@Kenny West @Rhakim @FAH1223
Man stop with the sensationalist headline of "the government funds drug development costs"
Y'all do know that there are literally levels to this shyt, right? Drug development occurs in three phases: exploratory, mid-level, and late stage. The "government funding" that y'all allude to is provided primarily at the exploratory level...which happens to be the least expensive and least risky research level. Mid-stage and late-stage research is much more risky and costly and is primarily funded by the pharmaceutical companies themselves and venture capitalists.
The average cost of developing a new drug is roughly $1 billion - the government is not providing all that funding. Again they are primarily involved at the early, low risk, low cost stage.
And yall know that I come with receipts: Current Model for Financing Drug Development: From Concept Through Approval - Breakthrough Business Models - NCBI Bookshelf
And we are just discussing the development costs...let's get into production cost. Is the government funding the raw material costs, direct and indirect labor costs, marketing, employee pensions, and energy costs that are required to manufacture and distribute drugs???
We are talking about that.
In the link I put
-The combined total revenue for all 13 companies over 8 years was about $3.78 Trillion.
-The Combined total profits for these companies was about $744 Billion.
-All 13 pharmaceutical companies spent a total of $643 Billion on research
-The total amount they spent on marketing was about 60% more than what they spent on research: $1.04 Trillion.
Financial Risk and the End of an Era
Almost two decades have passed since then. The protease inhibitors were among the last of the truly revolutionary classes of medications to come from the pharmaceutical industry. Since then, almost all new medications have been variations of old medications with a slight improvement (if even that) or a new indication. Few new classes of medications, almost no medical miracles, nothing that has significantly changed the way we practice medicine has come from the pharmaceutical industry since the late nineties.
So how is it that an industry that gave us so many revolutionary, life saving wonder drugs in decades past is now reduced to peddling gimmicks and repeatedly recycling old ideas?
The “golden age of the pharmaceutical industry” was drawing to a close as early as 1990 when the pharmaceutical companies began to tire of new ideas. New ideas are always expensive and risky. Even the most brilliant sounding ideas often go nowhere when tested clinically.
This innovation fatigue had become so serious by the early 1990’s that Herceptin, the monoclonal antibody that first cured metastatic breast cancer, almost didn’t even get tested. In his book “The Emperor of All Maladies,” Siddhartha Mukherjee describes the difficulty Genentech scientists had convincing their executives to fund the testing of Herceptin after it had already been developed in 1990:
“… but Genentech was worried that pouring money into the development of another drug that failed would cripple the company’s finances. Chastened by the experience of others–”allergic to cancer” as one Genentech researcher described it– Genentech pulled funding away from most of its cancer projects.” (Page 418)
Herceptin had already been developed, but Genentech executives didn’t care. Testing to see if it worked risked wasting money and these executives were becoming very risk averse. Genentech executives weren’t alone in their risk aversion either. From 1995-1997 Novartis executives tried equally hard to kill Gleevec– another miracle drug that suppresses a deadly form of leukemia indefinitely–because they feared that the trials needed to clear Gleevec would cost too much (Page 436).
Fortunately, both Gleevec and Herceptin got the funding they needed and have provided billions of dollars in revenue to the pharmaceutical companies that tried to kill them. They were among the last new ideas to get funding from the drug companies though. By the time Gleevec came on the market in 2000 the door had mostly shut on novel pharmaceutical research.
By 1990 the pharmaceutical industry knew they already had a lot of very effective products that were making them lots of money each year. They had patents that were generating billions of dollars a year and would continue to do so for many years to come. They also knew they could probably find a number of new uses for the classes of medications they already had. The most profitable course they saw at that point was to just coast; put no more funding into new foundational research and just keep pushing what was already working for them. That’s exactly what they did, and it worked!
The profits made by the pharmaceutical companies exploded over the last decade without them putting out any new products that were even remotely innovative. But that strategy can only work for a little while. Two decades after they shut the door on actual innovation the revenue from the old ideas is starting to run dry.
![](http://truecostofhealthcare.org/wp-content/uploads/2014/12/NewPharmaSates.png)
Figure 4: (From linked article above.) New medications released each successive year since 2001 by the pharmaceutical companies have been increasingly less popular.
So, we in the U.S. continue to overpay for brand name prescription medications, but the pharmaceutical industry has given us almost no new important therapies in more than 15 years. A somewhat unexpected result of this is that, total pharmaceutical revenue has been nearly flat since 2010.
![PharmaRev2018.png](http://truecostofhealthcare.org/wp-content/uploads/2019/03/PharmaRev2018.png)
Figure 5: Total annual revenue for the 13 largest pharmaceutical companies since 2010.
You can see from the above graph that the total revenue from the thirteen largest pharmaceutical companies has barely increased at all since 2010. It has actually dropped slightly since 2011 despite a more than 50% increase in the cost of brand name prescription drugs in the US since 2012.
What changed? A flood of Generic drugs came on the market.
Because there really is a market for generic drugs, we don’t pay any more for most generics than people in other countries. In 2003, most of the medications prescribed were still under patent. Today, the opposite is true. The effect is easy to see in the following graph, which shows the dramatic loss of revenue when the patent Bristol-Myers Squibb owned on Plavix expired.
![Diovan2018.png](http://truecostofhealthcare.org/wp-content/uploads/2019/03/Diovan2018.png)
Figure 6: Novartis lost their patent for Diovan in 2012 and, as you can see, that has cost them about $5 billion a year in lost revenue.
Profit Without Innovation
The pharmaceutical companies haven’t been taking all of these patent losses lying down. They’ve instituted a number of measures to help offset the amount they’ve been losing to lost patent protection:
1) They’ve fought very hard, and in every way they can, to delay the expiration of drug exclusivity whenever possible. This process is called “evergreening” a patent. For example, they can apply for a new indication for an old drug just prior to it’s patent expiration. They can change the delivery system for, say, an inhaler. They can alter the recommended doses of a drug by a small amount– they have a lot of tricks for maintaining exclusivity and these tricks can often delay generic competition for several years.
2) In 2013 the pharmaceutical companies got the US Supreme Court to allow them to pay generic drug makers to delay the release of generic equivalents of medications for a time after the patent for a medication expires.
3) Pharmaceutical companies pay an enormous amount of money each year to suppliers and pharmacy benefit managers (PBMs) in rebates and chargebacks. The rebates and chargebacks paid by the 13 biggest pharmaceutical companies totaled $150 billion in 2017 alone. That’s more than twice as much as these companies paid in rebates and chargebacks in 2011. These financial incentives encourage the PBMs to approve more expensive medications when determining prescription drug coverage for their policy holders. Rather than trying to contain the cost of prescription drugs, the PBMs are encouraged to cover medications that yield higher rebates.
4) They’ve raised the prices on all of their medications sold in the U.S. substantially in the last few years. The following table clearly shows this pattern:
Medication and Dose Indication October 2012 Price July 2018 Price Price Increase
Abilify 20 mg Depression $26.35 per pill $40.40 per pill 54%
Advair 250/50 Asthma $3.97 per inhalation $6.28 per inhalation 58%
Benicar 40 mg Blood Pressure $4.26 per pill $9.35 per pill 119%
Byetta 10 mcg Diabetes $128.58 per dose pen $283.34 per dose pen 120%
Cialis 20 mg Antique
Bathtub Sex $23.64 per pill $64.05 per pill 171%
Crestor 20 mg Cholesterol $4.99 per pill $8.35 per pill 67%
Diovan 160 mg Blood Pressure $3.43 per pill $7.64 per pill 123%
Effient 10 mg Heart Disease $6.80 per pill $14.68 per pill 116%
Geodon 60 mg Psychosis $9.85 per capsule $24.67 per capsule 150%
Gleevec 400 mg Leukemia $189.91 per pill $328.10 per pill 73%
Januvia 50 mg Diabetes $7.30 per pill $13.75 per pill 88%
Lyrica 50 mg Pain $3.00 per capsule $7.43 per capsule 148%
Pristiq ER 50 mg Depression $4.84 per pill $12.18 per pill 152%
Vytorin 10/40 Cholesterol $4.70 per pill $10.92 per pill 132%
Xarelto 20 mg Atrial Fibrillation $7.59 per pill $13.44 per pill 77%
Table 3 shows the average (NADAC) price pharmacies paid for 15 medications. It shows the average cost for these medications in October 2012compared to the average cost for the same medications in July 2018. In just 6 years most of the listed medications rose an average of more than 100% in price. These price increases have continued for each of these medications in spite of the fact that 9 of these 15 medications have lost there patents in recent years.
The primary purpose os these price increases is to fund the rebates cited in point 3. In other words, much of the money spent on these high drug prices goes, not to the pharmaceutical companies, but rather to pay of the middlemen (PBMs and suppliers) who are in charge of choosing which prescription drugs are covered by your insurance.
These techniques the pharmaceutical companies are using to cut their losses generally provide no new therapeutic benefit—they just renew their ability to demand very high prices (at least in the U.S.).