For the past decade or so, we’ve been hearing repeatedly about an “innovation” crisis in pharmaceuticals. Big Pharma and its friends in government and elsewhere have claimed that research into new drugs is slowing down, primarily, they say, because of onerous regulatory demands.
“With the growing difficulty of getting drugs through the [Food and Drug Administration] labyrinth and the rising cost of drug approval, Pfizer must produce revenue for continued research — the lifeblood of pharmaceutical companies,” lamented the president of the Galen Institute, an industry-funded and free-market public policy organization, in Forbes last December. “Without this research, the pipeline would run dry, delaying or even killing new medicines for Alzheimer’s, Parkinson’s, and countless other diseases.”
But is it true? Is there really an innovation crisis? No, according to a new analysis published Tuesday on BMJ.com. The real crisis is in a system that rewards drug companies for developing new products that offer few, if any, therapeutic benefits over existing ones, argue Donald Light, a professor of social medicine and comparative health care at the University of Medicine and Dentistry of New Jersey, and Joel Lexchin, a professor of health policy and management at York University in Toronto.
As Light and Lexchin point out, the number of new drugs that are licensed each year has stayed at a relatively stable average rate of 15 to 25 for decades. Those numbers, the professors add,
do not support frequently heard complaints about how hard it is to get any new drug approved. They also mean that neither policies considered to be obstacles to innovation (like the requirement for more extensive clinical testing) nor those regarded as promoting innovation (like faster reviews) have made much difference. Even the biotechnology revolution did not change the rate of approval of new molecular entities, though it changed strategies for drug development. Meanwhile, telling “innovation crisis” stories to politicians and the press serves as a ploy, a strategy to attract a range of government protections from free market, generic competition.
And that’s where the problem — “the real innovation crisis,” as Light and Lexchin call it — lies. For, although the pharmaceutical industry likes to emphasize how much money it devotes to discovering new drugs, only a small amount of its revenues actually goes into basic research. One independent analysis found that Big Pharma spends about 1.3 percent of its revenues on discovering and developing new molecules. That compares with the estimated 25 percent that it spends on marketing.
Most funds for basic research are public funds
“More than four fifths of all funds for basic research to discover new drugs and vaccines come from public sources,” Light and Lexchin add.
A cutback on public money for basic research, therefore, would seem to be a key threat to drug innovation.
And, yes, research and development costs have risen significantly for drug companies (by an estimated $34.2 billion between 1995 and 2010), but revenues have risen faster (by $200.4 billion within that same time period).
“Companies exaggerate costs of development by focusing on their self reported increase in costs and by not mentioning this extraordinary revenue return,” write Light and Lexchin. “Net profits after taxes consistently remain substantially higher than profits for all other Fortune 500 companies.”
Independent reviews have also concluded that only about 1 in 10 newly approved medicines offers patients any substantial benefits, write Light and Lexchin. Most new drugs are, instead, minor variations on older drugs — variations that are extremely profitable for drug companies, especially when an older and similar blockbuster drug comes off patent.
Authors’ recommendations
To get the pharmaceutical industry to change the current business model, Light and Lexchin urge governments to stop approving drugs that provide little health gain. They also recommend that “to end industry’s capture of its regulator,” regulatory agencies should be publicly funded rather than reliant on industry-generated user fees. In addition, they support legislation introduced by Sen. Bernie Sanders, I-Vt., in the U.S. Senate in 2011 that would reward innovating companies by giving them substantial “prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains.”
In a second BMJ paper published Tuesday, a group of British economists and health-policy researchers argue that drug companies should be required to demonstrate how a new drug compares to ones already on the market before receiving government approval. A drug should be licensed only when a company can show that it’s superior to an existing treatment, not just to a placebo. Such a requirement, the paper’s authors argue, would help patients and doctors, as well as regulators, better understand the relative risks and benefits of all new drugs. It would also encourage drug companies to develop new drugs for diseases and conditions that currently have few or no treatment options.
Unfortunately, both BMJ papers are behind a paywall.
The sky is falling
Drug companies have been making similar arguments for years, and those arguments have been false for years, as well. Shareholders profit, CEOs get big bonuses, and the public suffers. One could argue that Big Pharma represents “crony capitalism” at its worst – a prime example being the Bush administration’s shameful performance, when incorporating the new drug benefit into Medicare, of writing into the law that drug prices will NOT be negotiated.
It’s on the same order as taxpayer subsidies of oil companies, and equally detrimental to public welfare.
Both industries
You mentioned are reliably disgraceful on a yearly basis.
Stunning rise in REVENUE AND PROFIT for Big Pharma…
If public money is paying for the research, why doesn’t the public enjoy a portion of the profits as well? The public needs a return on their money! I’d like to see that money go into supporting medicare and medicaid, for starters. Or if Big Pharma is unwilling to share, revise the tax code for Big Pharma.