Drug Company Myths

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An interesting blog from The Incidental Economist.


""There’s a piece in BMJ this week that’s likely causing some heartburn in the pharmaceutical industry. There’s very little in there that should make pharma happy. First the article questions the “innovation myth” perpetuated by many, even though companies like Pfizer have denied it. Then it starts to get good. I talks about the real innovation crisis being a lack of actually novel drugs being developed (discussed on TIE here). It dismantles the research and development cost claims of the industry (discussed on TIE here and here). It discusses how the low hurdles for approval are resulting in insubstantial improvements (discussed on TIE here). It discusses how much is spent on promotion, and seen in revenue, compared to research and development (emphasis mine):

Complementing the stream of articles about the innovation crisis are those about the costs of research and development being “unsustainable” for the small number of new drugs approved. Both claims serve to justify greater government support and protections from generic competition, such as longer data exclusivity and more taxpayer subsidies. However, although reported research and development costs rose substantially between 1995 and 2010, by $34.2bn, revenues increased six times faster, by $200.4bn. Companies exaggerate costs of development by focusing on their self reported increase in costs and by not mentioning this extraordinary revenue return. Net profits after taxes consistently remain substantially higher than profits for all other Fortune 500 companies.

This hidden business model for pharmaceutical research, sales, and profits has long depended less on the breakthrough research that executives emphasise than on rational actors exploiting ever broader and longer patents and other government protections against normal free market competition. Companies are delighted when research breakthroughs occur, but they do not depend on them, declarations to the contrary notwithstanding. The 1.3% of revenues devoted to discovering new molecules compares with the 25% that an independent analysis estimates is spent on promotion, and gives a ratio of basic research to marketing of 1:19.""

Jun. 29, 2012 10:24 am

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