Does Generic Competition Stifle Branded Pharma Innovation?

Sure, use of generic drugs saves payers -- U.S. Gov't, insurances companies, and patients -- money. But does generic competition harm the innovation of new and improved drugs?

According to a report published by the Generic Pharmaceutical Association (GPhA), the answer is no. Let's look at some of the data.

First, the GPha claims that generic prescription drugs in the U.S. saved about $193 billion in 2011 alone and over $1 TRILLION in the last 10 years (see "Generic Savings in U.S." for a copy of the report and top figure in the infographic shown here; click here for a full-size view of the infographic).

Given that there is just one prescription drug pie to share, that must mean that the branded pharma industry's slice has decreased somewhat proportionately, even though the whole pie may has grown over the years (by what %?).

But GPha does not discuss THAT in its report. Instead, it focuses on "innovation" and the defense of the 1984 Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman), which had the dual objectives of incentivizing the development of new brand drugs (the patent term restoration part) and facilitating the approval of generics to lower consumer costs (the drug price competition part).

The Hatch-Waxman Act has recently come under attack as being too favorable to the generic drug industry. An article in the November 2011 issue of Health Affairs, for example, argued that "generic usage has increased so markedly that the incentive to develop new drugs has been harmed" (said GPhA). From the abstract of that article:

"Generic drug usage and challenges to brand-name drugs’ patents have increased markedly, resulting in greatly increased cost savings but also potentially reduced incentives for innovators. Congress should review whether Hatch-Waxman is achieving its intended purpose of balancing incentives for generics and innovation" (see "Evolving Brand-Name And Generic Drug Competition May Warrant A Revision Of The Hatch-Waxman Act").

As evidence that this is not true, GPha presented new drug approval data from the FDA. The data it presented was similar to the middle chart in the infographic shown here. The GPhA chart only went back 10 years to 2002, whereas the chart shown here goes back to 1994. Although the trend in new drug approvals by the FDA is downward between 1994 and 2011, in recent years (ie, since about 2002), it is trending upward.

Drug approvals by FDA may not be the best indicator of innovation, however. Consequently, I added to the infographic another chart from the FDA that also shows the number of NDAs (new drug applications) filed with the FDA in the last 10 years.

I notice that the number of approvals seems to be directly related to the number of NDAs filed. The FDA often argues that it is not its fault if less drugs are approved in any given year -- it's the fault of fewer NDAs being filed (ie, lack of innovation by the drug industry).

In any case, the GPhA argument seems to have merit. So much so that the branded drug industry -- i.e., its trade association, PhRMA -- chose not to dispute the evidence, but made lemonade from GPhA's lemons.

PhRMA pats itself on the back, saying that "without the development of new medicines by innovator companies, there would be neither the new medicines essential to progress against diseases nor generic copies." Here's more from PhRMA on that:

"[GPhA's report] documents one of the many benefits achieved by new medicines developed by biopharmaceutical research companies. Cost savings attributable to generic drugs represent one stage of the prescription drug lifecycle. Such savings are possible because innovator biopharmaceutical research companies – the most research-intensive sector in the U.S. economy – produce medical advances through pioneering scientific work and long-term, expensive investments. Over time, these innovative new medicines lead to generic copies that patients use at low cost for many years" (see "PhRMA Statement on Prescription Drug Costs").

What do you think?

Does generic drug competition harm the innovation of new drugs?
	Yes
	No

Is Pharma Part of Problem or Solution to Current State of US Economy?

When Americans were asked "Thinking about the role each of the following sectors played in the current state of the American economy, do you think each of the following sectors is a part of the problem, a part of the solution, or are you unsure?," only 15% said the pharmaceutical industry was part of the solution, according to the 2012 Harris Poll Annual RQ survey. 50% said the industry was part of the problem (see chart below):

According to Harris, that puts the drug industry on the cusp of being a "malefactor" - an industry that Americans blames for economic woes. You can find the complete Harris report here.

Meanwhile, PhRMA, the industry's trade association in the U.S., continues to churn out press releases that warns Americans that if the government passes such-and-such law or over-regulates such-and-such activity of the pharmaceutical industry, it will result in the loss of thousands, nay millions!, of American jobs.

For example, in a response to the President's Fiscal Year 2013 Budget, PhRMA stated "America's biopharmaceutical industry is a key driver of economic growth; the President's proposed budget would weaken our ability to innovate and create jobs. This is not an investment in America's future and these proposals should not be considered" (see "PhRMA Statement on the President's Fiscal Year 2013 Budget").

Of course, the drug industry can be both part of the solution and part of the problem. It depends on whose problem/solution you are talking about.

It's part of the solution for white collar workers who work in the U.S. pharma industry, have Rx medical coverage, and can afford prescription drug co-pays. Blue-collar workers and retired folk who depend more on government "safety nets," however, may see  high drug prices and the drug industry's antipathy toward Medicare rebates as part of the problem. The latter are not among the typical U.S. pharma work force since the drug industry is shipping more and more blue-collar manufacturing jobs overseas to countries like China.

Not only does this NOT support jobs in the U.S., it also endangers our drug supply.

In a story about counterfeit Avastin in the U.S., the link between overseas drug manufacturing and counterfeit or tainted drugs in the U.S. was suggested: "Most Americans don't question the integrity of the drugs they rely on. They view drug counterfeiting, if they are aware of it at all, as a problem for developing countries. But the latest incident, which follows the appearance of other fake drugs in the U.S.—including counterfeits of the weight-loss treatment Alli and the influenza treatment Tamiflu—suggests it is a growing risk, especially as more medicines and drug ingredients sold in the U.S. are made overseas [my emphasis; see "Roche warns of fake cancer drug in US"). For more on this, see "Unsafe Drugs: Is It Counterfeiters or the Supply Chain That's the Problem?"

Is Pharma Part of the Problem or Solution to America's Economic Woes?
	Solution
	Problem
	Both, as you say
	Unsure

Greece & US Top List of Big Drug Spenders - A Shared Sign of Debt Risk?

"Greece’s continuing high level of spending on medicines is a striking example of the broader problems facing the country as it battles under international pressure to cut public expenditure and rein in the nation’s debt," say the authors of a Financial Times article (see "Athens struggles to rein in medical excess").

If drug expenditure per capita and as a per cent of GDP is a measure of a country's financial instability, then the U.S. is in the same league as troubled Greece (see chart on left).

Interestingly, a Merck executive blamed rampant consumerism!

"There were no controls on spending in the past, the whole system favoured consumption," says the director for Merck, the US pharmaceutical group, in Greece. "It was not only supplier-led, but demand-led by doctors and patients."

The same could be said of the U.S., the gold standard among health systems that "favor" consumption. But if that Merck pharma executive were to say the same about the U.S. system, he probably would be sent off to an "emerging" market such as Russia.

P.S. Actually, we are not comparing apples to apples here. Greece is a one-payer healthcare system, whereas in the U.S. there are several payers -- including consumers. So, in terms of state debt, healthcare expenditures are a bigger factor in Greece than in the U.S. However, in the U.S. personal debt caused by healthcare expenditures can keep the economy sluggish and have an impact on the ability of the U.S. to pay its debts and fund the future.

Predicting the Future of the Drug Industry: 2012 and Beyond

It's time to revisit a survey I ran a couple of years ago that attempted to predict future healthcare market scenarios that would impact the drug industry. The survey asks respondents how likely it is for certain events or conditions to unfold in the next 5 to 8 years (ie, 2012 to 2019).




You can take the survey here. But before you do that, let's review the first-round of results (ie, responses collected from 2 December 2009 through 8 January 2010). Events since then may have made some of the following scenarios more or less likely. You tell me.

The scenarios -- with my updated comments included in brackets [] -- that are included in the survey are as follows (see the chart afterward for the first-round results):

1. New follow-on biologics legislation in the U.S. will increase competition from generic equivalents and eventually decrease brand profits. [I think the legislation is still bogged down and when finalized may not have much impact within the time frame specified.]
2. Broadcast (ie, TV) Direct-to-Consumer (DTC) drug promotion will be banned or sharply curtailed by law in the U.S. [This may have been a big issue back in the day, but it doesn't seem to be center stage right now.]
3. The European Union will finally allow Direct-to-Consumer (DTC) advertising to its citizens. [The European Commission, the executive arm of the EU, recently ruled that pharma companies would not be allowed to disseminate information about drugs and their indications beyond a narrow set of circumstances. For the details, see, "In Rejecting Proposal, EU Dashes Drugmakers’ Hopes of Having a Voice"]
4. Internet-based drug promotion (including search engine marketing) will overtake TV-based DTC in the U.S. in terms of dollars spent. [There's still time for this to happen. I'm guessing that right now only about 5% (maybe 10% if you include search advertising) of pharma's DTC advertising budget is spent on Internet advertising whereas TV accounts for over 50% of the budget. See "Double Dip in DTC Spending Plus 33% Drop in Internet Display Ad Spending!"]
5. Due to decreasing effectiveness of traditional physician detailing and rise of non-personal detailing, the role of traditional sales representative will become obsolete. [I'm surprised that over 50% of respondents think this is likely to happen before 2020 (see chart below). Perhaps a sign is the recent closing of Pharmaceutical Representative Magazine (see here). Also read this article: "Consequences of eDetailing Technology".]
6. New healthcare reform legislation will dramatically increase the sales of drugs in the U.S.
7. Extensive outcomes data available to payers and comparative effectiveness research will force the industry much further down the path of pay-for-performance (ie, adopt a more flexible approach to pricing). [For background in this, read the article "A Case for Supporting Comparative Effectiveness Research".]
8. Patients will become even more influential and empowered in making healthcare decisions as they are forced to pay a larger share of costs and/or have access to health information from a variety of sources. [For more background on this, read the article "The Empowered Patient: What It Means for Pharma Marketers".]
9. Despite lack of innovative new drugs and/or generic competition, sales of brand drugs worldwide will show a sharp increase due to increased demand in emerging markets (eg, China). [See the following articles: "Getting Market Research Right in Emerging Markets", "Getting Market Research Right in the Middle East", and "Getting Market Research Right in India & China".]
10. More efficient targeting of drugs and marketing to specific patient populations will greatly increase effectiveness and decrease side effects of drugs. [See, for example, "New Big Pharma Economies of Scale: Less Patients Needed to Reach Blockbuster Sales". At least one targeted therapy (I can't recall which), however, recently failed and that may cast a shadow on progress in this area.]
11. Social media marketing will become a significant part (>10%) of the pharmaceutical marketing mix. [Hmmm... A lot of people seem to believe this is likely (see chart), but FDA's delay in issuing guidance may have dampened the outlook for pharma use of social media.]
12. The next BIG opportunity for targeted marketing to patients and physicians is mobile apps on "smart phones." [To prepare for this, I recommend you read the article "Everything You Need to Know About Mobile Platforms". Take the survey and you will get a discount code that allows you to get this at no charge.]
13. Pharmaceutical and biotech companies will continue to increase their outsourcing of clinical trials and related drug development. Outsourcing will account for more than 50% of R&D spending by 2019.

The following chart summarizes first-round (prior to January 2010) survey results. Please take the survey now and help me get a more current view of what may be dow the road.

Was Lilly's #mmeds Twitter Chat a Discussion or a Press Conference?

Yesterday, I participated in the #mmeds Twitter chat regarding Medicare hosted by Lilly (see "More Pharma Twitter Chats: Medicare is Topic"). I had high hopes that this would be an informative discussion, but those hopes faded once the official "chat" began.

Before the chat began, Lilly encouraged followers to ask questions: "Hope you can join @Modernmeds for a Twitter chat on #Medicare tomorrow at 4:00. Ask questions now via #mmeds" @Modernmeds is the Twitter account associated with The Campaign for Modern Medicines, which is sponsored by Eli Lilly and Company.

The TOP TEN contributors (in terms of posts made) to the #mmeds chat were:

1.  @Modernmeds 
2.  @pharmaguy 
3.  @LillyPad 
4.  @WVRx 
5.  @HoosiersWFH 
6.  @PhRMA 
7.  @GHLForg 
8.  @mikecapaldi 
9.  @Outlandes 
10.  @patientaccess

I am #2 primarily because I kept asking questions, many of which went unanswered, such as:

• What's Lilly's position viz-a-viz republican proposals to privatize Medicare or raise premiums for higher-income seniors?
• To reduce deficit, should gov't raise the age of Medicare eligibility to 67 from 65?
• Who wants to "break" Medicare Part D and how exactly? Let's go lite on the buzz words, pls. (posted in response to @Modernmeds tweet: "Medicare Part D is a government program that is not broken; let's not break it.")
• why does pharma think Part D is at risk of being "broken?"
• Can you summarize the "proposed changes" u are talking about please? (posted in response to @Modernmeds tweet: "The proposed changes would also cause higher Part D premiums for seniors.")

Finally, @Lillypad got so disgusted, it tweeted "we understand that you may not agree with us-- this is a discussion!" to which I replied "I haven't disagreed with anything u hv said so far - none of my Qs have been addressed."

I wasn't the only one to ask questions. Just before the official chat began, @ellsbelles3 posted this question: "I keep hearing that Medicare Part D is working and not to change it. what does that mean?" This sounded suspiciously like a setup from a phony ordinary citizen similar to "Joe the Plumber."

I immediately opened up @ellsbelles3's Twitter profile and found that despite the fact that the account was opened up more than 6 months ago, this was @ellsbelles3's FIRST and only tweet!

I just had to ask her: "@ellsbelles3 C'mon... you're a PhRMA agent, right? #mmeds". No answer.

That's @ellsbelles3 profile photo above (entitled "xmas_card_reasonably_small.jpg"). She's located in Washington, DC. The vast majority of people that @ellsbelles3 follows on Twitter are politicians and media correspondents -- exactly the types of people a public policy wonk like Amy O'Connor (aka, @Modernmeds and @LillyPad) would follow. In fact, Twitter says @aoconnorND (Amy O'Connor's personal Twitter account) is an account with a very similar profile to @ellsbelles3. So, sorry, Amy. You don't work for PhRMA (directly).

During the chat @Modernmeds and @PhRMA pushed out talking points such as "Medicare Part D is a government program that is not broken; let's not break it.", "Medicare Part D works, has high satisfaction rates, and the select committee should avoid mirroring Medicaid", "Recent #JAMA study found access to Part D saves $1200/yr per senior in healthcare costs", and "We are supportive of a market based system for Medicare Part D." @LillyPad mostly RT'd these points.

Eventually, I figured out what Lilly et al were most concerned about: a proposal by lawmakers (democrats, I presume) to require pharma companies to offer "rebates" to help cover the out-of-pocket costs incurred by seniors who find themselves in Medicare Part D's infamous "doughnut hole" (ie, where Medicare no longer pays for meds). The industry labels this proposal "price controls."

In the end, after 30 minutes, we all agreed that the discussion just began. I wish there was more discussion in the beginning rather than the very end. I tried my best, but it's difficult when the chat organizers have an agenda and dominate the "discussion" with talking points, buzz phrases, and calls to action.

Lilly et al obviously have a different view of what a Twitter chat should be than do I. To them it's a press conference, not a conversation. Like a press conference, they can duck tough questions or just ignore inquisitive journalists (and bloggers) in the "audience." In fact, that's what I felt like during this chat: just another member of the "audience" who is expected to soak up and repeat talking points.

"We will have a chat next Wed at 10 AM, with our President of Lilly USA, Dave Ricks," said @Modernmeds at the end of yesterday's chat. Unfortunately, Mr. Ricks won't be using his own Twitter account (I don't believe he has one), but will "he will be using @Modernmeds's Twitter handle next week," said @Modernmeds. Which leads me to question whether Dave Ricks will actually participate in the chat or if @Modernmeds (Amy O'Connor) will just play the part of Dave Ricks (ie, be his "mouthpiece" as they say in the PR world).

Should the US Government Step in to Ease the Current Drug Shortage Crisis?

"The drug industry is floundering in its ability to provide the public with many of the basic medicines that are absolutely required for the treatment of a host of diseases," said Paul Torrence, former Section Chief, MIH, in a recent OpEd piece (see here).

Torrence called for a National Institute of People's Medicine that "would ensure that drug inventories are always well stocked. It would additionally be the driver and funder of cutting-edge drug discovery and development for antibiotics. Working through out-sourcing and contract mechanisms, the NIPM could rejuvenate research funds-deprived academics and mobilize small pharma to manufacture requisite medicines.

According to the FDA, "In 2010, there were 178 drug shortages reported to the U.S. Food and Drug Administration, 132 of which involved sterile injectable drugs. In 2011, FDA has continued to see an increasing number of shortages, especially those involving older sterile injectable drugs. These shortages have involved cancer drugs, anesthetics used for patients undergoing surgery, as well as drugs needed for emergency medicine, and electrolytes needed for patients on IV feeding" (see Drug Shortage FAQs).

Various causes of the current crisis have been suggested: (1) manufacturing quality issues, (2) market manipulation (eg, price gouging), (3) mergers of pharma companies who cut out low profit margin drug lines, and (4) lack of profits to be made from certain generic drugs.

Whatever the cause, the American Society of Health-System Pharmacists (ASHP) calls the current drug shortage in the US a "crisis" (view this video -- interview at 36 mins, 30 seconds).

The last time we heard of a crisis affecting the entire nation was the 2008 "financial" crisis. That was met with swift action by the US government, which intervened in the market to help ward off the crisis in lending (ie, shortage of money).

If the government can address a national money shortage crisis, why can't it also address a national drug shortage crisis?

Can the United States Ensure an Adequate Supply of Critical Medications?

That's the question ASHP asked in an FDLI Food & Drug Policy Forum article (attached to above cited post), the introduction to which states:

"This dramatic rise in the extent, duration and severity of shortages is occurring in an environment that is characterized by a near absence of communication between drug manufacturers and the Food and Drug Administration (FDA). This lack of transparency is a significant barrier to efforts to address drug shortages, and it represents a real and growing danger to patient safety. FDA has worked diligently to address this issue, but this work is hampered by the agency’s inability to require reporting of information that could be instrumental in minimizing the impact of a shortage or averting it all together."

More resources:

• Cancer drug shortages getting worse, FDA says (USA Today)


• Cancer Drug Shortage: Why Is This Not Front-Page News? (Health Beat Blog)

[This post originally appeared in Pharma Marketing Blog. 

Make sure you are reading the source to get the latest comments.]

The End is Nigh! Judgment Day For Low Cost Generic Meds

Some people think "Judgment Day" will come tomorrow, May 21, 2011, at 2 a.m. Eastern Daylight Time at which time will begin the "rapture" where "all the graves will be opened and all of the dead bodies will come out" and only the true believers will be saved.

I don't believe in that particular fantasy, but I do believe the end is near for so-called low cost generic drugs.

Several recent signs suggest that the stars are aligned against low cost generic drugs. Here's my summary of these signs.

For quite some time we've heard about "Big Pharma’s Record Drug Shortages" (see "The nation is facing an unprecedented drug shortage" and "What’s Behind Big Pharma’s Record Drug Shortages?"). Shortages might be caused by "too many mergers and acquisitions" that have reduced the number of suppliers.

Those stories put the blame on "Big Pharma," by which they mean brand name drug manufacturers. However, lost in the copy is the FACT that "almost all the shortages are generic drugs."

The second sign was reported by Jim Edwards over at bnet in his post "4 Pharma CEOs Admit They Jack Up Drug Prices for the Hell of It."

Edwards quotes David Snow, chief executive officer at Medco Health Solutions: “As their branded drugs approach the patent cliff, there has always been the tendency to see increased pricing toward the end, just to get the last dollar out of every drug before they lose brand protection."

Yet an NPR article titled "Big Pharma's Golden Age Leads To Generics Windfall" suggests the "wave" of drugs going generic "can save consumers plenty of dough."

That would be true if generic drug companies as well as brand drug companies were not jacking up prices "for the hell of it." Actually, prices are jacked up because there is a shortage, which can be artificially produced if there is a drug industry consolidation, which there seems to be in both the generic and brand name industries.

I've heard that the price of generics has NEVER been as low as some people believe even in times where there were no shortages. Actually, the prices of some generics can be as much as 80% of the equivalent brand name drug. Why is that? I mean generic drug companies have practically NO marketing budgets, which have been blamed for high brand name drug prices by pharma critics. You'd think that without the marketing and associated overhead expenses, generic drugs would be dirt cheap!

The fact is, "three-quarters of prescriptions these days are filled with a generic," points out NPR. "And the proportion keeps climbing." That means that generic drug companies have almost "cornered the market" (for small molecule drugs) and can charge what that market will bear (in the U.S., that is, where there are no price controls).

And soon the generic drug industry will "corner" the biologic drug market as well.

"Should the market develop according to plan," notes a WSJ article, "copies of these complex drugs [biologics] alone could make up around 50% of the expected $10 billion biosimilars market by 2016, according to data compiled by Capgemini Consulting" (see "Generics Companies Weigh In on Biological Drugs").

As biologics vie for the market to replace small-molecule pills, the situation will even be worse. As a commenter to the NPR article stated "Makers of brand-name biologics are spending big money to delay biosimilars coming onto the market, so even tho biologics like Enbrel, that goes off patent next year -- without the availability of a “biosimilar" – the cost of Enbrel will still be $1,500 a month."

The generics rapture is upon us! Save yourself!

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".

PhRMA Slaps Sleazy, Self-Serving Spin on GAO Drug Price Analysis

"We are pleased the GAO appropriately took into account the facts about how the biopharmaceutical marketplace works in its analysis of prescription medicine pricing trends," said PhRMA CEO John J. Castellani in his organization's Statement Regarding GAO Report. "The [GAO] report's key finding shows prices have been increasing at a rate of 2.6% [my emphasis] annually, which is lower than overall medical inflation," said Castellani.

Castellani focused exclusively on the GAO analysis of one "basket" (basket #4) of drugs that was "based on the active ingredient rather than drug name...in order to account for the growing national shift in consumer utilization from brand-name to generic versions of drugs." In other words, the basket included generic and brand name drugs. For example, “Zocor/10mg/oral/tablet” and “simvastatin/10mg/oral/tablet” would be considered the same drug for purposes of this fourth basket because they are the brand-name and generic versions of drugs with the same active ingredient, even though they have different names.

Of course, PhRMA does not represent the generic drug industry, so you can forgive Castellani for not mentioning the REAL "key findings" of the GAO report; ie, between Q12009 and Q12010, brand name drugs increased in price by 7.1% whereas generic drug prices decreased by 1.5% (see chart below, which also includes data from Barclays Capital):

Meanwhile, a Los Angeles Times story proclaims "U.S. drug prices outstrip other medical costs: GAO" and a Wall Street Journal's story is titled "Drug Prices Rise Despite Calls for Cuts" (find that story, which highlights the Barclays Capital analysis, along with the GAO report here).

One other problem with PhRMA's statement is this: The 2.6% price increase cited by Castellani is the AVERAGE increase in price between 2006 and 2010. That, indeed, is LESS than the 3.8 percent average annual increase in the consumer price index (CPI) for all medical goods and services -- which INCLUDES drugs -- during the same period. Looking only at 2009-2010 GAO data, however, the price increase was 4.3%. In comparison, the CPI for "Medical care services," which EXCLUDES drugs, rose 3.0% for the 12 months ending January, 2011, according to this Bureau of Labor Statistics press release.

Whether or not drug price increases are greater or lesser than general medical costs is a moot point. Why doesn't the industry share some of the pain many people are feeling during this harsh economy and DECREASE the price of its products as did the generic drug industry? Yeah, like that would happen!

AstraZeneca to Host First-Ever Pharma-Sponsored Twitter Chat!

Back in November, 2010, I asked "Will a Pharma Company Ever 'Host' a Chat on Twitter?" (see here). I just learned that AstraZeneca (US) will be the first pharma company (that I know of) to do so according to this @AstraZeneca Twitter post:

AstraZeneca to host Twitter chat on Rx savings. 8p EDT Wednesday. Details here http://ow.ly/3W3G7 #rxsave #socpharm

Here are the relevant details:

AstraZeneca (@AstraZenecaUS) will host a one-hour chat on Twitter at 8 p.m. EDT on Wednesday, February 16 to raise awareness about helping patients save money through prescription savings programs.

The chat will be led by Jennifer McGovern, the director of the AZ&Me prescription savings programs. She will answer questions while offering ideas about how patient assistance needs are evolving and how social media can be used to reach eligible patients.

To join the discussion, participants just need to use their Twitter account - and follow the discussion through the #rxsave hashtag.

 This is quite gutsy of AZ considering that anyone can "join" the chat simply by posting a message containing the #rxsave hashtag.  And anyone can post messages about AZ drugs and mention side effects too even though AZ might say that it will not respond to questions about specific drugs.

In fact, the details provided so far by AZ do NOT include any "ground rules" about topics that it considers out of bounds. The AZ Health Connections Blog, for example, has an extensive "Comment Policy" (see here) that says, for example, "This blog is not the place for your questions or comments about our specific products and we will not publish comments about AstraZeneca products." It also says "We reserve the right to edit or even to not publish comments that are off-topic, obscene, inflammatory, disrespectful, contain profanity, or that we deem are otherwise inappropriate. We may not publish comments that could be misleading or confusing, or thinly disguised sales pitches for other products or services."

In a Twitter chat it is not possible to "edit" or "not publish" comments made by participants. And the conversation can actually be hijacked by "disgruntled" patients or employees. I hope that doesn't happen.

But it is a fact of life for pharmaceutical companies that they are not well-liked by the general public, especially when the price of drugs is a topic for discussion.

So, it will be interesting to see how this chat unfolds Wednesday night with regard to the above.

As I mentioned in the above cited post, there can be several reasons why I haven't seen Twitter chats hosted by pharma companies:

• There are no guidelines from the FDA regarding how that agency will regulate Twitter chats hosted and/or "moderated" by pharma companies. A "moderated" Twitter chat is one where the discussion is lead by a person who sets the agenda (see, for example, "On Being Voted Off the Social Media Island").
• Pharma companies are concerned about being overwhelmed by adverse events that may pop up in tweets during a chat session that they host and/or moderate.
• Pharma companies are concerned about "off-label" promotion that may be made by chat participants.
• Organizing and moderating a chat requires too much effort and is too risky.
• Once you start a chat, it's very hard to control the message.
• Consumers don't really want to chat with pharma companies.

It seems AZ has confidence it can overcome or avoid most of these problems. What remains to be seen, however, is if consumers actually participate. But perhaps AZ is not really trying to get consumers to participate. Rather, they may be more interested in getting patient advocates, bloggers, news reporters, etc. to participate. That way the messages it puts out via the chat can be filtered by these people and/or passed along to their followers. That viral aspect of Twitter hashtag chatting is valuable.

P.S. Having found out about this a bit late, I notice that there already has been quite a number of Twitter comments posted using the #rxsave hashtag! Here are a couple of posts that give us an idea of how the conversation may be hijacked:

Twitter chat 16th led by @AstraZenecaUS take a look at retired doctor's opinion of Seroquel http://tinyurl.com/4lw47wk @TonyJewell #rxsave [That doctor doesn't have anything good to say - JM]

Why AstraZeneca's white paper on social media is a crock! #rxsave http://bit.ly/ghoa6D #pharma @astrazeneca @astrazenecaus #MDchat #bioceo

P.P.S. Tony Jewel, Editor of AZ Health Connections Blog, sent me this message:

John -

Thanks much for the notice of the Twitter chat.

We decided to sponsor this discussion for a simple reason: We believe it
is important to spread the word about the availability of our
prescription savings programs. Today, Twitter and other social media
channels are invaluable tools to do so.

We will, however, be limited as to what we can respond to during the
chat. For example, we will be unable to discuss specific medicines
and/or diseases on this chat to ensure all communications are
appropriate and meet current regulations (an issue you have covered
extensively).

If others would like to discuss different issues with the company,
AstraZeneca can be reached at 1-800-236-9933 Monday through Friday 8
a.m. to 6 p.m.

We look forward to an engaging conversation on prescription savings
programs and, hopefully, other issues in the future.

LillyPad Launches Specious Rocket Attack Against Drug Price Control Straw Man

Eli Lilly, the drug company that increased the price of its antidepressant Cymbalta by 13.6% in 2009, is using its new corporate blog (LillyPad) as a launching site for defending high drug prices (see "Why Price Controls Are Not The Right Answer"). This latest post was in response to a Washington Post article that articulated fears that drug companies would increase drug prices to cover the costs of offering Medicare beneficiaries a 50% drug discount when they find themselves caught within the infamous "doughnut hole" (see "Will Drug Companies Increase Drug Prices to Cover Medicare 'Doughnut Hole' Discounts?").

Lilly's response -- written by Amy O’Connor, Notre Dame alumna, who "manages the intersections between the political environment and Lilly’s business portfolio" -- interests me on several levels.

First, I now understand why Lilly chose the name "LillyPad" for its blog. My Twitter friend Andrew Spong criticized the name as a "an eye-roller, not an eye-catcher" (see here). Spong thought it might have something to do with TypePad, a "third-on-the-podium blogging platform." Whatever the reason, said Spong, "it eludes me."

Well, Andrew, it eludes no more. Lilly's blog is a launching pad destined to promote and sustain the policies of the drug industry -- as if the activities of the drug industry's trade association -- PhRMA -- were inadequate in this regard.

But the main reason I was interested in writing about Lilly's response was because it skirted the main issue raised by the Post article. While the latter was focused specifically on the drug industry's partial coverage of the cost of medicine for Medicare recipients in the doughnut hole, Lilly's post does not mention Medicare at all (except when it references the Post article in the opening paragraph)! In addition, Lilly mis-characterizes the theme of the Post article as highlighting "concerns that biopharmaceutical manufacturers will raise prices on prescription medications." The remainder of Lilly's post is an argument against government price controls in general.

In other words, Lilly has raised a straw man to knock down rather than address the specific issues raised by the Post article.

Lilly also engages in what I would argue are scare tactics, which are definitely aimed at the American consumer (but probably not Medicare recipients). "Did you know that price controls erode incentives to innovate?" asks Amy. "The question is… should we let the fear of the unknown undermine the future of our health care when so much is at stake? Shouldn’t we continue to invest in innovation so we can continue to see real improvements in health care?"

I am not sure what Amy means by "fear of the unknown," except that she uses it to raise the issue of fear itself. It's a nice way to associate fear with government control of prices.

Amy also selectively quotes data such as "From 2006-07, prescription drug prices increased only 1.7 percent." She neglected to mention more up-to-date and relevant data such as "Drug companies sharply raised prices last year [2009], ahead of increased rebates they must pay to Medicaid and other expenses tied to the federal health overhaul passed last month..." (see Drug Prices Rose 9.1% Last Year, Ahead of Federal Health Overhaul). She also did not mention that in 2009 Lilly itself increased the price of antidepressant Cymbalta by 13.6%, according to data from Credit Suisse (op cit).

Finally, Amy cites cancer and AIDS drugs as specific examples of drug company innovations made possible by higher drug prices. Drug companies always the cite bogeyman diseases like cancer to bolster their case. I don't particularly buy the argument because a lot of other factors are responsible for advances made in the treatment of certain cancers -- better screening, for example. As Amy herself says, drugs represent only a small fraction of the costs of healthcare. Ipso facto, drugs also represent a small fraction of healthcare innovation.

Anyway, that's my take on the rocket launched today from Lilly's pad.

P.S. Of course, I submitted a comment to Amy's post. While that awaits moderation, let me reproduce here for the record:

"Amy,

I think you are not addressing the actual issue raised by the Post article, which has to do with specific concerns about how the drug industry MIGHT finance its costs associated with Medicare doughnut hole coverage. You raise a "straw man" by focusing on government price controls in general rather than addressing the specific issue.

"I wrote up my critique on Pharma Marketing Blog (http://bit.ly/agUGuA) and hope you will respond."

Equation Proves that Broadcast DTCA Only a Minor Contributor to Growth in Rx Drug Expenditures

In an equation that Einstein would be proud of, researchers at the National Bureau of Economic Research (NBER) supported by a grant from the Agency for Healthcare Research and Quality have "proved" that "the expansion in broadcast DTCA may be responsible for about 19 percent of the overall growth in prescription drug expenditures over the [period between 1994 and 2005], with over two-thirds of this impact being driven by an increase in demand as a result of the DTCA expansion and the remainder due to higher prices." The researchers based this on an analysis data supplied by IMS fed into this equation:

The equation denotes that the market price (P) is a function of promotion, time until patent expiration and the number of drugs in the therapeutic class. Hey, I'm not going to get into an analysis! Ed Silverman over at Pharmalot already did a great job explaining the research (see here).

I'm just in awe of this equation, which to me looks suspiciously similar to an equation used by Villanova scientists that proved that DTC spending does not impact Rx prices (see here, where you can see a T-shirt with the equation on it).

The authors of the Villanova study concluded that "DTC advertising has no effect on the price of drugs" whereas the authors of the NBER study conclude that "while DTCA is significant, it has not been the primary force driving the growth in overall prescription drug expenditures."