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What’s Wrong with Drug R & D?

by Gloria Tavera


At some point, almost all of us are going to prescribe a medication or device. And while the current debates in the US are more about who is going to pay for those expenses, they will continue to evolve into questions about why the prices are so high. In the global setting, the majority of humanity can’t afford most modern treatment. But increasingly, US patients can’t either. To be effective doctors, we will all have to start thinking more about cost. The cost of treatment is increasingly impacting access to treatment, which is increasingly becoming an ethical issue in medicine.


But again, what justifies the cost? There are many reasons why the cost of healthcare is high, well outlined in Stephen Brill’s landmark article in Time. Here, I will discuss only one, highly relevant reason why the cost of medications and devices is high and summarize some current thinking on what we can do about it.


Simply put, the cost of drug and device research and development (R&D) is what supposedly justifies high prices. This is the boilerplate answer that pharmaceutical companies give to criticisms of increasingly high prices. Let’s grapple with that argument for a second and then discuss how we can move on.


First of all, is this true?

How high are the costs of drug and device R&D?

Can we see the numbers?


The bottom line is that we don’t really have access to these numbers and we should. Based on the data that several vigilant researchers have been able to obtain, the cost of R&D turns out to vary wildly between types of technology, and is often highly subsidized by the public. The pharmaceutical industry has claimed that the average cost of R&D for a single drug is $1.3 billion USD. However, this estimate does not include the substantial contributions of taxpayers through R&D related tax write-offs. Taxpayers indirectly pay for about 39% of total pharmaceutical R&D. The most detailed, independent report to date claims the average pharma R&D cost per drug is between $59.4 million and $403 million USD.


Moving past the numbers debate, at the end of the day, the pharmaceutical industry currently operates like any other business, and will charge the maximum price that the market can bear. The primary responsibility of a pharmaceutical company is not to patients, but to its shareholders. This is a completely acceptable strategy when the product is an elastic good, on which your life does not depend. It is no longer acceptable when it is a drug or device that will save your life. This is the current state of medicine, which directly contradicts access to treatment and care as a human right, an ideal that we ascribed to in our oath as incoming medical students.


We can do better. The current system for drug and device development has been around since 1790, with the granting of the first patent.  Many aspects have since been modified, but the basic principle is the same. Currently, virtually all medicines and diagnostics are created and patented for a period of time. Patents create long periods of monopoly, allowing companies to charge the maximum price, without competition to drive the price down. Patients and providers have two options: either pay the market price or wait until the maximum profits have been squeezed out of a drug and its patent expires, which in many cases means death.


Another troubling aspect of the current system that I’ll only mention here, is that some drugs don’t get developed at all because some diseases occur primarily in populations who cannot pay for a treatment (think: no new treatment for Chagas disease has been developed in over 50 years). Or, creation of a new drug just simply isn’t profitable, based on how patients must take the drug (think: no new antibiotics for gram negative bacteria have been developed since the 1970’s and R&D for antibiotics has recently languished generally).


Given these alarming facts, you’d expect the US government to do something about this. Three years ago, the National Institutes of Health founded the National Center for Advancing Translational Sciences (NCATS). This institute is primarily tasked with using public funds to accelerate the development of new drugs, to bring to market. When asked whether the use of public funds to develop drugs would lower the cost of drugs resulting from NCATS collaboration, NIH Director Francis Collins flatly said, “no”. This reflects how far we have to go in terms of providing full taxpayer access to the results of publicly funded research.


Dr. Collins is no doubt aware of the soaring prices of pharmaceuticals, perhaps the most egregious examples being cancer drugs, including Provenge and Avastin, which can cost from $50K to $100K a year, or the medication for multiple sclerosis, Lemtrade, which can cost up to $200K a year. Again, the majority of these drugs have resulted from some development of university research, largely funded by NIH grant dollars (public funds). The 1980 Bayh Dole act allowed universities to sell innovation resulting from public funds to private companies. The idea was that this would allow universities to make money off of their research, which would provide them with significant income. In the vast majority of cases, the sale of university innovation has been minimal and the institution of Bayh Dole has contributed to increased biomedical costs and decreased public access to the results of university innovation. Students at universities are starting to make some noise about this issue.


Without high prices, pharmaceutical companies tout the unfounded conclusion that there would be less innovation. This is a broken system where we need to find a new way of paying for research that does not force a choice between developing a drug and making it widely available.


Alternative models of R&D funding exist,

but have yet to be widely explored.


Prize funds are one example, where new discoveries are rewarded with significant financial payouts, on the condition that the drug is immediately open to price lowering market competition. In May 2014, the World Health Organization’s World Health Assembly agreed to the creation of another type of mechanism that would de-link the cost of a drug from the cost of its innovation, via the creation of an international funding pool for drug and device research. While discussion and initial implementation of these alternative models progresses, questions remain as to how these models will be reliably funded and how they will be administered.


We can make drug and device R&D and access much better for our patients! This is going to require drastic changes to the current model of pharmaceutical R&D and the changes will undoubtedly be slow, complicated and difficult. But with increased health-care provider awareness, we can use our influence to pressure local, state and national leaders to put our patients before profits. 


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