everywhere you turn I'll be making you wet.. –Ludacris, Shake your money maker
In the constant rain of braindeath that falls upon our ill republic, I have to ask whether it really pays to fight it. I fought the war and the war won... indeed.
But I did promise, in my last post about the way the vicious, McArdalizing press was negligently or maliciously injecting the grossest impostures into the discourse on healthcare, and then acting all innocent and shit. Which leads me to the wonderful world of BigPharma statistics.
Now, you might think this is about the most boring topic under the sun. It isn’t. It is actually quite funny.
Our hero, in this post, is a University of New Jersey and Princeton professor in sociology named Donald Light. Donald Light must go to bed every night chuckling to himself -- unless he is terminally depressed. For, over the years, he’s collected a number of BigPharma scalps, at least on paper. He likes to ride out and look at the propaganda that is reliably cranked out by stooges for Merck, Pfizer, GlaxoSmithKline, et al. The stooges go to institutions that bear impeccable names, like the Tufts “Center for the Study of Drug Development”.
It was a prof at Tufts named Joe Dimasi, and his partners, Henry Grabowski at Duke and Ronald Hansen at Rochester, that he bounced around in a review of the 2006 CBO report on R & D costs in the drug industry that was published in Journal of Health Politics, Policy and Law. Here’s the opening shot:
“The CBO study almost exclusively uses the study by DiMasi, Hansen, and Grabowski (2003), three of the industry’s favorite leading health economists, who “put the average cost of developing an innovative new drug at more than $800 million, including expenditures on failed projects and the value of forgone alternative investments”
It is important not to let your eyes glaze over at the kind of newspeak that goes into “value of forgone alternative investments” – because what this means is that, even if 800 million dollars was put into the “development” of x drug, this 800 million dollars wasn’t a physical entity, like the 8 dollars you use to buy a sixpack of Sam Adams Dark. No, the concrete money that was spent, you see, could have been spent elsewhere – for instance, buying securitized mortgages. Thus, you have to account for that too. F. Scott Fitzgerald once said that the rich aren’t like you and me, by which he meant that when the rich spend money, they get to count it twice! It is a cool thing, and you’d have to be a stupid peasant to bitch about it.
But what about that 800 million dollars? And what does average mean? Anytime you see average being thrown about with a big figure, it is best to be on guard. What is probably happening is an outlier is raising the spread, and the person doing the broadcasting is trying to blow smoke up you asshole, as my grandmother used to say.
So Light looks into the methods of Ms Dimasi, Hansen and Grabowski (names to remember next time you have to buy an overpriced medication – they fed, oh just a tiny bit, on your blood). And what does he find?
“The $800 million estimate was based only on new molecular entities (NMEs) developed entirely within the companies selected from those that submitted confidential information to the Center for the Study of Drug Development at Tufts University. Thus the $800 million estimate applied to this, the most costly subgroup of NMEs, and then was widely misrepresented as the average cost for all
new drugs. The CBO does not correct this error. It does note that only one-third of all new drug approvals are new NMEs and reports that “most new drug products have much lower R&D costs than NMEs because they are incremental improvements on existing drugs. . . . Their average direct
cost may be only about one-fourth that of an NME. Their opportunity costs are also lower due to the extent that they take less time to develop” (2). That estimate sounds about right to me, but the CBO continues to feature only the $800 million figure as the grand average. Since the $800 million figure was announced, DiMasi, Hansen, and Grabowski (2005) have written that they are working on estimates of the R&D costs for me-too derivative products that will add all the R&D costs of the original drug to the development costs of a new variation.”
Comedy is timing. Dimasi, Hansen and Grabowski replied to Hansen, and this is what they had to say about “working on estimates of the R&D costs for me-too derivative products that will add all the R&D costs of the original drug to the development costs of a new variation.”:
“These approvals [for NMEs – remember, these are the ONLY innovations in the drug pipeline], for the most part, are line extensions. Firms in this and in many other industries fill out their product lines for a basic product to better serve varied consumer needs and desires (e.g., oral solutions for children or adults who have difficulty swallowing tablets or capsules, more convenient dosing regimens, or different side-effect or efficacy profiles). In the case of drugs and the FDA statistics on NDA approvals, many of the approvals, in fact, are obtained long after the drugs have lost patent expiration by firms other than the sponsor of the original NME (often by small, specialty pharmaceutical firms or generic drug companies). Even leaving aside this substantive point about the makeup of the approval statistics, it is not appropriate to treat the incremental costs of later regulatory approvals associated with an active ingredient as though they were independent of the costs of obtaining the original approval. This would make no more sense than it would to take all of the R&D costsassociated with developing a new automobile model and dividing that by the number of trim lines of that model that the manufacturer happens tooffer for sale and then use that as a measure of the R&D cost of developing a new automobile model.”
Cutting through the obfuscation, DHG cop to the charge and actually defend it on the butter doesn’t melt in my mouth excuse that this is all (sob) for the consumer. To be clear – when the patent is expiring on an NME, drug companies will often tweak it so that they can apply for a new patent, thus extending its monopoly life. And these tweaks, according to DHG, should be costed out by adding the original cost of the NME plus the development of the tweaks. This is accounting for rich people, and its fun and rewarding!
In a recent article by Curtis Verschoor, another often quoted expert on BigPharma R and D, he compared New Drug Applications with NMEs and found that many of the NDAs – they love acronyms in this biz – turn out to be tweaks:
“Examples of NDAs that don’t involve innovation include a new formulation of a previously approved drug, a new salt of a previously approved drug, a new combination of two or more existing drugs, and a new manufacturer.Many times, pharmaceutical manufacturers put up with the high costs of testing and guiding these “new” drugs through the FDA regulatory bureaucracy in order to reap the benefit of extended
patent coverage.With a new patent, a maker can charge the highly inflated prices for which the U.S. market is legendary. Some of the more blatant and callous examples of these consumer gouging business practices include AstraZeneca’s (AZ) re-branding of Prilosec, the heartburn medication, as Nexium. This occurred just as Prilosec was about to become generic. AZ used an expensive marketing campaign to hail the “new” drug (now it’s purple!) as almost being a medical breakthrough—despite the lack of medical evidence to back up such a claim. Such strategy appears to be within the ethical boundaries of this company. Eli Lilly, after losing its Prozac patent, introduced an exact copy with a new color and called it Sarafem.”
But as Dimais, Hansen and Grabowski might well point out, the new color was much more soothing – it was aimed solely at the consumer. Thus, one has to add the cost of developing Prozac to the cost of developing Sarafem to get a fair price.
Or as Ludicras says:
“You know I got it
If you want it, come get it
Stand next to this money
Like - ey ey ey
Shake your money maker
Like somebody boutta pay you
Don't worry about them haters
Keep your nose up in the air.”
But what does it mean to develop a drug? For instance, would you include the costs of testing it on human subjects? Of course you would. And would you ask what is the industry norm for testing on subjects? Well, why do that when you can trust your buddies in the industry. Alas, I have to quote Light at length here – forgive me. Like a shaggy dog joke, this gets funnier as it goes along.
“Even if the median R&D cost per new drug had been stated as $300 million rather than $800 million, the CBO or any rigorous reviewer would have further reason to doubt its validity. At the same time that the study appeared, James Love (2003) issued, on the widely read Consumer Project on Technology (CPtech) Web site, evidence that the average sizes of phase 1, 2, and 3 trials in the study by DiMasi, Hansen, and Grabowski (2003) were substantially higher than those of other sources. DiMasi, Hansen, and Grabowski reported an overall average of 5,303 subjects used in trials
per approved NME, while the Food and Drug Administration (FDA) reported an average of only 2,667 subjects over a much larger sample of approved NMEs (Love 2003). Michael Palmedo, then a staff member of CPtech, updated the FDA study and found the same average number of subjects for NMEs under standard review for drugs with no distinct advantage over existing drugs, but trials for priority drugs used an average of only 1,461 subjects (ibid.: 18). This is close to the average in a study
of R&D costs (Global Alliance for TB Drug Development 2001; also not cited or reviewed by the CBO) of 1,368 subjects that was much more detailed than that of DiMasi, Hansen, and Grabowski (2003). Thus the $800 million average R&D cost per self-originated NME (or $300 million
median cost per newly approved drug) is based on trials with sample sizes two to four times greater than those of other official and reliable sources.
Once again, the range and variation is large, from about one thousand to seventeen thousand subjects, according to the FDA study (Love 2003); so once again using the average represents a strong upward bias, which the CBO does not discuss. The median number of subjects is about one quarter
lower, or two thousand subjects, which puts the average calculated by DiMasi, Hansen, and Grabowski (2003) still further out of line with FDA and National Institutes of Health (NIH) figures (as reported in Love 2003: 10 – 11) and makes the secret data submitted by drug companies still
more suspect. The largest trials are often for NMEs that provide the least additional benefit so that they require large and long trials to make small differences statistically significant. Does this mean the unnamed drugs in the nonrandom sample used by DiMasi, Hansen, and Grabowski (2003) had disproportionately large trials because more of them offered small therapeutic gains? No one can know, because the identity of the drugs is confidential, too.”
Thus, the industry bs is sliced and diced. But a further question remains for the mocking blogger: watching the wretched inhabitants of the hinterlands get in such a sweat about the fat that they are ruled by a black man, and watching the extension of the Bush rule by lobotomy extend itself pleasingly in the media, and everywhere a millionaire newscaster broadcasts a… a…. populist message, is it a bad thing that America is being rooked to the gills, debilitated, its population the cretinous goof in some nightmare practical joke of Capitalists Gone Wild?
Well, the corvine pull of my blood says yes! Oh, let them suffer more and more! But the better angels whose blood is intermixed with mine gently reproves that raven croaking nevermore. It is easy to love the lovely, but the true test of love is to love the patsy who is blindly set on his or her own victimization.