ICYMI: Drug Development is Complicated. Let’s Start with the Facts.

ICYMI: Drug Development is Complicated. Let’s Start with the Facts.

Here’s a fact you might not have known: 90% of drug development programs fail. Yet a recent paper published by JAMA Internal Medicine attempts to tell a different story – one that neglects to consider the years of hard work and billions spent on R&D driving biopharmaceutical innovation.

In a thoughtful Wall Street Journal opinion this week, Peter Pitts of the Center for Medicine in the Public Interest shed light on the flawed study.

“The authors admit that the selection criteria are a “critical limitation.” No kidding: They only looked at 15% of all cancer drugs approved from 2006 to 2015, ignoring the other 85% of cancer therapies introduced that decade. This helped them “prove” their hypothesis.

“The analysis also overlooks hundreds of millions of dollars of research spending at companies that never develop an FDA-approved medicine. Nine of every 10 publicly traded drug companies lost money in 2014, according to a 2016 International Trade Administration report. Most therapies don’t make it out of the lab and into clinical trials.”

Let’s take a closer look at the JAMA findings and consider a few key points that don’t quite add up…

For starters, the paper examines revenue, not profit — far from the same thing. As we’ve stated before, looking only at revenue side-steps all the costs involved to manufacture, sell, complete ongoing R&D (including post-approval, phase IV studies), and pay taxes.

Next, Medivation and Pharmacyclics were both acquired by Pfizer and AbbVie for $14B and $21B respectively. JAMA researchers used these acquisition price tags as revenue – though of course, acquisition costs include the net present profit of all future projected revenue, plus the substantial physical asset investments in facilities, scientific talent, forthcoming profit for other drugs in the pipeline, and the many other factors that go into the valuation of a company. Counting the entire acquisition cost of a company as revenue in the books – as the JAMA authors do – is lacking credibility and highly misleading.

And let’s not forget about the dozens of small companies that working tirelessly to obtain FDA approval that often never comes. The billions they spend collectively on R&D provides valuable input to the development programs of other companies that eventually do, in fact, make it.

Finally, the JAMA paper examines only 10 cancer drugs – just 15 percent of the total number of cancer drugs approved during the study window. As we consider the vast number for treatments and cures being developed across the industry, this is barely scratches the surface.

As we’ve mentioned before, 90% of biopharmaceutical companies are unprofitable and the industry as a whole ranks 36th in return on equity (ROE).

“It is an undeniable fact that developing a new drug is expensive and getting more so. Companies that develop successful drugs are rewarded, and then plow their profits into more R&D in the hopes of developing future successful drugs,” the Cost-Of-Health-Care News noted in a recent blog post.

“The three largest U.S. pharmaceutical companies by revenues last year produced average returns on total capital of 15% and returns on share equity of 20%. Those returns are good but hardly out of line with other well-run companies, such as Microsoft, with capital returns of 20% and equity returns of 31%, or Procter & Gamble, with returns of 15% and 19%, respectively.”

The message from Jim Greenwood, BIO President and CEO in a recent blog post is clear, unlike the troubling JAMA paper that only tells a short chapter in a long story…

“The conclusion one must draw is that the paper’s authors are merely seeking to grind an ideological axe, rather than providing a fair and objective look at the barriers facing innovative companies seeking to develop new cures and treatments for cancer patients.”

For more, read the full Wall Street Journal op-ed here.

Filed under: Health, , , , , ,