Bring transparency to drug pricing
Problems in the pharma sector must be tackled right at the source. Pharma multinational corporations must instill confidence about the veracity of their cost figures — whether low or high
According to a recent study published in the Journal of the American Medical Association (JAMA), it costs a company just $648 million on an average in research and development to bring a cancer drug to the market — a small fraction of the $2.7 billion, the pharmaceutical industry claims, is the average cost of drug discovery.
The report further shows that within about four years of approval (no drug is allowed to be marketed without taking prior registration from national regulator under relevant jurisdiction), revenue from sale of the drugs studied was, on an average, nine-fold higher than research and development spending. Even accounting for what the money would have earned if invested in the market, the returns are seven times the costs.
The study/paper is authored by Vinay Prasad of the Knight Cancer Institute, Oregon Health and Science University in Portland and Sham Mailankody of the Memorial Sloan Kettering Cancer Center in New York. The conclusions are based on an analysis of the filings of research and development expenditure by 10 publicly traded pharmaceutical companies with the US Securities and Exchange Commission (SEC).
The findings of the above study are also confirmed by a civil society group, Public Citizen, which estimates the cost to develop a new drug to be about $320 million. It used publicly available research and development filings for all major pharmaceutical firms during a seven-year period with SEC.
To arrive at the cost for a new drug, it divided the total expenditure across all companies by the number of new drugs approved for them in the subsequent seven years.
The authors of the latest study argued that this did not reflect the actual spending to bring these drugs to market. Hence, they focused on companies that had brought a single drug to the market. Their
analysis included the cost of pursuing a portfolio of candidate compounds to yield one drug, thereby accounting for the cost of failed attempts. The total cost for 10 drugs studied was $7.2 billion — or $720 million per drug.
As against this, total revenue of these 10 drugs from the time of approval of a drug to December 2016 (or until the compound was sold or licensed to another company), was $67.0 billion. This shows an almost 10-fold higher revenue than spending on research and development. Given market exclusivity (ensured by patent) in oncologic drugs averaging 14.3 years, these revenues would continue to increase over time.
On the other hand, an industry-funded Tufts Center for the Study of Drug Development (TCSDD) estimates cost of developing a new drug to be $ 2.7 billion. However, this study used private data provided by 10 pharmaceutical firms (not in public domain).
The above findings of independent researchers and civil society group have profound implications for the way we look at protection of intellectual property rights (IPRs) as embedded in patents and pricing policies followed by research and development based pharmaceutical companies — primarily multinational corporations (MNCs) operating from the US and the European Union countries.
The patent granted to a company in respect of a new drug gives a period of ‘market exclusivity’, during which no other company can manufacture and sell the said drug unless it has prior consent of the patent holder (read: Innovator company). The period of patent is kept long enough to enable innovator company recuperate the investment made in its discovery, development and commercialisation.
The grant of patent and its term in various national jurisdictions are based on World Trade Organisation agreement on trade related intellectual property rights (TRIP), 1995, wherein the relevant provision (20 years for innovations in the field of medicine from the date of filing) was based on an assessment that companies spend billions of dollars in bringing a new drug to the market. Now, if it turns out that actual investment is a fraction of this viz $ 320 million-$720 million, then the whole scenario will change.
Imagine the implications if the cost incurred is only $320 million and the innovator company fixes the price the drug on the basis of highly inflated cost $2.7 billion (estimate by TCSDD), it will result in exorbitant price, putting it beyond the reach of the patients. This is totally untenable and unacceptable. While, investment in research and development must be protected, a company cannot be allowed to do profiteering at the expense of hapless patients.
The TRIPs agreement allows flexibilities to developing countries to relax provisions in their laws relating to protection of IPRs with a view to make drugs affordable to patients — millions of them being poor. For instance, under India’s Patent (Amendment) Act, 2005, the Government can grant compulsory license for a patented drug under certain circumstances — one of these being the inability of patent holder to make it available at affordable price.
If an innovator company charges exorbitant price based on inflated cost, then Governments in developing countries will be prone to using compulsory license more often than not in a bid to protect their patients. They could even take recourse to putting price cap on patented drugs. This could result in the pendulum swinging to the other extreme whereby patent protection de facto becomes meaningless.
These are retrograde steps and will give a jolt to bringing new drugs to meet growing and diverse needs of patients, particularly in developing countries. It could push the world several decades back when IPRs were not respected. Such a scenario must be avoided.
The problem needs to be tackled right at the source. The trigger being inflated cost leading to skyrocketing prices, pharmaceutical companies should bring about ‘transparency’ in their operations. They need to consider opening their research and development expense to public scrutiny. The consumers/patients have every right to know whether the price has been determined in a ‘just’ and ‘fair’ manner, all the more so when it is a new drug coming with a higher price tag.
The bottom line is that companies should be able to instill confidence about the veracity of their cost figures — whether low or high. Sans this, member countries of World Trade Organisation will look for avenues to flout IPRs commitments leading to chaos. Hope, pharma multinational corporations are listening!
(The writer has a PhD in economics from JNU, Delhi)
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