Big Pharma, Bigger Costs
BY XIAOCHANG SONG
An accurate depiction of pharmaceutical Research and Development (R&D) costs is the most important piece of data in the debate over the best way to stimulate pharmaceutical innovation—a long-standing concern at the forefront of fundamental public and global health issues. R&D costs are often useful in analyzing and improving drug development and FDA approval times, two of the most important components of the drug discovery process. The pharmaceutical industry justifies its high prices on the basis of the high cost of R&D that it incurs, and it has sought patent terms and data exclusivity from the government without providing substantive evidence that such favorable legislative measures facilitate innovation.
Historically, the pharmaceutical industry’s role in basic science research has been grossly overstated. The majority of this intensive portion of research is done not by big pharma, but by the NIH and small biotech firms. 2.4% of corporation sales go to basic science research and 84% of all funds for basic research come from public sources. High R&D figures, such as the $800 million figure reported by PhRMA (Pharmaceutical Research and Manufacturers of America), the trade group representing American pharmaceutical companies, is used as evidence to persuade legislators to grant longer patents, greater exclusivity, and more tax incentives. The $800 million is the primary way that PhRMA generates political capital, which is worth hundreds of billions in tax concessions.
Despite PhRMA’s wildly influential claims that innovation requires exorbitant R&D costs and legislative favor, the decade before the new millennium showed the slowest growth in drug innovation since the dawn of the pharmaceutical industry in the late 1930’s. In response to growing criticisms of slow innovation, Alan F. Holmer, president of PhRMA stated, “The industry is spending more than $30 billion annually on research and development with 80 percent dedicated to the advancement of scientific knowledge.” Holmer’s assertion is that the vast majority of pharmaceutical R&D is concerned with improving existing drugs and not with creating “me-too” drugs—medicines which have a new patent life but are not therapeutically more effective than existing drugs. However, in 2002, on seven of seventy-eight FDA-approved drugs were categorized as better than drugs already on the market. Marcia Angell, the former editor-in-chief of the New England Journal of Medicine, calls this lack of innovation “the biggest problem facing the industry and its darkest secret,” and believes the industry’s manic advertising blitzes are designed to cover up this fact.
The pharmaceutical industry has been able to use R&D costs to leverage its position, not only in the form of lobbyists in Congress but also in the global health arena. Large, multi-national pharmaceutical corporations continuously justify the lack of research on drugs to combat malaria, tropical diseases, and tuberculosis—diseases of the poor—by stating that the inability of the poor to pay for these medicines would make it impossible to recuperate their R&D costs. These companies have routinely made this argument to deny potential life-saving drugs to world health organizations such as countries in the Vaccine Alliance (GAVI, founded by Bill and Melinda Gates) and the governments of these developing nations. R&D costs also affect the way that these health organizations run. The GAVI has created a long-term financial burden for itself, because of the financial decisions it has made based on its perception of high pharmaceutical R&D cost. High R&D costs ultimately influence the debate on how to reduce the global health burden and the discounts that companies can reasonably provide for poor, sick populations.
PhRMA’s exaggeration of R&D costs is used to claim legislative protection and detachment from global health issues. This strategy has been wildly effective and has resulted in billions in sales and profits for the industry. Better public information about true R&D costs and the elimination of disproportionate legislative benefits would help stimulate real innovation in the pharmaceutical industry and lay the groundwork for addressing global public health burdens.