Demythologizing the high costs of pharmaceutical research Biosocieties 2011 (original) (raw)

Demythologizing the high costs of pharmaceutical research

BioSocieties, 2011

It is widely claimed that research to discover and develop new pharmaceuticals entails high costs and high risks. High research and development (R&D) costs influence many decisions and policy discussions about how to reduce global health disparities, how much companies can afford to discount prices for lower-and middle-income countries, and how to design innovative incentives to advance research on diseases of the poor. High estimated costs also affect strategies for getting new medicines to the world's poor, such as the advanced market commitment, which built high estimates into its inflated size and prices. This article takes apart the most detailed and authoritative study of R&D costs in order to show how high estimates have been constructed by industry-supported economists, and to show how much lower actual costs may be. Besides serving as an object lesson in the construction of 'facts', this analysis provides reason to believe that R&D costs need not be such an insuperable obstacle to the development of better medicines. The deeper problem is that current incentives reward companies to develop mainly new medicines of little advantage and compete for market share at high prices, rather than to develop clinically superior medicines with public funding so that prices could be much lower and risks to companies lower as well.

Incentives for Pharmaceutical Research: Must They Exclude the Global Poor from Advanced Medicines?

The lives of some 50,000 human beings, mostly children, are cut short every day by avoidable poverty-related causes. These account for one third of all human deaths — 18 million every year. 1 Hundreds of millions more suffer grievously from such avoidable medical conditions. 2 The lives of even more are shattered by severe illnesses or premature deaths in their families. These medical problems weigh down the economies of many poor countries, thereby perpetuating their poverty which in turn contributes to the ill health of their populations. This huge incidence of mortality and morbidity is not randomly distributed. For a variety of social reasons, females are significantly overrepresented among those suffering severe ill health (UNDP 2003: 310-30; UNRISD 2005, Social Watch 2005). Being especially vulnerable and helpless, children under 5 are also overrepresented, accounting for nearly 60 percent of the death toll (UNICEF 2005: inside front cover). But the most significant causal det...

The Determinants of Pharmaceutical Research and Development Investments

Contributions in Economic Analysis & Policy, 2006

Our maintained hypothesis is that drug development responds to the intensity of consumer demand. We look at the distribution of drug development by disease and link this to the economic harm caused by disease as measured by mortality. Mortality data represent the net effect of human frailty and the efficacy of the existing drugs on the market. If people continue to die from a given condition then existing drugs are not perfect and there are potential profits from developing a more effective compound. We aggregate economic harm worldwide and into three broad regions: the United States, other developed countries, and underdeveloped countries. We find that economic harm motivates the distribution of drug development across diseases, but it is economic harm in the United States alone that matters.

Pharmaceutical Pricing and R&D as a Global Public Good

2023

Thanks are due to Angela Chen for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

The Price of Innovation: New Estimates of Drug Development Costs

Journal of Health Economics, 2003

The research and development costs of 68 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms. These data were used to estimate the average pre-tax cost of new drug development. The costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval. The estimated average out-of-pocket cost per new drug is US$ 403 million (2000 dollars). Capitalizing out-of-pocket costs to the point of marketing approval at a real discount rate of 11% yields a total pre-approval cost estimate of US$ 802 million (2000 dollars). When compared to the results of an earlier study with a similar methodology, total capitalized costs were shown to have increased at an annual rate of 7.4% above general price inflation.

Active Ingredients: Exploring the Key Factors Affecting the Rising Cost of Developing New Drugs*

INTERNATIONAL JOURNAL OF HEALTH SCIENCES (IJHS)

What makes prescription drugs cost so much? The media and Congress say it is corporate greed, while pharmaceutical firms blame federal regulations and an expensive drug development process. This study focuses on Research and Development (R&D) expenditures at global pharmaceutical firms and explores the driving factors behind what makes R&D for prescription drugs so costly. Methods: By combining variables that represent the news media"s claims (i.e. CEO compensation) and the pharmaceutical firms" rebuttals (i.e. late-stage drug development), this study attempts to add empirical evidence to the growing debate surrounding the high and rising cost of prescription drugs. Results: The results suggest that both CEO compensation and phase II development are positively correlated with R&D expenditures. However, we have reason to believe that CEO compensation is more of an indicator of business strategy than greed. Conclusion: There is no straightforward approach to legislating R&D activity in order to curb high and rising prescription drug prices. It is well known that the major argument against enacting drug price ceilings is that it would lower a given firm's incentive to innovate. This study also proposes possible extensions for future research.

Pharmaceutical Innovation and the Burden of Disease in Developing and Developed Countries

Journal of Medicine and Philosophy, 2005

Abstract I perform three different analyses of the relationship across diseases between pharmaceutical innovation and the burden of disease in developed and developing countries. First, I examine the relationship between the number of disability-adjusted life-years (DALYs) attributable to a disease in 2001, by region, and the number of drugs that have been developed to treat the disease and that are sold in the U.S. Second, I examine the relationship between the number of DALYs attributable to a disease in 2001, and the number of drugs launched to treat the disease in approximately 50 countries during the period 1982-2002. Third, I examine the relationship between cancer incidence (the number of people diagnosed with a particular form of cancer), and the number of articles published in scientific journals pertaining to drug therapy for that form of cancer.

Alternative Incentive Models Delinking R&D Costs from Pharmaceutical Product Price

2013

The current incentive model based on the patent system is a failure in promoting pharmaceutical R&D addressing developing country health needs. It also blocks follow-on research and access to new pharmaceutical products to the impoverished lot, especially belonging to the developing countries. Thus it has become essential to think of an alternative incentive models delinking product price from the cost of R&D. An open access, collaborative research model, with prize fund incentive delinking costs of R&D from product price may be the appropriate incentive model for pharmaceutical R&D. It is also necessary to shift pharmaceutical R&D related issues from the trade fora to the human rights forum.

When Patents Fail: Finding New Drugs for the Developing World

2005

Worldwide drug research budgets for diseases of poverty (e.g. malaria, African sleeping sickness) will likely double by 2010. The question is how best to spend this money. This paper analyzes the possible strategies in terms of two new categories. Endto-End ("E2E") proposals try to mimic the patent system by using a single reward to elicit innovation throughout the entire drug discovery pipeline. However, E2E strategies have generic drawbacks. Because sponsors have very little information about the rewards needed to elicit R&D, they are likely to overpay by twenty to thirty percent on average. Companies may also demand extra compensation to cover the risk that sponsors will renege over the very long periods (12-15 years) needed to develop new drugs. Payas-You-Go ("PaYG") strategies avoid these penalties by dividing incentives into small incremental rewards that are paid out at multiple points along the drug discovery pipeline. Sponsors are likely to find PaYG schemes less expensive than E2E strategies unless commercial pharmaceutical companies are substantially better at "picking winners" than non-profit entities. * Conceptually, the most convincing strategy would be for governments to announce a budget for new drugs and then destroy any un-spent currency at the end of every year. Paying high prices for existing drugs is almost as effective. † Traditional distinctions differentiate between "push programs" that pay for R&D inputs in advance and "pull programs" that reward R&D outputs ex post. [1] However, "push" and "pull" make no distinction between incentives that encourage researchers to perform a specific task and incentive that postpone rewards until a finished drug is produced. Normally, a prize "for the most promising protein target discovered in 2005" and a prize "for the best new drug introduced in 2005" would both be considered "pull." The E2E/PaYG dichotomy emphasizes that these incentives are fundamentally different from one another.