The reputation of drug companies has taken a beating in recent years. Their prices have risen much faster than inflation (except for last year, when generics had some impact), makes them almost universally suspect. The industry’s claim that its fat margins are warranted by its investment in research doesn’t bear much inspection. 45% of drug R&D is government funded. Moreover, Big Pharma spends more on marketing than on research. Can you think of another business that is profitable enough to warrant in person selling to small businessmen, which is what most doctors are?
One would expect the major drug companies to be particularly image conscious these days. An industry on the defensive seldom takes pot shots at one of its main regulators. Yet that is precisely what Novartis has chosen to do. From the Financial Times:
The Food and Drug Administration has become over-cautious in its assessment of new medicines following political pressure arising from safety controversies, Dan Vasella, chief executive of Novartis, said on Friday.
Mr Vasella, the only chief executive from one of the big pharmaceutical groups to attend the three-day Clinton Global Initiative in New York this week, said the medicine regulator had gone too far in seeking to evaluate drugs on criteria beyond their safety and efficacy.
“The FDA has become subject to politics,” Mr Vasella said. “If they are assailed like they are now, the best thing to do is nothing.”
Novartis has felt the sting of the FDA’s increasing focus on safety that sprung partly from US drugmaker Merck’s withdrawal of painkiller Vioxx owing to heart risks three years ago. Two drugs in Novartis’s pipeline, Galvus for type II diabetes, and painkiller Prexige, have met significant regulatory delays with the FDA.
Both Prexige and Arcoxia, Merck’s successor to Vioxx, have been denied approval by the FDA in spite of receiving approval around the world. The US safety issue has shaped their assessment to include a broader discussion of their place in the market and alternative treatments.
“The discussion on what this [drug] brings over and above what’s on the market is a question that’s being asked. The FDA doesn’t seem to trust the physicians any more,” Mr Vasella said.
Novartis is taking an interesting gambit, in claiming that it is the true defender of consumer interests and (by implication) the FDA is a bad guy by withholding useful medicines. (I imagine that the FDA has come to regret its change in policy in 1997 to allow direct to consumer advertising, which has given drug companies another channel to influence public perceptions. Note that the US and New Zealand are the only two advanced economies that permit it).
But Vasella’s charges don’t stand up to scrutiny. in reverse order, the FDA shouldn’t trust physicians. This isn’t a matter of trust, but of findings in properly designed studies. In addition, your average MD doesn’t have the time to keep up on medical research. And very few have expertise in study design or methodology. That’s precisely why they can be manipulated by drug detailmen. So implying that physicians are in a better position to judge efficacy and safety than the FDA is bogus.
The grist of Vasella’s argument is that two drugs, his Prexige and Merck’s Arcoxia that have been approved “around the world.” The FT should have examined that claim rather than treating it as fact.
I didn’t have to look far to find problems with both drugs. I started with Australia and hit pay dirt.
Australia and New Zealand have banned Prexige. From the Australian announcement:
Prexige was withdrawn on 10 August 2007 by the Therapeutic Goods Administration because of a small number of cases of serious liver side effects. If you take Prexige, stop taking it immediately and see your doctor to discuss an alternative to this drug and to arrange any tests you may need.
New Zealand was slightly more forgiving, allowing use only in very low doses:
The New Zealand Ministry of Health’s medicine watchdog Medsafe has withdrawn the supply of 200mg and 400mg Prexige tablets.
The anti-inflammatory drug has been blamed for the deaths of two people and for two others requiring liver transplants in Australia.
Medsafe spokesman Stewart Jessamine said its medicines adverse reactions committee (MARC) discussed the overall risks and benefits of the use of Prexige with regulators in Australia, Singapore and the United Kingdom.
“This increased risk of liver damage for Prexige outweighs any of the potential benefits claimed for the 200mg and 400mg dose,” Jessamine said.
The 100mg Prexige tablets would stay on the market, though would be closely monitored.
Similarly, Australia did not approved Etoricoxib, the chemical name for Merck’s Arcoxia in its initial review in 2004, citing safety concerns. After the Vioxx scandal in the US, the Therapeutic Goods Administration decided that it would be approved only for very limited use:
It is proposed to greatly limit the approved uses of two other Cox-2 inhibitors which have not yet been marketed in Australia. They are etoricoxib and lumiracoxib. In both instances, ADEC was not sufficiently assured of the safety of these drugs for anything other than short term use in patients without increased cardiovascular risk.
So the idea that the US is tougher than other drug regulators is exaggerated. And by happenstance, a story in the New York Times yesterday depicts an FDA not only grossly understaffed in the area that oversees clinical trials, but also strongly inclined to downgrade any problems found:
In a report due to be released Friday, the inspector general of the Department of Health and Human Services, Daniel R. Levinson, said federal health officials did not know how many clinical trials were being conducted, audited fewer than 1 percent of the testing sites and, on the rare occasions when inspectors did appear, generally showed up long after the tests had been completed.
The F.D.A. has 200 inspectors, some of whom audit clinical trials part time, to police an estimated 350,000 testing sites. Even when those inspectors found serious problems in human trials, top drug officials in Washington downgraded their findings 68 percent of the time, the report found. Among the remaining cases, the agency almost never followed up with inspections to determine whether the corrective actions that the agency demanded had occurred, the report found.
“In many ways, rats and mice get greater protection as research subjects in the United States than do humans,” said Arthur L. Caplan, chairman of the department of medical ethics at the University of Pennsylvania.
So Vasella is 100% correct. Politics have a great deal to do with drug approvals. My FDA lawyer buddies tell me that the FDA enforcement area is understaffed precisely because its budgets have been cut by Congress.
But those politics already operate very much in favor of the drug industry.
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“45% of drug R&D is government funded”.
Do you have a source for this number?
Also for “spends more on marketing than on research”?
Thanks in advance,
Laurent
There was a long article on this in the FT two-three years ago which cited one or two of the many books written by medical industry participants critical of drug company practices.
Unfortunately, there seems to be something amiss on the Internet today. I tried searching the FT’s site and kept getting an error message “server load” and also tried accessing a paper at the University of Chicago website and similarly got “the server stopped responding.” Have no idea whether this relates to my ISP or is more general. Will keep trying, but I’ve found at the FT that if there is a problem on the weekend, it lasts all weekend.
Laurent,
This isn’t ideal, in that it isn’t a tidy reference, but it gives you indicative data points.
An admittedly dated bit of analysis (2000) found that eight of nine major pharmaceutical companies spent more than twice as much on marketing and advertising as on R&D. And pharma ad spending has risen rapidly since then.
Drug advertising expenditures alone (remember, this doesn’t include those costly detailmen) has increased at a 10.6% average annual rate since 1006 and was $29.9 billion in 2005. Contrast that with the industry’s R&D expenditures of $51.3 billion.
Now mind you, the 2000 analysis took the industry’s figures at face value (if I were more inclined, I’m sure I could go through the 10-Ks of the top pharmas and prove this myself). But what does the industry’s published R&D stand for? Remember, they have every incentive to be generous in their definition of what constitutes R&D. It makes the companies look better in Washington and on Wall Street.
Consider these factiods: first (as reported in that FT article I can’t access) 88% of the so-called “new drug applications” with the FDA weren’t for new drugs (new molecules) at all, but were for other uses of existing drugs. Why would the industry bother? After all, doctors have the latitude to prescribe drugs for any use they deem appropriate (it’s called “off label use”). If a doctor wants to prescribe antiboitics to treat depression, that’s his business.
But drug companies can market drugs only for the uses approved by the FDA. So if an anti-depressant like Wellbutrin also helps people quit smoking (and BTW many doctors learn about these alternative uses on their own), the pharmas need to file a NDA if it wants to sell doctors on that use. This most certainly isn’t research, and it’s hard to argue that it’s really development. It ought to be classified as marketing too.
Here is another illustration about how the industry classification of its expenditures needs to be taken with a handful of salt:
In 2000, for example, industry spent 18% of its $13 billion for R&D on basic research, or $2.3 billion in gross costs (National Science Foundation 2003). All of that money was subsidized by taxpayers through deductions and tax credits. Taxpayers also paid for all $18 billion in NIH funds, as well as for R&D funds in the Department of Defense and other public budgets. Most of that money went for basic research to discover breakthrough drugs, and public money also supports more than 5000 clinical trials (Bassand, Martin, Ryden et al. 2002). Taxpayer contributions are similar in more recent years, only larger.
This admittedly dated piece gives another illustration of how the pharmas inflate their R&D figures:
My own involvement in this issue dates from 1991, when I was asked by Representative Ron Wyden, a member of the U.S. House of Representatives, to provide testimony on an agreement between Bristol-Myers Squibb (BMS) and the National Cancer Institution (NCI), which is an agency of the U.S. federal government. NCI had developed a new cancer drug named Taxol, which was the product of decades of federal research into the cancer fighting properties of natural substances. Taxol, which is used to treat ovarian, breast and lung cancer, was produced from the bark of the Pacific Yew, a small tree that was mostly found on government owned lands in the Pacific Northwest of the United States.
Because researchers had published more than 130 articles about taxol in scientific journals, it was impossible for anyone to patent the drug under U.S. law. The government paid for all of the pre-clinical research on Taxol, and it also sponsored a large number of human use clinical trials, including the so-called Phase I, II and III trials which are required for FDA approval in the United States. The government also developed the methods for manufacturing the drug, which was done through a private contractor named Hauser Chemical.
In the United States the government plays a huge role in funding pharmaceutical research and development (R&D), but it rarely, if ever, becomes the agent that sells the drug to the public. Here the federal government entered into a contract with the large Multinational firm, Bristol-Myers (now Bristol-Myers Squibb). The government agency NCI gave BMS a contract which provided the private firm with exclusive rights to use the data from government funded human use clinical trials, and also gave the firm an exclusive “first right of refusal” to harvest the bark of the Pacific Yew tree from federal lands. In return for these privileges and benefits, BMS only agreed to provide the government with a few kilos of Taxol for use in research that BMS would “own,” and to use BMS’s “best efforts” to commercialize Taxol, a drug with world wide sales of hundreds of millions of dollars per year. BMS was not obligated to pay the government any money in royalties for the exclusive use of its research data, but it did agree to a vaguely written “fair pricing” clause in the contract.
When Taxol entered the U.S. market it was priced at a wholesale price of $4.87 per milligram, or more than $9,000 for a completed treatment for some types of cancer. We investigated the pricing of Taxol and found that BMS was acquiring clinical grade Taxol from Hauser Chemical, the firm that was once the government’s contractor, for less than $.25 per milligram. In other words, BMS was charging U.S. consumers about 20 times its cost of production for the drug.
In response to our criticisms of the price, BMS made a number of what appears to be rather common exaggerations about its role in the development of Taxol. For example, BMS claimed that it had spent more than $114 million to “develop” Taxol, but the company refused to provide any specific accounting of how this was calculated. It turned out that most of this money was simply the long term drug supply contracts that BMS had signed with Hauser and other companies, it would be highly misleading to refer to these production contracts as R&D investments.
Now back to that $51.3 billion figure for R&D for the industry. I probably should have said “research” since alot of stuff gets thrown into that “D.” A New England Journal of Medicine article states:
Meanwhile, for more than 10 years, the pharmaceutical industry has been investing larger amounts in research and development than the federal government — $51.3 billion in fiscal year 2005,2 for instance, or 78 percent more than NIH funding that year.
You have to love the way these guys use numbers. That 78% number makes the gap seem much bigger. If you have a NIH budget of $28.8 billion and industry reported expenditures of $51.3 billion, that makes the NIH 35.6% of the total. And per the quote above, the NIH isn’t the only part of the government that funds drug research, so citing the NIH data alone is misleading.
Those are the official figures. I need to find the references that parse the industry data into what’s relevant and not. Of course, if you simply shifted the value of the 35% tax deduction on that $51.3 billion from the “pharma spending” category to the government category, that puts government “spending” on R&D at 58.4% of the total.
Many thanks for this very detailed account!
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