Who pays what in drug development

[James Love <love@cptech.org>]

The following is a letter published in Nature, the science
journal, on the issue of the costs of new drug development.
 
   Jamie

<----------James Love  21 January 1999 letter in Nature----->

21 January 1999 


Nature 397, 202 (1999), Macmillan Publishers Ltd. 


Who pays what in drug development

Sir -- Henry Miller1 repeats the much quoted claim that "bringing a drug
to market in the United States now costs more than $500 million," adding
that this is "by far the highest price tag in the world".

Miller's letter gives the misleading impression that drug companies spend
hundreds of millions of dollars on the tests needed for US Food and Drug
Administration marketing approval. The costs of drug development are not
trivial, but the figures Miller cites are based mostly on estimates of the
costs of preclinical research, rather than FDA regulatory burdens. The
most detailed study of the costs of clinical trials was a 1991 Journal of
Health Economics paper2. In 1997 prices, the average out-of-pocket costs
of clinical trials needed for FDA approval were $25 million. Adjusted for
risk, the 'per approval' cost of clinical trials was $56 million.

The $500 million figure quoted by Miller and others adjusts these costs
somewhat higher to include 'capital costs' for financing trials, but also
and most importantly the cost of preclinical research, which accounts for
70 to 80 per cent of the total cost of drug development in some studies.

Moreover, it is often governments rather than the drug companies that pay
for clinical and preclinical research. For example, according to US tax
returns, from 1983 to 1993 the pharmaceutical industry reported
expenditure of only $213 million on clinical trials for orphan drug
development. This was about $2.3 million for each of the FDA's 93 orphan
drug approvals during the period.

James Love Consumer Project on Technology, PO Box 19367, Washington, DC
20036, USA


References 

   1.Miller, H. Nature 395, 835 (1998). Links 
   2.DiMasi, J. A., Hansen, R. W., Grabowski, H. G. & Lasagna, L. J. Health
Econ. 10, 107-142 (1991).
     Links 



      Nature, Macmillan Publishers Ltd 1999 Registered No. 785998 England.


<------------Henry Miller's 29 Octobr 1998 letter in Nature--->


29 October 1998 


Nature 395, 835 (1998) © Macmillan Publishers Ltd. 


Rising costs hold up drug discovery

Sir -- Sally Lehrman speculates that the volatile and declining US stock
markets may eventually "trigger more investor interest" in biotechnology
stocks (Nature 395, 104; 1998). The fundamentals of the biotech industry
argue otherwise: there are too many companies pursuing too few products
that are fantastically expensive to move through the regulatory pipeline.

The regulation of drugs has become so burdensome in the United States that
the time required for development -- from discovery to market approval --
has more than doubled since 1964, from 6.5 to 14.8 years. During the 1990s
the time from the start of clinical trials of a drug to its marketing
approval has been lengthening. Such prolonged research demands an
ever-increasing amount of capital. From 1977 to 1996, approvals of new
chemical entities by the Food and Drug Administration (FDA) remained
relatively flat, while research spending by pharmaceutical companies
increased from $3 billion annually to almost $20 billion.

Bringing a drug to market in the United States now costs more than $500
million, by far the highest price tag in the world.

Biotech companies have enjoyed less than stunning success at jumping
through the FDA's hoops. According to the FDA's website (www.fda.gov), the
agency approved only two new biotech drugs in 1994, one in 1995, none in
1996, five during 1997, and none during the first quarter of this year.
(These figures do not include duplicates of products already marketed by
other companies.) That dubious record is reflected in the performance of
biotech mutual funds, which, according to Charles Schwab & Co.
(www.schwab.com), have consistently underperformed the Standard and Poor's
500 (a major stock index) during the past ten years.

These regulatory costs and delays have given rise to an inauspicious
imbalance between products and companies. In April the Pharmaceutical
Research and Manufacturers of America organization counted only 350
biotech-derived drugs in clinical trials from the 1,000 US biotech
companies. Drug developers cannot afford to gamble on products that are
not likely to be blockbusters.

Although biotechnology applied to pharmaceuticals has made signal
contributions to medical therapeutics, it languishes far behind its
potential. Life-saving products will continue to emerge, albeit at a
trickle of what is possible, but from the vantage point of most companies
and investors, there seems little reason for great optimism.

Henry I. Miller Hoover Institution, Stanford University Stanford,
California 94305-6010, USA


      Nature, Macmillan Publishers Ltd 1999 Registered No. 785998 England.


-------------------------------
James Love 
Center for Study of Responsive Law | Consumer Project on Technology 
P.O. Box 19367, Washington, DC 20036 | http://www.cptech.org
Voice 202/387-8030 | Fax 202/234-5176 | love@cptech.org