PharmExec Blog

Fact Versus Fact: When Will the Numbers Add Up?

An ongoing debate has journalists, investment analysts, pharma companies, government officials, and economists all stating the “facts” about the cost of new drug R&D. But if the numbers and data are indisputable, why are there two opposing conclusions?

The debate is worth watching, given the growing view that the industry’s business model—based on extensive in-house R&D operations—needs changing. There is also a more ominous dynamic at work, as several key members of Congress move to reopen the deal Obama struck with drug makers to place a ceiling on their “contribution” to the cost of healthcare reform. The premise here: If it’s cheaper to produce a new drug than the industry suggests, why not press for more concessions?

Earlier this month, Timothy Noah—a journalist at Slate magazine—published an attention-getting (and somewhat incendiary) piece titled,The Make-Believe Billion,” with the eye-popping subhead, “How drug companies exaggerate research costs to justify absurd profits.” Clearly, this is journalism with a distinct point of view.

Noah’s piece makes the claim that the costs pharma says it currently needs for R&D—around $1 billion (with inflation factored in), based on a 2003 estimate in a Tufts Center study—is grossly overinflated. Noah takes the claim one step further when he says that every time the government has made any effort to make brand-name drugs more affordable and accessible to the masses, “the pharmaceutical lobby has used its considerable wealth and political clout to block any government action that might trim Big Pharma’s profits.”

Noah backs up his claim by citing a new study published in the journal BioSocieties by sociologist Donald W. Light and economist Rebecca Warburton. The study—“Demythologizing the High Costs of Pharmaceutical Research”—claims that the actual cost of bringing a new drug to market is closer to $59 million than it is to $1 billion. He goes on to summarize much of the Light and Warburton study in an effort to further validate his perspective.

This week, the Tufts Center for the Study of Drug Development released a public response to the Light and Warburton study and the hoopla—including the article from Noah—the study has created. The rebuttal contends that the Light and Warburton study skews facts and figures to reach its own self-serving conclusions and restates old arguments that Tufts says it has “thoroughly rebutted” in the past.

The Tufts Center’s response also points out that its original 2003 study is a “peer-reviewed article [that] has received worldwide recognition for its scholarship and scope, and its methodology has been critically examined and validated by the US Office of Technology Assessment and others.” Several papers, data, and other sources that validate the original 2003 study were purposely not cited and omitted from the Light and Warburton study, according to the Tufts Center.

Interestingly, among readers online replies and comments to Noah’s piece—many of which call the piece “bias journalism,” “dubious,” and “a poor argument”—were responses from Light and Warburton themselves, who decided to weigh in to “set the record straight.” In doing so, they may have done further damage to their own case. Rebecca Warburton posted an online response to the Noah piece in which she admits, “Our estimate of $59 million is the median development (the “D” in R&D) cost per average drug … and does not include basic research costs, for which there is no reasonable estimate available.”

Donald Light also chimes in to tell readers about the risks associated with prescription medication and to recommend some reading material on the topic—including a book Light wrote himself (he even provides readers with the publisher’s information and price). “The real problem is not the cost of R&D, but the strong incentives for companies to focus on developing many new drugs judged little better than existing ones, which they can market to physicians and patients,” he writes in his post. “These drugs, however, have harmful side effects with little offsetting advantages. Prescription drugs are now the fourth-leading cause of death in the US. The epidemic of 46 million harmful side effects is described in [his book] ‘The Risks of Prescription Drugs.’”

If the significantly lower cost estimate of R&D proclaimed by Light and Warburton in fact only encompasses the “D” in R&D, as Warburton states, why wasn’t that made clear to readers in Noah’s piece—or in the Light and Warburton study itself? More important, there is no clear sense in the study about where the dividing line is between “basic” research and the much longer development phase.

If indeed Light and Warburton—and by association, Noah—are purposely reorganizing and selecting certain “facts” to validate their own claims, then what we see here may be a shock-value op-ed piece, rather than a true source of reliable data. It certainly indicates that more needs to be done to shed real light on what it costs to bring a new treatment to market.

The Tufts rebuttal released this week tries to deliver a definitive word (for now) on this argument: “Make no mistake … Tufts will vigorously defend the scholarship, integrity, and validity of all its published research studies … In short, every one of Light and Warburton’s adjustments are invalid.”

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3 Comments

  1. Michael Parker
    Posted March 17, 2011 at 6:39 am | Permalink

    Getting past the hyperbole, the two studies compute the cost of developing drugs in very different ways. As far as I can tell, the Light and Warburton study computes the direct cost of development for a single drug that actually makes it to market.

    The Tufts study includes the costs of drugs that fail in R&D and adds those costs to the direct costs of drugs that make it to market. They also take into account the time value of money using a cost of capital for the drug industry. As a result, the figures they come with are much higher.

    The genesis of the large differences in the two studies are methodological and a result of the way in which the question is asked in the first place. Needless to say, different groups, with different interests will choose to ask and answer the question in the ways that support their needs and agendas.

  2. Bill Cooney
    Posted March 18, 2011 at 11:30 am | Permalink

    Sadly, the Light and Warburton study is just one of many junk-science studies with an anti-pharma slant that have managed to creep into publication over the last decade. Another notable area of biased research has been on pharma marketing influence on physicians. Besides bogus study designs and unscientific conclusions, such research is invariably accompanied by statements from authors who do not even pretend to bring an open mind to their research. Warburton’s delayed admonission that “we left out the ‘D’ in R&D” is simply outrageous, and Light’s blatant book promotion is only exceeded by his fringe ideas, which border on kookiness. How did they ever get published?

    Kudos to the Tufts Center for holding its ground, and to PharmExec.com for a great report. Junk science can have corrosive effects on public understanding, and must be held up to the ridicule it deserves.

  3. Posted April 1, 2011 at 11:19 am | Permalink

    Is advertising included in drug development costs?

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