IPR and Medicines 20: Scherer Paper on Pharmaceuticals R&D

The discovery and invention of new medicines and vaccines against various diseases remains a high-risk, high cost activity for the pharma and biotech companies involved in the process. This probably explains why there are more companies engaged in information and communications technology (ICT), in hotels and food chains, in airlines and forwarding, in telecomm and power, than in medicine development. For one, the latter is heavily regulated by all governments in all countries. The only pharma companies that don't get heavy regulations perhaps are the manufacturers of fake and counterfeit or substandard drugs because they operate underground and escape the heavy hands of various government health regulators.

A physician friend sent me this morning a new paper, R&D Costs and Productivity in Biopharmaceuticals (see more papers at www.hks.harvard.edu). The paper is not really complicated, it only wanted to find out, among others, to what extent the costs in pharma R&D have increased so far, the increasing procedures required to get regulatory approval, and so on. But it is significant because it's a very recent paper, produced only last month, from the famous Harvard Kennedy School.

An alternative and more authoritative source to get info about R&D costs of pharma and biotech companies will be that of the Pharmaceutical and Research Manufacturers of America (PhRMA), infographics section, http://www.phrma.org/research/infographics.

Dr. Scherer showed this figure at the start of his paper. The number of newly-approved drug molecules have increased greatly in the 90s, tapered in 2000s, but the cost of R&D spending has consistently rose in an almost linear path. Thus, sometime in 2009 for instance, the number of newly approved drug molecules and biologicals were around 30 and R&D spending was about $30 billion. Compare that in the late 90s where some 60+ newly developed molecules were approved but R&D spending was only around $15 billion.

The author compared independent research of cost estimations from other sources. He wrote,

... cost per successful new molecule. There have been numerous quantitative investigations. The leading efforts, and those most highly cited in both the scientific and popular literature, have come from collaborating economists at Tufts University, the University of Rochester, and Duke University...

For the most recent of the comprehensive Tufts University studies, the estimated average out-of-pocket cost per successfully approved molecule, including the pro-rated costs of failed tests, all measured in year 2000 purchasing power levels, were as follows:

     Pre-clinical                              $121 million

    Clinical testing                          $282 million

    Total cost per approved drug   $403 million

The mean clinical testing estimates, which are undoubtedly more reliable than pre-clinical estimates, can be compared with the analogous costs from three earlier studies summarized by Scherer (2010, p. 154), each adjusted to year 2000 purchasing power levels:

     Source          Test Period             Average out-of-pocket cost per approved new drug   

               Mansfield      Late 1950s             $  5.4 million

               Clymer          Late 1960s               40.2 million

               Tufts I           1970-early 1980s     65.7 million

               Tufts II          1983-late 1990s     $282 million

That's a rising trend indeed in R&D cost. The main cause of such explosion in costing would be the rising tests and procedures required by the regulatory agency, the US FDA, before they will approve any new drug molecule.

Another figure shown by Dr. Scherer, Phase 3 of clinical trials is the most costly, eating up to $40 million for each new drug. He wrote, On average, only one-fifth to one-fourth of the small-molecule drugs entering Phase I testing emerge roughly eight years later with marketing approval. For biological therapies developed during the 1990s, the survival probabilities appear to be higher -- e.g., roughly 0.3 from a survey by DiMasi and Grabowski (2007) and even higher for the earliest approved biologicals, which mainly emulated naturally occuring substances.

Given the complexity and high risks, high costs involved in developing new medicines and vaccines, it is indeed unfair that successful drugs will be slapped with certain government interventions that effectively penalize, instead of rewarding, new medicines innovation. The author did not mention in his paper anything about such threats in intellectual  property rights (IPR) of medicine discovery, but readers and observers who are keen on slapping patent-abrogation government policies like compulsory licensing (CL) and related measures, or be imposition of medicine price cap and control, are not likely to believe the high risks and costs involved in drug discovery. They only see the angle of "patented drugs = expensive drugs". Thus, to bring the prices of those more powerful and new drugs, patent life should be kept as low as possible.

This attitude is not healthy not only for the research and pharma companies, but more so for the patients today and tomorrow. We have read and seen cases of ever-evolving and mutating diseases. Such disease mutation are not likely to be effectively treated by old and existing medicines and vaccines, but by new and more modern ones. And it is also very likely that FDAs will be imposing new and more stringent rules and procedures before they approve new medicines and vaccines. In a situation of rising requirements and regulations, costs will also be rising and hence, prices of new drugs and treatment will be rising. Governments should in fact reduce costs-inflating policies like taxes on medicines as they raise the regulations to make future drugs more safe and more effective in killing diseases.
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See also:
IPR and medicines, Part 1, March 04, 2011
IPR and medicines, Part 2,
IPR and medicines, Part 3,
IPR and medicines, Part 4,
IPR and medicines, Part 5, March 14, 2011
IPR and medicines, Part 6, March 15, 2011
IPR and medicines, Part 7
IPR and medicines, Part 8, March 31, 2011
IPR and medicines, Part 9, June 08, 2011
IPR and medicines, Part 10, July 13, 2011
IPR and medicines 11: When blockbusters' patent expires, September 07, 2011
IPR and medicines 12: Expanding generics, September 09, 2011
IPR and medicines 13: Improving Generics Quality, September 13, 2011
IPR and Medicines 14: Compulsory Licensing in developing countries, October 04, 2011
IPR and Medicines 15: New Vaccines and Public Health, November 05, 2011
IPR and Medicines 16: Wikileaks and the Cheaper Medicines Law, November 08, 2011
IPR and Medicines 17: Why are Drugs Still Expensive After Patents have Expired?, November 17, 2011
IPR and Medicines 18: Generic Drugs and the Consumers, November 18, 2011
IPR and Medicines 19: Miracle Anti-Cancer Drug?, January 04, 2011