New Pharma Business Model: Prizes, Not Patents, for Innovative Drugs

A BMJ articled titled "Pharmaceutical research and development: what do we get for all that money?" was roundly criticized by Rich Meyer of World of DTC Marketing blog and Derek Lowe of In the Pipeline blog. Both have both ripped into the central premise of the BMJ article; specifically critiquing these statements made by the authors: (1) the "widely touted innovation crisis in pharmaceuticals is a myth" and (2) for every dollar pharmaceutical companies spend on "basic research, $19 goes toward promotion and marketing."

Meyer (here) tackles #2 using data from Lilly (ie, see this chart embedded below), whereas Derek tackles #1 (here).

Source: worldofdtcmarketing.com via Pharma on Pinterest

Everyone fools around with the numbers to reach their desired pre-ordained conclusions. I have blogged about this many times. First, I wrote about differing estimates of pharma's expenditures on total marketing, not just direct-to-consumer (DTC) spending, which was used to create the above chart of dollars spent on advertising vs. sales. I've also compared this to how much the industry spends on research (see, for example, "Promotion vs. R&Deja vu all over again!").

My conclusion: The drug industry spends approximately the same on marketing as it does on research. So, can't we all agree to that and just get along?

If you actually read the BMJ article, you might be surprised to learn that the authors' goal seems to be to promote a NEW business model for the pharmaceutical industry:

"We should consider new ways of rewarding [drug industry] innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137, rather than through the high prices generated by patent protection," said the authors.

I was intrigued to learn that a US Senate Bill has been proposed -- although long tabled -- that actually seriously proposed getting rid of patent protection for new drugs as an incentive for innovation. Here's how the BMJ authors describe what SB 1137 proposes:

"The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again."

The authors assure us that the approach advocated by SB 1137 "would save countries billions in healthcare costs and produce real gains in people’s health."

Maybe so, but I seriously doubt that prizes awarded by a government committee (ie, "Board of Trustees for the Fund for Medical Innovation Prizes") would be more effective than the profit motive or less prone to corruption than the industry's cozy relationship with the FDA (ie, drug industry "users fees" directly cover the majority of FDA's drug approval expenses).

SB 1137 also calls for 5 percent of the prize rewards fund (ie, 5% of about $80 BILLION or about $4 billion -- the approximate amount pharma spends each year on DTC advertising) to be distributed to those who "provide open access to knowledge, data, materials, and technologies." The bill claims that such "new open source business models... will induce greater access to useful knowledge, data, materials, and technologies."

That's interesting because I recently talked to people at Lilly -- not the same people who created the above chart -- about an "open access" project they are launching for innovative pharma research (see "Crowd Sourced Creative Commons Drug Information").

"A Drug is Developed:" Easier than Launching an Educational Facebook Game about Drug Development?

About six months ago in December, 2011, Boehringer Ingelheim (BI) teamed up with the Mainz Natural History Museum in Rhineland-Palatinate, Germany, to create "Ein Medicament Entsteht" ("The development of a medicine"), which was an educational exhibit seen by more than 30,000 visitors who "marvelled at the story of a drug's development cycle from the first project outline through to market authorisation." Here's the YouTube video:



Meanwhile, back in October, 2011, BI's @johnpugh was tweeting about a "kick-ass [Facebook} game" called Syrum, in which "a player must first investigate molecular compounds at a research desk before putting them to the test in the laboratory, then conduct clinical trials and, if successful, advance a treatment to market." For more about this game read "BI's Facebook Game Syrum to be Launched 'When It's Ready'."

It turns out that Syrum has been much more difficult to "bring to market" than the Mainz Museum exhibit. Syrum is still not ready to be played and is "Coming Soon" (see screen shot below taken today when I clicked on the "How to Play" button).

I'm supposed to be a "beta tester" -- someone who reviews the game before it is launched to the public -- but, so far, I haven't been given anything to test. I'm afraid this game might take longer to develop and bring to market than an actual drug!

Meanwhile, John Pugh continues to talk about Syrum at industry conferences. Most recently, Pugh presented at "Doctors 2.0 & You™" and he is scheduled to provide "A Detailed Update on the Development and Continued Use of Syrum" at ExL's 6th Annual Digital Pharma East Unconference on October 17, 2012. Of course, that depends on the gamiification development process, which we know can take years!

A New Estimate of Drug Development Cost

I have tackled the estimated $800 million drug develop cost gorilla before and garnered a lot of comments from readers, including Dr. Joseph DiMasi, whose team came up with that number way back in 2003. Since then, the number has been adjusted upward to over $1 Billion due to inflation/increased costs.

In his comments to me -- see "Tufts Hangs Tough on Opportunity Cost Analysis" -- DiMasi said "You write that [my] study is disputed. That's true, but, as far as I can see, the ultimate sources of that criticism are those with obvious political agendas and who lack appropriate expertise. I have never seen a criticism of the methodology from a bona fide economist."

Now comes a NEW estimate from someone who HAS the appropriate expertise, if by "appropriate" DiMasi meant someone who has has a PhD in economics. That person is Rebecca Warburton. She is the co-author of a recent paper published in Biosciences entitled "Demythologizing the high costs of pharmaceutical research" (BioSocieties 6, 34-50; March 2011). The lead author is Donald Light, an economic and organizational sociologist. He is also a visiting professor at Stanford University and a professor of comparative health-care at the University of Medicine and Dentistry of New Jersey.

Light and Warburton's NEW estimate for the MEDIAN cost to develop a new drug is $59.4 million, which is more than an order of magnitude LESS than the DiMasi estimate. To emphasize this difference, I created the following chart (I love charts!):

I labelled the new estimate "LSEPS" in honor of the London School of Economics and Political Science, which published the paper. SO we have two estimates from two schools -- DiMasi's estimate is most often referred to as the Tufts estimate.

How is it that the Tufts estimate is at least 14 TIMES the LSEPS estimate? Well, you'll have to read the LSEPS paper to find out or wait until I can get the authors to be a guest on my Pharma Marketing Talk show.

But Light and Warburton claim that the Tufts estimate is based on a biased sample of drugs and drug firm data, that R and D costs were ‘padded’ with legal and other nonresearch costs, included poorly documented preclinical costs, overestimated trial costs and sizes, and exaggerated risks of failure.

Like Derek Lowe, you may believe that the LSEPS paper is "a case for the prosecution, not a dispassionate analysis" and "attempt to replace one shaky number with another" (see "The Costs of Drug Research: Beginning a Rebuttal").

But Light and Warburton do make several interesting criticisms of the Tufts analysis, including debunking the infamous $400 million "Cost of Capital" estimate, which is a long-standing point of contention between DiMasi and his critics.

Simply stated, the cost of capital is the loss of returns from funds that would have been invested in the stock market, were the R and D project not undertaken. DiMasi used an estimated ‘cost of capital’ of 11 per cent, based on equity returns between 1985 and 2000. "Even if one were to accept the argument that profits foregone should be included as a ‘cost’, US government guidelines call for using 3 per cent, not the 11 per cent used by DiMasi and colleagues," said Light and Warbuton. NOTE: the $59.4 million LSEPS estimate includes a modest cost of capital allowance (about $16 million); without that, the NEW estimate is $43.4 million, about 1/18 what Tufts estimates.

I can't get cover all the criticisms Light and Warburton have of the $802 million Tufts gorilla. I suggest you read Derek's blog post (op cit) as well as this Science-based Medicine blog post: "What does a new drug cost?"

ADDENDUM: Tufts/DeMasi Responds
I was informed that Tufts/DiMasi responded to the Light and Warburton publication. Find that response here. An excerpt:

"In their commentary, Light and Warburton restate arguments about the methods and data used for our R&D cost study that they have had published elsewhere. We have thoroughly rebutted each and every one of their prior claims in two published responses that Light and Warburton do not cite in their current paper (DiMasi et al., 2005a, 2005b). In the current piece, Light and Warburton also attempt to operationalize their criticisms by making adjustments to our published estimates that purport to demonstrate that R&D costs are much lower than we estimated. They make five such adjustments, all of which are erroneous --- they inappropriately mix median values reported for individual drugs with what are mean values for the costs of clinical failures and preclinical fixed costs, and for which the concept of a median has no meaning; they misconstrue the nature of the corporate income tax and incorrectly consider manufacturing tax credits; they use discount rates that are meant for other contexts but that are inappropriate here; they treat line extension approvals as separate and independent units of observation alongside their original approvals; and they grossly misstate the meaning of and misuse figures in our paper on industry-reported data on expenditures on self-originated drugs, licensed-in drugs, and already-approved drugs. Detailed discussions of these issues can be found in our above-mentioned rebuttals. In short, every one of Light and Warbuton's adjustments are invalid. Furthermore, two peer-reviewed papers by current and former FTC economists, also not cited by Light and Warburton, validate our work using other methods and public data (Adams and Brantner, 2006, 2010). They find that R&D costs are likely as high or higher than our estimates."

- Joseph DiMasi, Ph.D.

The ending paragraph of the response reads more like the defense of a besieged fort than of an academic study:

"Make no mistake: While we are more than willing to engage in a productive discussion about research methodology and interpretation, Tufts CSDD will vigorously defend the scholarship, integrity, and validity of all its published research studies [their emphasis]. As noted above, we have addressed Light and Warburton’s criticisms of our cost study in the past. Going forward, we will continue to defend the study against these authors and others who attempt to denigrate the validity of its findings."

For a followup, see "Drug Industry "Dirty Tricks Part 2: R&D Costs".

Should FDA Have Approved Contrave for Obesity Because Docs Are Too Stupid to Use the Generic Components Off-label?

As reported in the WSJ Health Blog, FDA said it wouldn’t consider approving the experimental weight-loss drug Contrave without another clinical trial. FDA's decision comes after an FDA advisory panel voted in December to recommend approval of the drug.

Many pundits consider this another example of how risk-averse the FDA has become and how its decisions are hampering innovation. Even critics of the drug industry like Dr. Carlat claim that FDA's Contrave decision was a "Big Mistake" (see here).

Why does Carlat think it was a mistake when Contrave "is simply a combination" of two generics -- burpropion (Wellbutrin) and naltrexone -- that have been available for a long time? He says "Combining Wellbutrin and naltrexone was not something the average doctor would have ever thought of for an obesity treatment, so this counts as an uncommon example in which a company had a bright and non-trivial idea for a combination of two existing products."

Carlat didn't exactly say that doctors are too stupid to combine generics but a commenter said "the fact that the average doc might not have thought of it implies we need more effective dissemination of such info, not a new commercial product. Or are you thinking the inevitable TV ads might be a good way to get us all up to speed?"

Ha Ha! Good one! As if branded TV ads would alert doctors that the drug is actually a combination of two generics. They'd have to read the small print of the package insert to realize that. But advertising ANY treatment for obesity might make doctors who prescribe the treatment appear smarter.

BiDil is an example of a failed combo-drug the FDA DID approve (for heart failure). It didn't sell well despite advertising (see "BiDil Sales Disappoint: Blame Genes or Marketing?") perhaps because doctors were already smart enough to prescribe the cheaper generic components of the drug.

Carlat also said "The good news is that patients can ask doctors to prescribe them the constituents of Contrave, both of which are available in generic form -- burpropion and naltrexone. Presumably, this generic combination will be much cheaper than Contrave's pricing anyway!"

Obesity is a big problem here in the U.S. and elsewhere. The drug industry is looking to capitalize on that by introducing new drugs to treat obesity. Unfortunately, instead of investing in research, many companies are going after low-hanging fruit like combo drugs or actually cutting their research budgets to shore up stock prices (see, for example, "Pfizer Inc: Working Together for a Healthier Investor™").