Drug costs are astronomical – this we know.
But we don’t have a transparent, informed way of calculating – or understanding – the true costs of drug development, argued Dr. Jerry Avorn, a professor of pharmacoeconomics at Harvard University, in this week’s New England Journal of Medicine.
And this ignorance may be helping big pharma inflate the price of drugs.
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He calls into question a November 2014 report from the Tufts Center for the Study of Drug Development that placed a hefty price tag on the process: $2.6 billion, per drug, from start to finish. It’s a study funded by the industry, for the industry – which makes it part of the problem, he said.
Avorn isn’t the first to contest the Tufts estimate. A New York Times editorial last November, for instance, connected the same dots – suggesting that the Tufts methodology is flawed.
The Tufts Center is funded, to a large extent, by the pharmaceutical industry. It is in the pharmaceutical industry’s best interests to have the public believe that it is very expensive to develop a drug. This belief helps drug companies justify the high prices they often charge.
Widespread perception that development costs price out at $2.6 billion per drug – up from the Tufts 2003 estimate of $800 million – has helped breed justification for hiking up drug prices to, say, $300,000 a year like Kalydeco. It also helps extend windows for marketing exclusivity, Avorn said.
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Since the figure’s release, it has been used to justify the cost of several expensive medications and to support longer periods of marketing exclusivity for new drug products. These arguments are based on the proposition that drug companies (which are major supporters of the Tufts center) must be helped to recoup the huge capital needs required to discover the cures of tomorrow.
Cost of capital is a huge driver for the rationalization of the $2.6 billion figure – counting for nearly half, or $1.2 billion. The other $1.4 billion comes from R&D. The study, he said, adds in costs from the attrition that comes from the many other drug failures that add up in the development pipeline. Avorn writes:
The methods used to generate the $2.6 billion figure will require careful scrutiny once they are available for detailed review. The analysis was based on data that 10 unnamed drug makers provided on 106 unnamed investigational compounds that they had “self-originated.” The raw numbers on which the analysis is based are not available for transparent review — and are likely never to be divulged. The study included both products that made it to market and a much larger number that did not — a fair approach, since a balanced assessment would have to take into account the costs of failures as well as successes. But because we cannot know which compounds were studied, it is hard to evaluate the key assumption that more than 80% of new compounds are abandoned at some point during their development — a key driver of the findings.
Tufts responded in the NEJM to Avorn’s argument, saying that its methodology is actually readily available, and mirrors its 2003 approach. Also:
…drug failures are key contributors to development costs. Our estimate of the clinical-approval success rate of 11.8% (as compared with 21.5% in our previous study) was based on publicly available information (commercial pipeline databases) for a broad set of companies regarding investigational compounds that met survey-inclusion criteria (nearly 1500 molecules). It is consistent with results from other studies.
