Manufacturers are facing a political and academic attack on their claim that it costs $2 billion to bring a new drug to market.
Congress and the states, which have been bashing drug costs for over a year because insurers and public health programs such as Medicare can ill afford them, are now getting ammunition from experts such as Dr. Jerry Avorn, a professor at Harvard Medical School, who wrote recently in the New England Journal of Medicine.
Insurers pass high costs on to the public by raising premiums or dropping coverage on some services, patient advocates say.
Manufacturers retort that the costs are justified because of astronomic research and development spending; a 2014 study from Tufts University’s Center for the Study of Drug Development estimated it cost a company $2.6 billion to put out a new product, up from $802 million in 2003.
Tufts examined 106 experimental compounds from 10 unidentified drug makers but neither the drugs nor the manufacturers were identified and this is a point of attack for Avorn. He wrote that anonymity makes it difficult to verify Tufts’ claims.
About 80 percent of drugs in the Tufts study failed midway through development, and the cost of scrapping them was factored in. But the study did not account for public subsidies such as research tax credits, or products developed at publicly-funded research centers or universities, Avorn wrote.
Of the $2.6 billion figure, $1.2 billion is the cost of capital, Avorn points out, which claims is unnecessary because big pharmaceutical companies are highly profitable. The two biggest drug companies, Pfizer and Merck, have more than $50 billion each in profits overseas, he wrote.
“Such funds could potentially help with the cash-flow problem that plays such a large role in these estimated costs of drug development,” Avorn wrote.
Tufts responded in the journal that the study aimed to capture the costs to industry and doesn’t take into account the costs borne by public programs. It emphasized that the success rate for new companies was based on publicly available information from commercial databases.
The Pharmaceutical Researchers and Manufacturers of America added that failure rates for new treatments for cancer are especially high.
Over the past 16 years, the Food and Drug Administration has approved only seven products to treat melanoma but 96 have failed, spokeswoman Holly Campbell told the Washington Examiner.
Debate over the price for developing a drug comes as state and federal lawmakers clamor for answers. Former Rep. Henry Waxman, D-Calif., grilled Gilead Sciences last year about the $1,000-per-pill price of its hepatitis C cure Sovaldi.
Several states are pursuing legislation to force drug makers to disclose R&D costs. John Rother, president and CEO of the pro-healthcare reform group National Coalition on Health Care says that while more transparency is needed, the push to unveil R&D costs may be misguided.
“I would ask the company at launch to justify their price based on value,” he told the Examiner.
The idea is Americans should only pay more for drugs that work the best, he said.
