EconTech

Pharmaceutical Facts

Time to develop and market a new drug: 10-15 years

Average Cost to develop a new drug (2006): $1.318 billion

Total R&D spending on drugs in 2007: $58.8 billion

Generic share of market in 2007: 67%

Percent of marketed drugs that cover R&D costs: Only 20%

Total number of drugs approved in 2007: 23

R&D as a percent of U.S. sales: 18.7%

Average effective patent life for major drugs: 11 years

Medicines currently in development: 2,700 compounds

For every 5,000-10,000 compounds tested, the number that make it to clinical trials: 5

For every 5 compounds that make it to clinical trials, the number that get FDA approval: 1

Probability that a compound tested eventually gets FDA approval: .01% (1/100th of 1%) to .02% (1/50th of 1%)

Source: Pharmaceutical Industry Profile 2008

I’m looking at the report and frustrated by the inconsistent use of percentages and absolute numbers, a common sign that someone is trying to emphasize one set of numbers over another. Note also that this report comes straight from the Pharmaceutical Research and Manufacturers of America, an industry lobbying group. Probably the best place to get numbers, but the trustworthiness of the members of this group with their data is low.

It doesn’t mention whether the total R&D spending includes NIH funding. I assume, since it is the total, it does. Since NIH funding, from the same page of the report, is at 28.9 billion this leaves industry funding of its own R&D at 29.9 billion, that is, they seem to be just matching funds from NIH. This number seems to line up with some of the numbers coming from independent researchers, who put pharma’s spending on research at 13.4% of $235 billion ins sales, or $31.5 billion. And that isn’t the only external source of funding, which include state and local governments, private foundations, and universities.

Of course, almost twice that is spent on marketing, 24.4% of sales or $57.3 billion, which amounts to approximately $61,000 per physician per year. It is hard to say, but I would put the net social value added of most of this marketing spending at around zero. The 100,000+ promotional people who push the drugs on the doctors are rarely more informed about the drugs than the marketing brochures they carry around. Most physicians I’ve talked to would blame direct-to-consumer advertising for a significant portion of excessive (that is, not medically necessary) medication due to patient demands stemming from these advertisements, which makes sense since that is exactly what they are designed to do.

They attempt to justify their heavy spending on promotional materials thusly:

Studies show there is significant underdiagnosis and undertreatment of serious conditions that afflict millions of Americans. Pharmaceutical marketing and promotion help address this problem by raising awareness of disease symptoms and treatments and prompting patients to visit their doctor.

Yet we know that there is a huge amount of over-medication and over-treatment with little to no to even negative benefit for the patients. It seems that pushing drugs through salespeople is not the most effective way to educate physicians on new treatment options, which are often much more expensive than the old ones, and at the same time, no more effective. Hospitals, medical schools, and research groups are probably better avenues for such knowledge spreading.

The report makes a big deal that for every 5-10,000 compounds analyzed, only one gets FDA approval. You see, expensive drugs aren’t the fault of the big, bad pharma, it is the fault of the big, bad FDA. Of course, the report does not mention a single drug that they want on the market that the FDA denied. No doubt, such drugs exist. But how often would they put a drug on the market if they were fully liable for the safety AND efficacy of their products if they couldn’t get FDA approval? Obviously, efficacy liability would have to be taken at a group level instead of individual, as some drugs just don’t work for some people; and some drugs are just a shot at hope anyway, e.g. chemotherapy. The point remains that their innuendo with respect to the FDA (even more, Mark Perry’s, seeing how he throws the subset of facts on his site) falls short of effective evidence, since 99.9% of the drugs fail to show enough effectiveness to bother with clinical trials.

Now, it is not that I consider pharma to be big and bad. However, their illegal and/or morally indefensible behavior on a number of issues (e.g. playing the orange book for undue monopoly profits, price discounts to developing countries, not to mention playing fast and loose with safety and efficacy data) is well documented. This behavior continues, despite regulation and liability. Thus, I choose to cast a doubting eye on much of what comes out of pharma and their lobbying groups.