/Drugs/DevelopmentApprovalProcess/DrugInnovation/ucm47...
11. Light D and Lexchin J. Pharmaceutical research and development: what do we get for all that money? BMJ 2012;344:e4348, available at http://www.pharmamyths.net/files/BMJ-Innova_ARTICLE_8-11-12.pdf
12. Ward D, Slade A, Genus T, et al. How innovative are new drugs launched in the UK? A retrospective study of new drugs listed in the British National Formulary (BNF) 2001-2012. BMJ Open 2014; 4:e00623, available from http://bmjopen.bmj.com/content/4/10/e006235.full
13. New drugs and indications in 2014. Some advances this year, but many drugs are poorly evaluated, too expensive, or more dangerous than useful. Rev Prescrire Feb 2015; 35(376):132-136, available at http://english.prescrire.org/en/109B561E03CAD2313B7046521B310752/Downloa...
14. Vitry AI, Shin NH, Vitre P. Assessment of the therapeutic value of new medicines marketed in Australia. Journal of Pharmaceutical Policy and Practice. 2013;6:2. doi:10.1186/2052-3211-6-2, available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3987060/pdf/2052-3211-6-2.pdf
15. Angell M. The truth about the drug companies: how they deceive us and what to do about it. Random House, 2004.
16. Fojo T, Mailankody S, Lo A. Unintended Consequences of Expensive Cancer Therapeutics—The Pursuit of Marginal Indications and a Me-Too Mentality That Stifles Innovation and Creativity: The John Conley Lecture . JAMA Otolaryngol Head Neck Surg. 2014;140(12):1225-1236
17. Williams H, Budish E, Roin B. Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials. American Economic Review 2015; 105(7): 2044-2085
Competing interests: No competing interests
The cost for hepatitis C treatment has understandably caused alarm. However it is the exclusivity provided by patents that allow Gilead such control over the price of the medication. There are potentially up to 12 patents relating to sofosbuvir(1). The primary patent relating to the drug itself expires in 2024; 8 years’ time. The term of a patent is 20 years. Mazzucato and Phillips argue that one way of improving accessibility is by curtailing the longevity of patents(2). However in the EU and USA legislative measures are in place to prolong the effective patent lifespan. For example, in the EU Supplementary Protection Certificates (SPC) allow manufacturers of original drugs to prevent the marketing of generic drugs in Europe for up to 15 years after the patent expires(3). A specific application must be made to be granted a SPC. The combined total duration of market exclusivity arising from the patent and SPC is 15 years(3). The European Medicines Agency granted approval of sofosbuvir in 2014(4). Hence an SPC will increase the effective patent life span and market monopoly for a further 5 years to 2029; by preventing the marketing of generic drugs. In the US the Food and Drug Administration (FDA) do not allow any generic drugs to be marketed for up to 5 years after the approval of a new drug, irrespective of whether the patent has expired or is operative(5).
Gilead is now number 118 in Forbes list of the most affluent corporations in the world. However it is apparent that this status will not last indefinitely(6). The patent will expire and generic drugs will enter the market. Gilead can then anticipate precipitous declines in profit virtually overnight. Merck Sharp & Dohme Limited saw annual revenue from their flag ship drug Fosamax (alendronate) half the year following the term of the patent from $3 billion in 2007 to $1.5 in 2008(5). Gilead’s strategy is clearly to maximise profits prior to the expiration of the patent. Theoretically pharmaceutically companies could be derobed of the protection of SPCs and US five year exclusivity, however in response to this manufacturers may simply increase the price of drugs commensurate with the period of truncation of the patent. The ramifications of curtailing patent rights are far from clear. While “blockbuster” drugs such as sofosbuvir may be relatively immune to such changes, it may have a disproportionate impact on drugs with much smaller revenue, for rare conditions, which then become less financially viable to develop(5). The fear is that without patent protection pharmaceutical companies will not invest in the generation of new drugs. There currently exist concerns that the patent system alone is insufficient to safe-guard innovation due to the increasing tenacity of generic drug manufacturers(5). The annual average for the number of drugs approved by the FDA fell from 35, between 1996 and 2001, to 20 between 2002 and 2007(5). Patents are neither necessarily the problem nor the panacea with regard to high drug pricing. Indeed it may purely be the result of a capitalist market in which the NHS operates.
(1) http://www.who.int/phi/implementation/ip_trade/sofosbuvir_report.pdf?ua=1
(2) Mazzucato M, Phillips RM. High cost of new drugs. BMJ 2016;354:i4136
(3) http://ec.europa.eu/growth/industry/intellectual-property/patents/supple... No authors listed. Last accessed 25 May 2016.
(4) http://www.ema.europa.eu/ema/index.jsp?curl=pages/medicines/human/medici...
(5) Higgins MJ, Graham SJ. Intellectual property. Balancing innovation and access: patent challenges tip the scales. Science. 2009 Oct 16;326(5951):370-1.
(6) http://www.forbes.com/companies/gilead-sciences/
Competing interests: No competing interests
In the Editorial published on 27 July 2016 (1), Mazzucato raises the fundamental questions of why medicines are so expensive, what is the right price to pay for a particular drug, and how this should be determined. In particular, she reminds us that “drug pricing must be completely transparent, so that governments can negotiate for better value on behalf of their populations”. But the leading regulatory agencies seem to stay away from pricing issues. Mazzucato notes that the US government never exercised its right to cap the prices of drugs that are developed via largely publicly funded research (2). Also, the European Medicines Agency (EMA) does not take decisions on the price or availability of medicines (3), since decisions about price and reimbursement take place at the level of each Member State.
Currently, most pharmaceutical companies tend to set prices that reflect “what the market bears”, or what one is willing to pay for a product, rather than the “just price” (4). Prices may be disproportionately high, to the point that some EMA-approved drugs will not be reimbursed under national assurance schemes, or they will be subject to strict eligibility criteria. We concur with Mazzucato that “realizing that government has power to actively shape and create markets, and not just remain on the sidelines fixing broken ones, especially in the area of health that is heavily subsidized by the public, is the first important step to reaching a better deal”.
With specific reference to the accessibility of innovative medicines in Middle-Income Countries (MIC), we had previously suggested that when discussing the clinical development plan of a potentially life-saving drug, regulatory agencies should require an “ethical clause” that binds the marketing authorization holders to register it in all MIC involved in the trials and to make it available at tiered prices (5). The case of innovative medicines for hepatitis C now shows that high prices pose a problem not only in resource-limited settings, and that they are growing to become a global barrier to access to essential treatments (6). Regulatory seal of approval is an important distinguishing factor that allows drug developers to charge high prices for products (7). On these grounds, we further advocate that regulatory authorities granting the initial marketing authorization should consider revising their current policies and actively engage in the evaluation of the pricing policies of new, innovative medicines. In particular, regulatory authorities could require innovator companies to provide, as part of the application for marketing authorization, comprehensive information on the research & development costs as well as a justification for the proposed pricing policy.
References
1) Mazzucato Mariana. High cost of new drugs. BMJ 2016; 354 :i4136
2) Knowledge Ecology International. 2016 Xtandi petition.http://keionline.org/xtandi
3) European Medicines Agency. What do we do. Last accessed on 29/07/2015 at http://www.ema.europa.eu/ema/index.jsp?curl=pages/about_us/general/gener...
4) Experts in Chronic Myeloid Leukemia. The price of drugs for chronic myeloid leukemia (CML) is a reflection of the unsustainable prices of cancer drugs: from the perspective of a large group of CML experts. Blood 2013; 121:4439-42.
5) Ravinetto R, Guenzi PD, Massat P and Gaidano G. Globalisation of clinical trials and ethics of benefit sharing. Lancet Hematology 2014; 1: e54-e56.
6) Ward JW and Mermin H. Simple, Effective, but Out of Reach? Public Health Implications of HCV Drugs. NEJM 2015; 2015 [Pud ahead of print]
7) Eichler HG, Hurts H, Broich K and Rasi G. Drug Regulation and Pricing – Can Regulators Influence Affordability. New Eng J Med 2016; 374; 19
Competing interests: No competing interests
Mazzucato addresses the important issue of high drug prices. She argues that costs made by the pharmaceutical industry for research and development (R&D) are not transparent, that over two thirds of new medicines do no represent any therapeutic advance for patients and that primarily the public sector is responsible for actual drug innovation.
It is worthwhile to investigate the recent literature on these topics. In the largest study to date Stevens et al. (1) found that public sector research institutions were responsible for the discovery of new drugs of only 143 (9.3%) of 1541 new drug applications approved by the Food and Drug Administration (FDA) between 1970 and 2007. In Europe, only 17% of 94 drugs approved between 2010 and 2012 originated from academia (2). The role of the public sector is therefore important but limited, primarily because of restrained budgets. The most recent estimation on the costs of R&D per approved drug is $2.6 billion (3). Transparency of R&D expenditures is given in the annual reports from the companies. Dividing these expenditures by the number of drugs that were brought to the market, results in even higher costs per approved medicine (4). In 2015, 45 new medicines were approved by the FDA, a new record (5). Nearly half of these were first-in-class compounds. I challenge professor Mazzucato to name the two thirds (n=30) of drugs that do not represent any advance for patients despite their positive benefit-risk profiles as evidenced by regulatory approval.
The discussion on drug prices is important. These prices will always be perceived as high in view of the enormous R&D investments. The difficult debate on how to move forward includes many aspects but can only be fruitful when the enormous contribution of the private sector to drug innovation is being recognized.
1. Stevens AJ et al. The Role of Public-Sector Research in the Discovery of Drugs and Vaccines. N Engl J Med 2011; 364: 535-41.
2. Lincker H et al. Regulatory watch: Where do new medicines originate from in the EU? Nature Reviews Drug Discovery 2014; 13: 92-3.
3. Dimasi JA et al. Innovation in the pharmaceutical industry: New estimates of R&D costs. J Health Econ 2016; 47: 20-33.
4. Herper M. The Cost Of Creating A New Drug Now $5 Billion, Pushing Big Pharma To Change, Forbes, August 11, 2013.
5. Eye on FDA. FDA 2015 Report on New Drug Approvals – A Banner Year, January 26, 2016
Competing interests: I worked for more then 20 years as pharmaceutical physician in the pharmaceutical industry.
NEED PRICE CONTROL
Life saving and disease specific newer agents like drugs for hepatitis C viral infection must be brought under price control and the Government should also give subsidies to cut down the cost of the newer drugs.
Every one's life is precious. So the drug companies with patents for the newer molecules must also cooperate in this matter to give these drugs at an affordable price.
This type of policy decision may also help patients in both developing and under developed countries, as well as patients in well developed Nations.
Competing interests: No competing interests
Reply to Mazzucato and Torreele
The rebuttal of Mazzucato and Torreele (1) to my response (2) on Mazzucato’s editorial on high prices of new medicines (3) clearly shows how the discussion on the respective roles of the public and private sector in drug innovation is hampered by the use of different definitions and assumptions, and selective use of references.
The most relevant factor in the discussion whether or not the public is paying twice for its drugs, seems to me to identify the accountable party for the discovery and development of the new chemical entity, defined as a drug that contains no active moiety that has been approved by regulatory authorities. That is one of the issues that Stevens et al. address (4). Overall, the public sector was responsible for that in 9.3% of the new drug approvals (see bottom row in Table 2 of that paper). Numbers found by other authors were 6.7% (5), 24.1% (6) and 7.6% (7). This is by far not what Mazzucato (quoting Marcia Angell) claims in “The Entrepreneurial State”: “It has been state funded labs and research that are responsible for two-thirds of the new molecular entities that have been discovered in the last ten years” (8). Obviously, the industry makes use of knowledge gained in publicly funded basic research. As Mazzucato and Torreele rightly say, without Julius Axelrod’s research on neurotransmitters the pharmaceutical industry’s discovery of the selective serotonin-reuptake inhibitors (SSRIs) could not have taken place. However, costs and risks to bring drugs to the market are entirely for the private sector. This includes the very frequent failure to replicate findings that originated from publicly financed basic research (up to 90%) (9). Because of replication issues, it has been estimated that in the United States alone annually approximately $28 billion of mainly public money is being wasted in this preclinical phase (10).
The research and development (R&D) can not be done for $30-40 million as claimed by the Drugs for Neglected Diseases Initiative (DNDi). Between 2003 and 2015 this organisation delivered six treatments, all of them fixed combinations or pediatric dosage forms of existing drugs (11), so not new chemical entities, as Mazzucato and Torreele claim. Useful, but hardly representative for the drug discovery and development process. One cardiovascular outcome clinical trial will already cost a multiple of these figures. Critics also always conveniently leave out the remainder of the quote from GSK’s CEO Sir Andrew Witty on the “one billion dollar myth”, where he added it is “an average figure that includes money spent on drugs that ultimately fail”(12). With an attrition rate of around 90% after first human dosing (13), R&D costs for failures should indeed be included in cost estimations. By dividing the input (R&D expenditures) by the output (number of approved drugs), it is clear that costs for the large companies are in the magnitude of billions rather than millions. Acquisition costs to take over other companies are not relevant in this statistic, because these are accounted for differently in corporate reports.
From the 45 new drugs that were approved by the Food and Drug Administration (FDA) in 2015, the agency itself defined 36% having a new and unique mechanism of action (first-in-class). However, taking a more realistic approach, it has been argued that in fact this was applicable for nearly half of these medicines (14). The suggestion by Mazzucato and Torreele that 70% of all approved drugs do not add value is absurd and highly subjective. The availability of multiple drugs for the same indication but with different mechanisms of action will increase choice for doctors as not every patient is the same. It also helps even within a monopoly to negotiate lower prices of patented drugs, as shown in the United States for the hepatitis C medicines (15).
In summary, I completely concur with Mazzucato and Torreele that basic research by the public sector can give scientific insights that serve as starting points in the search for new drugs by companies. However, whether that in itself means that the public is paying twice for its medicines, is debatable. The public investments are a very small fraction of the actual costs to discover these drugs, to make them selective, potent, stable, easy to synthesize and pharmaceutically feasible to administer, to ensure these molecules are adequately absorbed, distributed and eliminated from the body, and to prove their safety and efficacy in clinical trials. Let us not downplay the magnitude of these investments by the industry or ridicule the value of their innovation. At the end, without the private sector there would be no new drugs at all for patients who need them.
1. Mazzucato M, Torreele E. Authors’ reply to Henk Jan Out. BMJ 2016;354:i4136 http://www.bmj.com/content/354/bmj.i4136/rr-3
2. Out HJ. Re: High costs of new drugs - Recognize the pivotal role of the private sector. BMJ 2016;354:i4136 http://www.bmj.com/content/354/bmj.i4136/rr-0
3. Mazzucato M. High Cost of New Drugs, BMJ 2016; 354: i4136 http://www.bmj.com/content/354/bmj.i4136
4. Stevens AJ et al. The Role of Public-Sector Research in the Discovery of Drugs and Vaccines. N Engl J Med 2011; 364: 535-41.
5. DiMasi JA et al. The price of innovation: new estimates of drug development costs. J Health Econ 2003; 22: 151-85.
6. Kneller R. The importance of new companies for drug discovery: origins of a decade of new drugs. Nat Rev Drug Discov 2010; 9: 867-82.
7. Kaitin KI et al. The role of the research-based pharmaceutical industry in medical progress in the United States. J Clin Pharmacol 1993; 33: 412-7.
8. Mazzucato M. The entrepreneurial state, Demos, 2011, page 55.
9. Begley CG et al. Drug development: Raise standards for preclinical cancer research. Nature 2012; 483: 531–3.
10. Freedman LP et al. The Economics of Reproducibility in Preclinical Research. PLOS Biol 2015; 13: e1002165.
11. DNDi Business Plan 2015 – 2023 http://www.dndi.org/wp-content/uploads/2009/03/DNDi_Business_Plan_2015-2...
12. Hirschler B. GlaxoSmithKline boss says new drugs can be cheaper. Reuters Health, 14 March 2013.
13. Hay M et al. Clinical development success rates for investigational drugs. Nature Biotechnology 2014; 32: 40-51.
14. Munos B. 2015 New Drug Approvals Hit 66-Year High! Forbes, 4 January 2016 http://www.forbes.com/sites/bernardmunos/2016/01/04/2015-new-drug-approv...
15. Eichler HG et al. Drug regulation and pricing – Can regulators influence affordability? N Engl J Med 2016; 374; 1807-9.
Competing interests: I worked for more than 20 years as pharmaceutical physician in the pharmaceutical industry.