[Ip-health] CPTech release on tufts study and IRS data
James Love
love@cptech.org
Fri, 30 Nov 2001 16:10:27 -0500
IRS DATA SHOWS DRUG INDUSTRY COST ESTIMATES EXAGGERATED
For Immediate Release, For more information, contact:
November 30, 2001 James Love, 202-387-8030; 202-361-3040 (cell)
Industry figures on the cost of drug development can not be reconciled
with the pharmaceutical industry's filings with the Internal Revenue
Service, according to the Consumer Project on Technology, a Washington,
D.C.-based consumer advocacy group.
A study released today from Tufts University, based on an 10 company
confidential survey and work by industry consultants, concluded the
average cost to develop a drug is $802 million. The Pharmaceutical
Research and Manufacturers Association (Phrma) is touting the study.
But a report also released today by the Consumer Project on Technology,
based on the companies' IRS filings, suggests the Tufts-Phrma study
exaggerates the costs of drug development.
Based on an examination of the income tax returns of pharmaceutical
companies, the Consumer Project on Technology reports that the companies
told the IRS that there were spending $8 million on clinical trials for
each new drug to treat rare diseases (known as orphan drugs).
"The IRS data, which is surprising, shows that while clinicial trials
are expensive, it isn't an astronomical sum," says James Love, director
of the Consumer Project on Technology and one of the report's
co-authors. "The cost of clinical research needed for FDA approval for a
new orphan drug is far less than the cost of making a Hollywood movie,
and in lots of cases, less than the cost of hiring one actor to star in
a Hollywood movie. It cost more to hire a good NFL quarterback for one
year than the drug industry told the IRS it was spending on clinical
trials for a new orphan drug."
The $8 million figure reported to the IRS does not include the cost of
trials paid for by the U.S. government, which are not eligible for the
tax credit.
The Phrma-Tufts survey looked at a confidential and unaudited data set
provided by 10 companies to Tufts; and looked at three items: the cost
of preclinical research; the cost of clinical research; and the profits
the industry could have made by having invested money elsewhere than in
R&D (opportunity costs).
The IRS data only reveals the cost of clinical trials, for a particular
set of drugs -- those qualitifying as orphans. In a previous Tufts
study, the cost of clinical trials constituted 42 percent of
out-of-pocket costs of drug development.
"How do Pharma and Tufts reconcile their numbers with the data reported
on the companies' income tax returns?" Love asked. "The orphan drugs
are not representative of all drugs, but they are an important group of
drugs, including many of the most expensive drugs on the market, and
many of the drugs used for severe illnesses."
The findings of the study of the IRS data on orphan drugs appear below
and are available at
http://www.cptech.org/ip/health/orphan/irsdata9798.html.
Costs of Human Use Clinical Trials:
Surprising Evidence from the US Orphan Drug Act*
James Love
Michael Palmedo
Consumer Project on Technology
http://www.cptech.org
Summary
According to the US Internal Revenue Service (IRS), US taxpayers
received Orphan Drug Tax Credits totaling $80.1 million in fy 1998, and
$61.4 million in fy 1997, the most recent years for which data are
available. The credit represents half the costs of qualified clinical
testing on all drugs which are considered orphans under FDA and IRS
rules, including both successful and unsuccessful products under
development.
For the two year period, US private sector expenditures on clinical
testing, including the costs of failures, was $283 million before taxes,
and $141 million after the 50 percent tax credit. During this same
period, the US FDA granted marketing approval for 36 orphan products,
for 39 indications.
Thus, according to IRS tax returns, US pre-tax expenditures on clinical
testing, including the costs of failures, was only $7.9 million per
approved orphan product (283/36), before tax, and $3.9 million after the
benefits of the tax credit.
While the tax credit is officially for rare diseases or conditions, it
is in practice available to a significant number of new drugs, because
of the liberal definition of a rare disease and the lack of a means
test. The credit is available both for new drugs and testing for new
uses of older products. In some years a significant number of new drugs
qualify as orphans. For example, in 1998, of the 30 FDA approved new
molecular entities, 7 were classified as orphans, or 23 percent of the
total.
A number of blockbuster drugs have qualified as orphans, including for
example Norvotartis' new cancer drug Gleevec, Amgen's Epogen ($1.96
billion in fy 2000 sales) and Neupogen ($1.2 billion), Eli Lilly's
Humatrope ($301 million), Glaxo's AZT, Roche's Roferon-A, and Genzyme's
Ceredase ($537 million), as well as drugs for much smaller markets.
Drugs for many severe illnesses, including many of the highest priced
drugs, qualify as orphans.
In 1997 to 1998, there were 106 orphan designations, and 39 FDA
marketing approvals (involving 36 drugs). From 1983 to 2000, there were
1063 orphan designations, and 218 orphan marketing approvals -- 20.5
percent of tested orphan products received FDA marketing approval.
What is the Orphan Drug Tax Credit?
The credit is available for testing expenses for drugs, vaccines,
diagnostic drugs, or preventive drugs, used to treat rare diseases or
conditions. A rare disease or condition is defined as one which:
(A) affects less than 200,000 persons in the United States, or
(B) affects more than 200,000 persons in the United States, but
there is no reasonable expectation that the cost of developing and
making available in the United States a drug for disease or condition
will be recovered from sales in the United States of such drug.
The credit is available for any indication that meets these criteria,
even if the product itself is used for other indications that are not
qualified. Thus, for example, BMS's Taxol has qualified for use for
AIDS-related Kaposi's sarcoma, an indication that qualifies as a rare
disease, while the largest market for Taxol is for breast cancer, a
disease with a client population much greater than 200,000.
The tax credit is normally for 50 percent of the costs of clinical
testing expenses, which the IRS defines (see form 8820) as human
clinical testing for a disease or condition under section 505(i) of the
Federal Food, Drug and Cosmetic Act. The full 50 percent applies to
contract research expenses as well as in-house research expenses, but
does not apply to expenses that are funded under a government contract
or grant. Both successful and unsuccessful products qualify for the tax
credit. Normally the credit is limited to clinical testing that takes
place in the United States, although it is available for foreign
trials when there is an insufficient testing population in the US.
Table 1
FDA Orphan Designations and Marketing Approvals, Orphan Drug Tax
Credit and Pre-tax expenditures on testing, and number of returns
claiming credit
FDA
Marketing Orphan # tax
Orphan approvals Tax returns
Desig- Products/ Credit/ claiming
Year nations Indications Expenditures+ credit
1995 57 11/11
1996 60 21/23
1997 53 18/19 61.4/122.8 55
1998 67 18/20 80.1/160.2 74
1999 78 20/20
2000 69 13/15
+ Millions of US dollars
For More Information about the Orphan Drug Act, see:
http://www.fda.gov/orphan/
http://www.fda.gov/orphan/oda.htm
http://www.fda.gov/orphan/designat/index.htm
http://www.fda.gov/orphan/designat/list.htm
http://www.fda.gov/orphan/designat/Approvals.htm
http://www.fda.gov/orphan/designat/faq.htm
http://www.cptech.org/ip/health/orphan/
http://www.cptech.org/ip/health/orphan/orphan92.html