It’s a common refrain whenever drug makers are asked about the astronomical costs of some of their pills: the price of drugs reflects the billions of dollars of research and development that go into them. We hear the same refrain when drug makers get sued for selling dangerous and defective drugs: the drug makers complain that they should be entitled to some sort of immunity after spending billions of dollars developing the drug and getting FDA approval before bringing it to market.
However, as Timothy Noah revealed in an article in Slate this week, pharmaceutical companies spend nowhere near one billion dollars in bringing the typical drug to market. Big Pharma actually spends $55 million on R&D for the typical drug, according to a new study published by the London School of Economics.
So where did the $1 billion figure come from then?
Answer: It’s pharmaceutical-sponsored propaganda.
The $1 billion figure originally appeared in a 2003 study (that we’ll call the “Tufts study”) that was published in the Journal of Health Economics. The article’s lead researcher is from Tufts University and the article’s research was sponsored by the (drug company-funded) Tufts Center for the Study of Drug Development.
There are a number of methodological problems with the Tufts study. First of all, it was based off proprietary numbers that the drug companies supplied to study’s authors, that the researchers have not shared with others and that they themselves apparently made no effort to verify.
Another error with the study, a glaring one, is that the Tufts study considers basic “pure science” R&D that is funded by the government as a cost of drug development, even though it is not borne by any of the pharma companies and is, in fact, one hundred percent taxpayer-funded.
The Tufts study also ignores all of the tax breaks that pharma companies receive for R&D. When you factor in those tax breaks, the cost of R&D is reduced by thirty-nine percent.
Lastly, the Tufts study’s estimates of the costs of clinical trials and the amount of time that it takes to obtain FDA approval are flatly at odds with publicly-available government data. The Tufts study’s estimates of the costs of clinical trials are six times higher than data that’s available from the National Institutes of Health (NIH). The Tufts study’s estimate of the time it takes for a drug to get FDA approval – 7.5 years – is about twice what other data reveals. That’s no mean difference when a patent monopoly has a lifespan of twenty years.
Several months ago, there was a big controversy in the blogosphere about whether economists should adopt a code of professional ethics (they currently have none and many conflicts of interest in economics research go undisclosed). Matthew Yglesias had a great post on the top entitled, “Economists and Incentives.” The Tufts study, and the oft-repeated $1 billion pricetag for pharmaceutical R&D, suggests that it may be high time for such a code.
This blog in maintained by the Boston product liability lawyers at The Law Office of Alan H. Crede, P.C. It does not offer legal advice, nor should you construe it as offering legal advice on a product liability claim that you should have.