The Economist has one of those articles that makes a person wonder. It’s a long-remarked phenomenon that whenever a newspaper writes about something that you really know, the omissions and inaccuracies that show up should make you uneasy about their coverage of everything else. And so it is here, unfortunately.
The hook for the piece is the Pfizer-Allergan merger, and it comes as no great revelation that this merger is being done for tax purposes, tax purposes, and tax purposes, in that order. But the article pivots to talk about whether large drug companies are needed to do drug research at all, and how much that costs:
. . .The figure of $2.6 billion cited by PhRMA, the American drugmakers’ lobby, for the cost of developing a new drug, is questionable. And the industry is in any case moving away from a model in which giant firms throw huge sums at in-house research in a quest for ground-breaking new treatments.
Start with the $2.6 billion figure. Two years ago, when the number being bandied about was just $1 billion, even the boss of GSK, one of Pfizer’s biggest rivals, described it as a myth. Médecins Sans Frontières, a charity, claims that new drugs can be developed for as little as $50m and no more than $190m, even taking into account the cost of those that fail during clinical trials. Some of the assumptions used to arrive at the $2.6 billion figure are easy to pick apart. One example is the padded estimate for the drug firms’ cost of capital. But at least as important is that the figure is based on data from between 1995 and 2007. . .
$2.6 billion probably is too high an estimate. But by how much? The MSF estimate cited, lower than the Tufts estimate by an order of magnitude at the very least, is also the wrong number, and citing two incorrect figures at opposite ends of the scale doesn’t enlighten the reader much. If you go look at the MSF numbers, it turns out that they’re based on the Drugs for Neglected Diseases Initiative figures, and as this post shows in detail, those numbers are not relevant to current drug discovery projects at all. They’re based on compounds that were discovered decades ago, and many costs are not reflected in the figures. If you want to develop a new drug today, from the ground up, you could very easily find yourself spending over a billion dollars, but you will not, under any possible circumstance, spend “as little as $50 million”.
The Economist article goes on to say that there’s a new model in the drug industry – bringing in drug that are already partway through development. That leaves out the fact that larger companies have been doing this for decades, and in fact were doing that during that 1995-2007 period that they’re citing as unrepresentative of the New Era.
As the biggest firms have increasingly outsourced the early stages of drug discovery, they have cut back their in-house spending in those areas of research in which they are weak. But they have continued to spend heavily on what are more like beauty products than life-saving cures—think of Allergan’s Botox anti-wrinkle jabs, or Latisse, its lotion for thickening eyelashes. They have also continued to pump money into making incremental changes to their existing drugs, so as to claim some small advantage—and big price differential—over rival treatments.
Allergan is a peculiar example to use, since the company has always been focused on just those areas, and until a very recent merger, was hardly considered one of the “biggest firms”, like a Pfizer, Novartis, etc. As an earlier paragraph in this same article has already pointed out, the only reason we’re talking about them in the same sentence as Pfizer is because of tax accounting. Would the author(s) of this piece like to furnish some other examples of big drug firms spending “heavily” on beauty products? Eli Lilly (to pick one example) is spending itself into the ground trying to come up with something for Alzheimer’s; I haven’t noticed them working on face creams recently. I’d also be interested in hearing more about those incremental changes, because it’s been my impression that we’ve seen less of that in recent years. The article cites the upswing in drug approvals over the last couple of years as evidence that the “new approach” is helping efficiency, though, but without noting how many of these approvals were brought in by companies from outside, or how that figure might compare to other periods.
The article then circles around to drug prices, not neglecting the likes of Turing and Valeant, although these examples have little or nothing to do with the drug-discovery focus of the paragraphs that came before. Such companies go out of their way to not discover drugs, and seem most comfortable with compounds that are even old enough to be off patent. (The fact that such compounds shouldn’t be open to the kind of price-raising that these companies are getting away with is a regulatory and insurance problem, not a drug discovery and development one).