What Price Drug Development?

UPDATE 3/18/2011 - see links to Tufts Center response and PharmaExec's op-ed at the end of of the post.

There have been several pieces in the trade and popular press this week about the cost of clinical development of new drugs.  This discussion is really about drugs, not devices, as not only the costs but the way devices are researched, evaluated and cleared can be quite different.  Here is a rundown:

Slate published a piece by Timothy Noah on March 3rd called The Make Believe Billion, which takes a critical (does that surprise you?) look at Big Pharma's oft-quoted and not-often challenged claim that it costs $800 million (in 2000 dollars) and takes 12 years to bring a new drug to the patient.  These figures, adjusted upwards for inflation, are used by the Big Pharma lobby with roaring success to justify the high cost of brand-name prescription medicines.  The two numbers come from this 2003 study published in the Journal of Health Economics.  The lead author is economist Joseph DiMasi who was working for the Tufts University Center for Drug Development, an academic, non-profit study group that welcomes corporate sponsorship.  Because of the Tufts connection of DiMasi, most of the time that you see the $800M/12 year figures cited, the source of the data is often cited as the Tufts Center.

The Slate piece discovers a new challenge to the $800M claim in a study (PDF) published last month in the London School of Economics' BioSocieties journal by Princeton's Donald Light and University of Victoria's Rebecca Warburton.  Following along in the vein of The $800 Million Pill by Merrill Goozner, the Light study takes apart the source data the Tufts group used to develop their results, citing various problems.

First, the Light paper challenges the sampling of data used to feed the model.  In the Tufts study, financial information was requested from 24 companies, 10 of whom ultimately submitted data via confidential survey.  Because the data were collected in a confidential form, they are unverifiable by independent means, say the Light group.  And because the results are based on data submitted by self-selected companies that agreed to share their data, there is no true random sampling from a larger population of data.  The Tufts study does not describe any efforts to verify the reported data, so there is no way to determines whether the R&D costs are uniformly reported from sponsor to sponsor.  Additionally it is not clear whether or how much of the data reported are R&D costs for self-originated new chemical entities (NCEs), which according tot he same Tufts group are 4.4 times more costly to develop than in-licensed NCEs, which are in turn 3.4 times more costly than non-NCE variations on existing drugs.  Only 35% of new drugs developed during the reporting period (1990-2000) were NCEs, and even fewer were self-originated, or developed in-house.

The second challenge of the Light paper comes from the exclusion of discovery costs reported as part of the R&D figures used for the $800M calculation.  The reasons for this are multiple: discovery costs are much harder to tease out as discrete portions of R&D budgets because there are no recognizable chunks of work like phase 1, 2 or 3; often several compounds or targets are researched together under one budget line item; basic research is often carried out by entities other than pharma companies, like universities or the government; and sometimes new therapies are discovered quite by accident, like penicillin.  To solve this problem, the Tufts group simply factored in an average cost of $121 million and 52 months of development time, without any data to support the figures.

Thirdly, the Light group argue against the Tufts claim that tax breaks and taxpayer subsidies for pharma companies should not be discounted from the total R&D cost.  The Light paper argues that this might be reasonable if R&D were depreciated over time like over long-term investments, but they are not: R&D costs are deducted from profits each year that they are incurred.  This effectively creates a 100% tax deduction every year.  According to a 1993 US Office of Technology review of pharma research costs, the net savings was nearly 50%, and this was at a time when the top marginal tax rate was 46%.  Now that the top rate is 35%, the Tax Policy Center puts the average tax savings on R&D per year at about 39%, yet these discounts do not appear in the Tufts study.

The fourth large challenge to the Tufts study is in the assumption that half of R&D costs are accounted for by the 'cost of capital', in other words, returns that did not materialize from investing that same money in the market instead of using it for research, assuming an 11% return in the period under study.  Calculating the cost of capital is a common method for corporations to decide whether to pursue new projects, but the Light authors claim it is a bit ingenuous for the pharma industry to then claim that the cost of capital, what the pharma company would have made on the market instead of a new drug, should be considered part of the cost of R&D, especially when developing a new drug is the business of the pharma company, not to invest money.  And when that cost of capital calculation ends up as half of the claimed $800 million R&D costs.

There are some other challenges in the Light paper too, about inflation of individual per-patient trial costs, exaggerated time for total development (52 months preclinical, 72 months for trials and 18 months for review, or 11.8 years), and the claim that only 1 in 10,000 compounds ever make it to the marketplace, the use of median costs instead of means to counter the shifting effect of outlier data points, i.e., more expensive or large trials.  When all is said and done, the Light group claim that the average cost of the "D" part of bringing a drug to market is more like $59 million based on the 2000 data in the Tufts study.  In today's dollars that would be $75 million average, or $55 million median.

Not so fast, says research scientist Derek Lowe in his blog In the Pipeline.  He challenges that it is a lot harder than people think to come up with compounds and targets that actually have some potential clinical benefit while remaining safe enough for human use, and that you can't simply not count discovery research costs simply because they are harder to identify.  From my own perspective on the clinical side of things, during the time represented by the Tufts study, we were routinely running $20 million/year clinical budgets to develop an antiretroviral medication for CMV, and the study sizes were relatively low, just a few thousand patients.  The clinical development period of that product was around 5 years if memory serves, and of course it was an accelerated program since it was largely developed for HIV+, full-blown AIDS patients.

Later this week we saw two other articles make the rounds:  one from CenterWatch that pleaded the pharma manufacturers case that if only they could get longer data exclusivity, companies would be able to innovate again and patients would live longer.  Extending data exclusivity to 12 years would net the pharma companies 5% additional profits, resulting in 228 new drugs over the next 50 years and increasing the average person's lifespan by...wait for it...1.7 months.  The article is here.

And lastly, today's paper had a piece that got some pretty strong reactions from all sides, where KV Pharma announced that injections of their drug Makena, which now cost $10-$20 per dose, next week will cost $1500, the total cost to the patient ranging from $27,000 depending on length of gestation.  The company's CEO defends the price increase by pointing out that PICU care can cost $51,000 or more, and Makena can defray some of that cost.  The reason for the change?  Makena is a newly approved form of progesterone that until now was provided by compounding labs for literally a few cents worth of chemicals.  Compounding will no longer be legal now that an approved version is available.  KV Pharma has had all kinds of problems recently, having entered into a consent decree for making and distributing adulterated and unapproved drugs, pleading guilty to two criminal fraud for failing to report oversize tablets to the FDA, but all that seems to be in the past now.  Their stock is up from $1.50 in early February to close at $12.64 today.


3/18/2011 - Tufts Center response is here; an op-ed on the PharmaExec blog is here.  

Vulnerability and Informed Consent

I spent most of today discussing ethics in clinical trials at a conference produced by Leo Intelligence in San Diego with a fascinating group of people from IRBs, sponsor companies, and CROs.  It was a really good small meeting, and I hope they put it on again next year and give it a chance to grow.

In the morning we reviewed how the relentless drive for new, willing, and preferably treatment naive patients is pushing clinical research out to farther and farther away places, countries that may have weak, stressed or crumbling health care delivery systems that struggle to serve their citizens' basic medical needs.  We discussed some of  the major ethical policy issues of international clinical research, especially in developing countries, such as placebo controls, clinical trials as treatment or even marketing, and vulnerability and consent.  (The slide set for this talk can be found here.)  Some countries have legislated and developed and invested, such as India and Brazil (and other South American countries), many countries of the post-WWII east.  Some countries have grown a clinical research enterprise out of the opportunism of a health crisis, such as Russia and the Ukraine following the Chernobyl disaster.  Even in these countries we see challenges in obtaining truly informed, voluntarily given consent. Cultural differences can take the standard western idea of consent and stand it on its head.  

For example, the Belmont Report's first principal of respect for persons, usually defined as the autonomy of the individual, is considered a universal ethical truth, one which even the ethical relativists can accept as valid for all.  Except that in many non-Western cultures where the collective is valued above individual - where "the needs of the many outweigh the needs of the few, or the one" - the idea of a patient making a decision to participate in a clinical trial based on her self-interest quite stretches the imagination.  

Now consider this same patient, who has little experience making a decision that is not at least informed by or simply made outright for her by another member of her family, and add to that the fact that she cannot read; not her own language and certainly not English.  Then add finally the factor that her physician is an even more powerful figure in her life than her husband or father, and whatever he (or she) says has the weight of the voice of God himself.  Now the idea of slapping a 19 page consent form in front of that patient, getting her signature or mark, and going to sleep at night believing that we have met our obligation to obtain true, voluntary informed consent to participate in a study is truly laughable.

And yet that's what we do.  

And this is not all.  This afternoon's keynote speaker was Andy Mikulak, of Max's Ring of Fire, who gave a patient's perspective of participating in clinical trials.  Andy is not a researcher, or IRB member.  He is a father, and his son Max taught Andy much about participating in clinical trials - right up until the time he died of neuroblastoma at age 7.  Since Max's death Andy has coped with his grief by becoming a patient advocate and raising money and awareness for pediatric cancer research.  Check out the website and click on a couple of videos.  Your eyes will not stay dry.  

Andy gave a short talk intended to explain to us why patients go into clinical trials, and what we could do to make the experience better and more useful for patients.  He said patients go into trials to live, to survive, and sometimes because they cannot get treatment for their serious disease any other way.  He suggested to researchers that if they meet their patients' needs, their own needs for data and results will be met.  He also admonished us for making informed consent forms too complicated.  He said that he and other patient families routinely seek out other patients for 'true' information' about trials, because the sponsor/IRB provided documents are written "to protect the institution first, and inform the patient second".  He said the language used in consents did not meet his needs or those of other patient families: the language was too obtuse and not intended to inform.  There is too much protectionist, defensive language.  And this is not a guy who cannot read beyond the 6th grade level; Andy had no problem discussing the preclinical data of various chemo agents his son was treated with, so the issue was not the level of the language, but that the language was not intended to inform.  

This got a big response from the IRB members in the room, whose nominal role is protect patients, yet some IRBs seem to be a driving force behind the ever-lengthening consents in recent decades.  When I have asked them why, the most prevalent reason seems to be: "we want to anticipate patient questions so in case they don't know what to ask, it's all there in the document."  Fair enough; many patients don't know what to ask or are too timid to ask.  But why then do we not train and then empower the investigator to provide information, to anticipate questions and prompt for them?  Have we completely abandoned the investigator's role in providing risks and other information to patients?  (For information about the learned intermediary and its rise and fall in the pharmaceutical world, as well as clues as to how we became so protectionist, see Perez v Wyeth Labs.) It seems that instead of using the consent form as the documentation of the consent conversation, and the basis for discussion, we are allowing the form to replace the process almost entirely.  

And in the end, studies show that many patients - western and non-western alike - do not understand that they are involved in a study, that they have right to withdraw, what the risks are and that they may receive treatment with a comparator (or placebo).  So clearly the answer isn't to be found by adding more pages to the consent form other than to make the institution's lawyers feel better.  

The plane is boarding.  Next post, some thoughts about where the low hanging fruit might be found; how we can minimize the mistakes that we make and better protect the patients we study.

Pfizer Settles Trovan Lawsuits

Here at Two Decades & Counting we've been following the legal battles over the Trovan investigations in Nigeria in 1996.  You can review the case and its ramifications in the US legal system here, here, here, and here.  Today Pfizer announced they had settled "lawsuits stemming from" the case for undisclosed sums, with deleterious effects on Pfizer's stock price.

Upcoming Clinical Research Conferences & Events

In about 10 days I will be in San Diego for the first Ethics in Clinical Trials conference.  

Current deals (I think these are still good - call 720-212-0440):

·         4 for 3: Send 4 delegates for the price of 3

·         10% off: Mention booking code leoE11

·         Free Pre-Conference Workshop: preE11  (Led by me, a discussion of emerging region clinical trial ethics) 

Call: 720-212-0440 or click www.ethicsintrials.com.

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Later in March I will be at Partnerships in Clinical Trials in Phoenix - March 30-April 1.  I am chairing a market insight round table discussion on Strategies for Indian Clinical Trials on Thursday Mar 31, at 11:00 AM.  Click here to register, or here for pricing.

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Finally, I will be in a panel discussion at MAGI's Clinical Research Conference in Philadelphia, May 22-25. 

I have attended and presented at the western edition of this conference a couple of years running; this will be the first time I travel east for MAGI. I am delighted to join again with Joan Chambers of CenterWatch, Nye Pelton of Eli Lilly and Marlene Llopiz of Venn Life Sciences to discuss the current state of globalization of clinical trials.

According to the conference organizers, two-thirds of attendees will have 5+ years of experience. About 48% of attendees will be from sites, 27% from sponsors, and 25% from CROs and other service providers.

The conference website is here.  A friend-of-speaker discount can save you $100 - code Q367.

Click here to register. Enter the above discount code when prompted. (Does not apply retroactively or to already-reduced group rates.)

FDA News Roundup

The FDA was in the news a lot this week, an especially noticeable series of events if you have multiple searches returning FDA news each day as I have.  Reviewing my Twitter feed alone (follow me!), I linked to six separate news items about the FDA the last four days:

• Feb 11 - FDA to contract out more foreign inspections from FiercePharma
• Feb 11 - An evidence-free and detail-light op-ed in The Hill's Congress Blog written by Newt Gingrich*, GOP 2012 presidential hopeful; Andrew C. von Eschenbach, former FDA commissioner appointed by Bush 41; and Wayne Oliver, former Georgia Pharmacy Association lobbyist and current head of Gingrich's Center for Health Transformation, a "think-tank" for health care and FDA reform.
• Feb 10 - An op-ed by Rep Joe Pitts (R-PA) claiming that the new proposed FDA medical device regulations are driving innovation and jobs to the EU.
• Feb 10 - FiercePharma again, this time linking to an NYTimes op-ed by Ian D. Spatz, former Merck exec, writing about how direct-to-consumer ads are an important public educational tool that can reduce side effects.
• Feb 9 - a press release from the House Appropriations committee with proposed budget cuts of $220M from FDA's budget for 2011, around 7% of its requested $3.2B in 2010.
• Feb 9 - A Wall Street Journal article noting FDA's concern over six different companies not completing their follow up commitment studies they promised to conduct following accelerated approval of their products.

Bringing all these stories together into some sort of context I leave to others.  One does note that the "over-regulation is hurting business" meme was in heavy rotation this week.

*Newt has been after the FDA for a long time.  In 1994 as Speaker of the House, he advocated "nuking" the FDA altogether and replacing it with a combination of third party reviewers and corporate tax incentives. (Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value, William W. George; Jossey-Bass, 2003)

Offshoring Science

The current issue of IRB: Ethics and Human Research from The Hastings Center has a review of a book I wish I had written, entitled When Experiments Travel: Clinical Trials and the Global Search for Human Subjects, by Adriana Petryna.  Petryna's profile page lists her as an anthropology professor at the University of Pennsylvania. 


The review by Alex John London, professor of philosophy at Carnegie Mellon takes us through Petryna's review of the rise of globalization of clinical trials and discussion of the both the dangers and promise of researchers looking offshore to find trial subjects.  Both London and Petryna point out that because of the power of clinical trials to shape opinions and behaviors of both patients and physicians, not to mention regulators and political forces, researchers must be all the more careful not to place clinical trials of minimally effective experimental remedies into host populations that lack access to the best proven care (to quote the Declaration of Helsinki) or to use willing and unwitting patients to generate information that may have little relevance to the planned consumers of a therapy that will not be made available to the host population.


London seems to derive from his reading something we often talk about in discussion of research ethics, or the lack thereof; namely the highly rare occurrence of one individual intentionally setting out to commit ethically problematic behavior.  Far more commonly, ethical difficulties are the result of a cascade of poor decisions, delegations and skipped steps. Just as airplane crashes are most commonly the result of an accumulation of errors rather than one failed part or decision, so too with researchers and their ethical behaviors.


The IRB publication is available with a paid subscription, but Hastings have made this review available for free on their website, here.  You may have to create an account to see the whole thing. It's worth it.

Ethics in Clinical Trials Conference Now Open

We are about one month away from a conference I am really excited about. Ethics in Clinical Trials will be held on March 2-3 in San Diego at the Hilton San Diego Resort and Spa.  Looks like a lovely place to escape winter for those of you buried under records snows in the US. Click on the conference website above for the details.  Here are a couple of promotions the organizers are generously offering:

•  4 for 3: Send 4 delegates for the price of 3  
• 10% off: Mention booking code leoE11
• Free Pre-Conference Workshop (led by your 2Decades blogger) : preE11

Or just contact the conference organizers, Leo Intelligence at +1-720-212-0440 

If you come to the conference please be sure to come up and say hello - I'd love to meet you in person.