This article is a reprint of a summary of a press release based on a study, with no link to the actual study. Recent experience has lead me to be very mistrusting of things like that, so I poked around. I didn't find the actual study, but I did find some slides (http://csdd.tufts.edu/files/uploads/Tufts_CSDD_briefing_on_R...) about it.
$1.2B of this reported cost is "opportunity cost", based on the fact that you could have taken the money you would've used for drug development and invested it elsewhere... at a 10.5% real rate of return. Which is a rather questionable assumption.
Practice epistemic self defense: go to the primary sources!
That's well known. But if you have >$1B you don't simply put them into an S&P tracking index fund in the same way that if I had $1K I would not even be permitted to buy into some of the better performing index/mutual funds but if I had $25K I could.
There is a lot of evidence that nothing consistently beats S&P 500 index funds after accounting for risks. However, if you have >$1B there are a lot of snake-oil salesman out there.
Note: Saying Fund X beat the average is meaningless you have to actually investigate their risk profile which takes a lot of effort.
The endowments of the elite private universities beg to differ. Harvard's has earned an average annual return of 12.9% over the past 20 years, and there are many others with similar growth (although not similar size).
Harvard like many such institutions use leverage (loans totaled 5.9 Billion) which is generally safe at low levels but not actually risk free. Like most methods of producing steady returns above market rates they trade a small risk of catastrophic loss vs steady above market rates. http://harvardmagazine.com/2009/07/liquidity-leverage
For starters if you think $1000 is an appropriate amount to invest you need to either spend less on junk or continue spending your money on self improvement (Assuming money is a life goal).
Brokerage fees are often per transaction so bigger, long term investments means less % costs = more % profit.
Of course if you’re testing the waters $1000 is fully appropriate, hobbies cost money so if it’s fun, fair enough.
But skipping brokerage fees, S&P 500 is considered probably the best and the same for all.
If there was a magical return much greater than S&P 500 that only billions could get then someone would just collate a billion from various sources and take a small cut.
Costs are in paper work and handling fees which shouldn’t be different whether it’s $10,000 or $1,000,000.
It’ll be a bigger % for small amounts, but as long as you invest reasonably big chunks and not keep moving it around it’s negligible difference.
Yeah, but an assumed 10% rate of return with no risk is still ridiculous.
How come the government can sell t-bills at sub 1% interest? They wouldn't be able to sell a dime of debt if those numbers were anywhere near reasonable.
If they're buying treasuries, or other financial assets, it's a mattress. There's an easy way to tell, are you still holding a financial asset after your 'investment', then you haven't really invested by the Wikipedia definition (http://en.wikipedia.org/wiki/Gross_private_domestic_investme...).
In some situations, financial investments can enable real investment by second parties (buying into an IPO for example), but the usual example of bank lending is not one of those cases.
Interesting, in the comments is a link to this Doctors Without Borders response, arguing that this figure is grossly overstated. They claim a number closer to $186M (taking into account cost of failures) http://www.doctorswithoutborders.org/article/rd-cost-estimat...
I don't know anything about this area, but would love to know whose figure is closer to right on this.
Oh, so it's only less than $1b if your drugs never fail in clinical trials. Well gee, it's a good thing everyone in the drug industry knows how to have a 100% approval rate!
I stopped there. It's pretty clear what level of thinking and intellectual honesty went into that rebuttal.
The roadmap that MAPS has produced for getting FDA approval for MDMA shows that it will cost about 20M in total. I think the salary they're paying their own staff is probably unrealistically low for a for-profit, and they also had some of the pre-clinical work done for them. But at the same time they've incurred enormous costs due to the fact that MDMA is schedule I, so all in all this probably isn't a bad estimate for the actual cost of getting a new drug approved.
>In 2012, the pharmaceutical industry spent more than $27 billion on drug promotion— more than $24 billion on marketing to physicians and over $3 billion on advertising to consumers (mainly through television commercials). This approach is designed to promote drug companies' products by influencing doctors' prescribing practices.
> drug companies are only allowed to promote to FDA approved indications.
Ever heard of Forteo? It's an osteoporosis drug and not one you want to find out you need. It's got some nasty side effects (like cancer) and is a pain to take (it's a daily injection.) Drug reps push it hard because it works in a novel fashion actually causing bone regrowth rather than slowing bone loss. That said the very very specific circumstances of who should be on it are almost never mentioned (in in person discussions, the FDA mandates the website mentions everything). It is talked about as a treatment for osteoporosis generally. It's talked about as a treatment to prevent fracture. Both of those are technically true, but the slope here is so slippery that the concept of 'approved indications' is like an open window to a fly. There's a lot of room to maneuver.
People are susceptible to advertising. Doctors are people. And when an attractive 26 year old in a tight skirt walks into your office to talk about writing just a few more prescriptions a month of something you already do, well that's going to have an impact.
The distinguishing factor here though is that the consumer is left out of the loop, the person who has to suffer the side effects is not part of the marketplace. This is not your standard free market exercise where caveat-emptor is an appropriate response. This is behind the scenes manipulation of people who are often trusted blindly by their patients.
I pay good money to have access to people with the experience and expertise to diagnose and treat my ailments. However if I find out that they are being asked to be invulnerable to cognitive errors like the recency fallacy then I'm screwed. It's unreasonable to ask people to be immune to manipulation and so the only reasonable course is to limit manipulation as much as possible.
Great drugs don't sell themselves only because the game as in game theory is set this way. If the incentives/punishment structure setup would be different, drug marketing in the US could be much more beneficial for the end user.
Exactly; not sure where I found it, so completely unreliable, but I once read that pharma companies advertising costs were something like 85+% of budget for a drug.
My wife works for a small pharmaceutical company and of there roughly 900 employees, about 550 are sales force. This is a profitable company that is currently valued at about $8B and does about $700m/yr revenue, but which doesn't do any consumer advertising whatsoever.
So what do we do here? We're not just underfunding basic biology research, it's rolling down hill and affecting the efficacy of our products oriented pharma R&D investments.
Best proposal I've heard to pull out of this trend? Computational biology: simulate different tissue types and organ systems (their dynamics, metabolic pathways, flow of matter/energy/information) and expose the simulated tissues to potential drugs in high-throughput simulations. Test exponentially more compounds and prune obvious failure from the chemical structure tree early and often. What you're left with is a restricted set of compounds to try synthesizing and taking to trial.
They've been doing that (and other comp bio techniques) for decades so it's already factored into the price. It's also a lot harder and less reliable than it sounds, unfortunately.
Costs are so high as these become more challenging, seems like Socialization with subsidy of incentive-based private funding (bonds, VCs) would be a better model.
This is a huge problem (even if this number is grossly inflated) - imagine the quantity of drugs that could exist if something like this could be bootstrapped.
I realize clinical trials are really important, because accidentally killing lots of people isn't particularly desirable, but is there a way we could lower this cost? What would need to happen?
> imagine the quantity of drugs that could exist if something like this could be bootstrapped.
That's an incredibly optimistic assumption. My mind instead immediately goes to imaging the kind of horrors people would go through if it were easier to put drugs onto the market than it already is.
We already live through people dying or developing lifelong disabilities due to medication going onto market with side effects that were not properly understood. If the barrier was lower this problem would only be worse.
And this is exactly the problem. People see the horrors of bad drugs. No one sees or cares about the people who die and suffer from drugs that weren't developed.
Clinical trials are essential not just for safety, but to show efficacy. Most drugs fail in expensive clinical trials due to lack of efficacy. The reason the number is so large is because Pharma companies have to pay for all the drugs that failed, just to get one successful one through. I work in biotech and there are TONS of very smart people trying to make this more-efficient. It's a very hard problem -- making drugs is not easy.
It's all about delays due to lack of enrollment in clinical trials. A 2013 study from the same Tufts thinktank as the recent cost report says that 37% of clinical trial sites under-enroll patients and 10% don't get a single patient! Here is a market ripe for disruption: some startup needs to build the uber of clinical trial enrollment. [1]http://csdd.tufts.edu/files/uploads/02_-_jan_15,_2013_-_recr...
I helped launch a product 2 weeks ago aiming to tackle this problem. We've seen some positive results while we are testing the concept with a small number of trials.
http://cureclick.com/
3D human tissue culture is the most promising area for lowering this cost.
Unfortunately for many diseases, there are not good animal models. 3D human tissue culture allows for much better laboratory testing of efficacy and side effects. This would allow for better drugs going into clinical trials and better design of clinical trials to show a particular drug's effects.
Is it a problem of "research is too expensive", or is it a problem of "we're reaching the limits of the [have symptoms / prescribe safe affordable oral drug] model of treatment and from here out it's a long tail of more expensive less effective drugs?
Those tokens are just proxies for the energy and material resources we consume. One can easily imagine power becoming too cheap to meter within a few decade, but if you want a steak someone still has to raise and feed the cow it comes from, if you want a house someone has to grow the wood or mine the metal used to build the frame, etc. etc. Money arises out the fact that resources are scarce and not always conveniently fungible.
Why couldn't independent labs certify and insure products, a la Underwriters Laboratories?
We could have drugs vetted by these respected medical organizations and be labeled as such, think 'mayo clinic certified', 'johns hopkins certified', etc.
This model sounds a lot like the Moody's/S&P ratings-agency game. The failure of the ratings system is one of the critical components identified as causing the 2008 financial crisis.
I strongly dislike the mis-alignment of incentives, where the ratings / approval group is paid by the company seeking approval. It has proven disastrous in high-money systems, and I wouldn't trust it for pharma, which has shown similar ethical outlooks as finance (that is to say, little matters except profits).
The financial ratings agencies have government monopolies essentially, they have special status (NSRSO's). Not easy to compete with government monopolies. If more agencies could be ratings agencies maybe some would have thrown the bullshit flag in time to prevent what happen.
Not to beat a dead horse, but if you remember the mortgage crisis was due the government incentivizing subprime lending and having fed rate too low for too long; creating a bubble in housing. The ratings agencies themselves were accomplices, but not the sole problem by any stretch.
How would competition prevent ratings agencies from poorly aligned incentives? The "fitness function" of how good an agency is will be determined by the customer, who only wants to receive the highest ratings.
AFAIK, to rate a company/tranch/etc., the ratings agencies need access to internal company information. There's no room for an outsider ratings group to call bullshit -- people are only going to listen to the agency given internal info, the one hired by the company getting the rating.
More competition wouldn't make the outside groups any more relevant, and without revenue, they would likely quickly dry up.
Yes but an even larger problem was commoditizing mortgage bundles to such an extent that even an honest rating company would not be able to figure the risk.
Agreed, they should throw it out, but they're also throwing out a paycheck.
FWIW, I was just parroting Nate Silver's section on the financial crisis. He identifies the ratings agencies as one of the several groups responsible for the downfall. In S&N, Silver discusses how the ratings agencies gave their ratings software to the banks, so the banks could "dry-run" their tranches to get the best ratings available.
They were more than just complicit -- they actively enabled the financial groups to game the ratings.
Why would private regulators be more efficient? Regulation will always seem inefficient no matter the nature of the regulating agency because it has different goals (ensuring safety and efficacy) vs making a profit for shareholders.
Public regulators are always preferable, when a market needs to be regulated as you admit, because the public, through the press and their elected representatives, can hold them accountable for their actions. If someone from the Mayo Clinic is receiving improper benefits from pharmaceutical companies how does the public find that out? There are no laws that would force disclosure of those relationships.
In the case of public regulators like the FDA, Congress can force its leaders to testify and the press has tools like FOIA to get at private documents. They're not perfect and can still lead to corruption and regulatory capture, but are preferable to private organizations with no public accountability regulating the pharmaceutical industry.
Atleast in the marketplace, if you mess up - you go broke (or you should, don't even get me started on the idiocy of 'too big too fail'). There's some incentives to hustle, but also to not ruin your firm in the long-run.
At the FDA you know you are on an Imperial Star Destroyer, and that whatever happens - worse case scenario it takes like 5 years to fire you.
Declaring that "government is the problem, just privatize it" without bothing to think through or research anything about the actual issue is the political equivalent of "just use node.js and mongodb, it's web scale".
> LaMattina counters that pricing should be based not on R&D costs but on the value a drug delivers to patients.
I love this line. We should do it for oxygen. Your bill is pretty high because oxygen delivers a lot of value.
Pricing should be based on cost of provision. Because if it is higher in a market economy someone else can enter the market and provide at a lower cost.
The economics of drugs are different. The probability of two different labs inventing the exact same drug are pretty small. But when they do invent a drug they have a limited monopoly to make their money back. Which is a good thing, since it encourages more investment in drug development then there otherwise would be.
The $1.5 billion average cost is an average, and includes a lot of stupid ideas that should never have made it past the drawing board, but when you're a rich big pharma with tons of money to throw around, why not.
If you are smart (and quite lucky) it's an order of magnitude less.
Nature Reviews Drug Discovery published a good overview of the factors contributing to the high costs of drug development in 2010, along with some suggestions of how to mitigate cost increases. It's a good read for anyone interested in the subject.
$1.2B of this reported cost is "opportunity cost", based on the fact that you could have taken the money you would've used for drug development and invested it elsewhere... at a 10.5% real rate of return. Which is a rather questionable assumption.
Practice epistemic self defense: go to the primary sources!