Dancing as fast as we can: The crisis in healthcare

September, 24, 2012 | 24 Comments


  1. Interesting article by Donald Light in Bmj this week on how licensing system requiring only RCTs vs. Placebo guarantees drugs of minimal extra benefits but boosted costs and how companies inflate costs of bringing drugs to market

  2. The patent is all important for Big Pharma. Today, the US Supreme Court will start final arguments in a landmark case over drug patents that could change the rules for healthcare. The Supreme Court hearing pits Swiss drugmaker Novartis AG against India’s patent office, which has refused to grant a patent on the company’s cancer drug Glivec on the grounds that it is not a new medicine but an amended version of a known compound.
    Novartis’ drug was approved in 2001 in the United States, where it is sold under the trade name Gleevec and can cost $70,000 a year. Patients take one or two pills a day, depending on the dosage.
    Indian generic versions, meanwhile, cost about $2,500 a year.The real concern for the industry is that a rebuff would confirm India as a country where patents are exceptionally hard to secure. At the heart of the case is dispute over what level of innovation is needed to secure a patent in India, where the Indian Patent Law sets strict restrictions on multiple patents for one drug.
    (is there a separate patent for Zyban vs Wellbutrin? Not just amended version but the same drug.)

  3. “Life expectancy in the most advanced countries, those that consume the greatest amount of the most recently developed medicines, is falling relative to other countries.” What an absurd complaint. You’d expect “catch up” and, surely, welcome increase in life expectancy of our fellow men.

  4. An accidental ray of hope. This just published paper shows an unintended effect od electronic medical records.
    Electronic Medical Record Availability and Primary Care Depression Treatment
    Jeffrey S. Harman, Kathryn M. Rost, Christopher A. Harle and Robert L. Cook
    Journal of General Internal Medicine, 2012, Volume 27, Number 8, Pages 962-967
    Abstract: Electronic medical records (EMR) are commonly believed to improve quality of care. Primary care patients with multiple chronic conditions have potentially greater opportunity to benefit from receiving care at practices with EMRs if these systems help coordinate complex care.
    The study uses logistic regression to analyze cross-sectional data of primary care physician office visits in freestanding, office-based practices from the 2006–2008 National Ambulatory Medical Care Surveys.
    All visits to primary care providers made by patients ages 18 and older with physician-identified depression (N = 3,467).
    Outcomes include depression treatment which is defined as receipt or ordering of antidepressant medication and/or mental health counseling.
    Key Results
    EMRs were associated with significantly lowered odds that depressed patients received depression treatment (OR = 0.75, p = 0.009, 95% CI: 0.61-0.93); however when stratified by the number of chronic conditions, this association was observed only in patients with three or more chronic conditions (OR = 0.50, p > 0.001, 95% CI: 0.36-0.70). EMRs did not have a significant association with depression treatment for patients with two or fewer chronic conditions.
    EMRs appear to have an unintended negative association with depression care provided during visits made by primary care patients with multiple chronic conditions.
    The authors provide no potential explanation for the findings.

  5. In response to Dearieme, Donald Light sent the following comment:

    Response to Derek Lowe’s trashing “in the Pipeline” “getting Drug Research really, really wrong.” Aug 9, 2012 at http://pipeline.corante.com/archives/2012/08/09/getting_drug_research_really_really_wrong.php

    It’s hard to respond to so many sarcastic and baiting trashings by Dr. Lowe and some of his fan club, but let me try. I wonder if Dr. Lowe allows his followers to read what I write here without cutting and editing.

    First, let me clarify some of the mis-representations about the new BMJ article that claims the innovation crisis is a myth. While the pharmaceutical industry and its global network of journalists have been writing that the industry has been in real trouble because innovation has been dropping, all those articles and figures are based on the decline of new molecules approved since a sharp spike. FDA figures make it clear that the so-called crisis has been simply a return to the long-term average. In fact, in recent years, companies have been getting above-average approvals for new molecules. Is there any reasonably argument with these FDA figures? I see none from Dr. Lowe or in the 15 pages of comments.

    Second, the reported costs of R&D have been rising sharply, and we do not go into these; but here are a couple of points. We note that the big picture – total additional investments in R&D (which are self-reported from closely held figures) over the past 15 years were matched by six times greater increase in revenues. We can all guess various reasons why, but surely a 6-fold return is not a crisis or “unsustainable.” In fact, it’s evidence that companies know what they are doing.

    Another point from international observers is that the costs of clinical trials in the U.S. are much higher than in equally affluent countries and much higher than they need to be, because everyone seems to make money the higher they are in the U.S. market. I have not looked into this but I think it would be interesting to see in what ways costly clinical trials are a boon for several of the stakeholders.

    Third, regarding that infamously low cost of R&D that Dr. Lowe and readers like to slam, consider this: The low estimate is based on the same costs of R&D reported by companies (which are self-reported from closely held figures) to their leading policy research center as were used to estimate the average cost is $1.3 bn (and soon to be raised again). Doesn’t that make you curious enough to want to find out how we show what inflators were used to ramp the reported costs up, which use to do the same in reverse? Would it be unfair to ask you to actually read how we took this inflationary estimate apart? Or is it easier just to say our estimate is “idiotic” and “absurd”? How about reading the whole argument at http://www.pharmamyths.net and then discuss its merits?

    Our estimate is for net, median corporate cost of D(evelopment) for that same of drugs from the 1990s that the health economists supported by the industry used to ramp up the high estimate. Net, because taxpayer subsidies which the industry has fought hard to expand pay for about 44% of gross R&D costs. Median, because a few costly cases which are always featured raise the average artificially. Corporate, because a lot of R(eseach) and some D is paid for by others – governments, foundations, institutes. We don’t include an estimate for R(eseach) because no one knows what it is and it varies so much from a chance discovery that costs almost nothing to years and decades of research, failures, dead ends, new angles, before finally an effective drug is discovered.

    So it’s an unknown and highly variable R plus more knowable estimate of net, median, corporate costs. Even then, companies never so show their books, and they never compare their costs of R&D to revenues and profits. They just keep telling us their unverifiable costs of R&D are astronomical.

    We make clear that neither we nor anyone else knows either the average gross cost or the net, median costs of R&D because major companies have made sure we cannot. Further, the “average cost of R&D” estimate began in 1976 as a lobbying strategy to come up with an artificial number that could be used to wow Congressmen. It’s worked wonderfully, mythic as it may be.

    Current layoffs need to be considered (as do most things) from a 10-year perspective. A lot industry observers have commented on companies being “bloated” and adding too many hires. Besides trimming back to earlier numbers, the big companies increasingly realize (it has taken them years) that it’s smarter to let thousands of biotechs and research teams try to find good new drugs, rather than doing it in-house. To regard those layoffs as an abandonment of research misconstrues the corporate strategies.

    Fourth, we never use “me-too.” We speak of minor variations, and we say it’s clinically valuable to have 3-4 in a given therapeutic class, but marginal gains fall quite low after that.

    Fifth, our main point about innovation is that current criteria for approval and incentives strongly reward companies doing exactly what they are doing, developing scores of minor variations to fill their sales lines and market for good profits. We don’t see any conspiracy here, only rational economic behavior by smart businessmen.

    But while all new drug products are better than placebo or not too worse than a comparator, often against surrogate end points, most of those prove to be little better than last year’s “better” drugs, or the years before… You can read detailed assessments by independent teams at several sites. Of course companies are delighted when new drugs are really better against clinical outcomes; but meantime we cite evidence that 80 percent of additional pharmaceutical costs go to buying newly patented minor variations. The rewards to do anything to get another cancer drug approved are so great that independent reviewers find few of them help patients much, and the area is corrupted by conflict-of-interest marketing.

    So we conclude there is a “hidden business model” behind the much touted business model, to spend billions on R&D to discover breakthrough drugs that greatly improve health and works fine until the “patent cliff” sends the company crashing to the canyon floor. The heroic tale is true to some extent and sometimes; but the hidden business model is to develop minor variations and make solid profits from them. That sounds like rational economic behavior to me.
    The trouble is, all these drugs are under-tested for risks of harm, and all drugs are toxic to one degree or another. My book, The Risks of Prescription Drugs, assembles evidence that there is an epidemic of harmful side effects, largely from hundreds of drugs with few or no advantages to offset their risks of harm.

    Is that what we want? My neighbors want clinically better drugs. They think the FDA approves clinically better drugs and don’t realize that’s far from the case. Most folks think “innovation” means clinically superior, but it doesn’t. Most new molecules do not prove to be clinically superior. The term “innovation” is used vaguely to signal better drugs for patients; but while many new drugs are technically innovative, they do not help patients much. The false rhetoric of “innovative” and “innovation” needs to be replaced by what we want and mean: “clinically superior drugs.”

    If we want clinically better drugs, why don’t we ask for them and pay according to added value – no more if no better and a lot more if substantially better? Instead, standards for testing effectiveness and risk of harms is being lowered, and – guess what – that will reward still more minor variations by rational economic executives, not more truly superior “innovative” drugs.

    I hope you find some of these points worthwhile and interesting. I’m trying to reply to 20 single-space pages of largely inaccurate criticism, often with no reasoned explanation for a given slur or dismissal. I hope we can do better than that.

    Donald W. Light

  6. Patients suffering adverse side effects of presciption drugs are discarded like useless vermin, isolated and left to suffer continuous torture and labelled as pychotic. Human rights are stripped from them – they have no safety, no rights to liberty or justice – that is the reality of drug side effects prescribed to strip a patient of everything that is his/her right to safe medical care

  7. One of the clearest such situations as described by Dr Healy is the Celebrex/Vioxx fiasco. Vioxx is only one molecule different yet each drug has a separate patent allowing the manufacturer to “claim back” its supposedly enormous R&D costs during the lifetime of the patent. This is the excuse used to explain the ridiculous level of expense for many if not most “new” drugs that are no better than their predecessors.

  8. With a lot of obstacles confronting the medical sector like growing operational costs, staffing challenges, security and also patient data concerns, to mention a few, employing Web based EMR is one manner to improve revenue and efficiency.

  9. There is a very simple way to calculate the ballpark cost of developing a drug that avoids all the usual criticisms of utilizing self-interested industry estimates, commingling of research and marketing expenses and the like. Just look at the accumulated losses (negative retained earnings) of biotechnology companies at the time they bring their first drug to market. These are pure R&D organizations, with no marketing expenses (as they have no products yet), and their financial statements are audited by public auditors who are liable to shareholders for any material misstatement.

    Arena pharmaceuticals recently had its first drug, Belviq, approved in the US. Its accumulated losses are $1.15B. Vertex Pharmaceuticals had its first drug approved in mid 2010, Incivek, a breakthrough drug for HCV. Accumulated deficit at the time of approval was about $2.5B. In fact I would challenge Dr. Light to identify any biotech developing drugs other than antibiotics for short term use with an accumulated deficit of less than $400M at the time of drug approval.

    These are not “funny numbers” made up by companies, but taken directly from audited SEC filings.

    Dr. Light’s statement about revenues increasing 6x fails to account for the 8+ year time lag between R&D expenditures and impact on revenue. Revenues have grown based on past successes, but they are now falling as the patents on successes from the 1990s begin to expire.

    • John – This is an interesting new angle on a thorny issue. If the biotech companies currently spending $1B to develop a novel biologic or related drug, then these can retail at up to $400-500,000 per patient per year – and the marketing overheads here are relatively minor compared to older drugs. In contrast, it is close to impossible using this model to believe that recent hypoglycemics, psychotropics, statins, PPIs or antihypertensives (the areas where companies have made money) would have cost anything remotely like this to develop if developed by a biotech company in the 1990s. Are we facing into a scenario where there will be two quite different drug development markets with a risk that arguments appropriate to one might be illegitimately applied to the other?

  10. Mr. Tucker’s method for estimating the true costs of R&D is reasonable but has little to do with either the data or multipliers used by the economists supported by the major companies to conclude the average cost of R&D per new drug was a mythic $1.3 billion as of 2006 and I’m sure now about $2.0 billion.

    The advantage of our low estimate (if any) is that it’s based on the exact same, unverifiable R&D costs submitted in secret by companies to their premier policy research center at Tufts that the industry-supported economists used, including high estimates for all failures. Mr. Tucker and others should read our analysis, because they would learn some interesting things, like how much R&D costs vary between non-NMEs (new molecules), licensed-in NMEs, and self-originated NMEs. Mr. Tucker’s biotechs are doing only self-originated NMEs – the most expensive kind, which are blurred-in by the industry-supported economists. And their risks are much, much higher than the major companies that control the markets because the latter’s risks are spread across many projects, are covered by large streams of revenues, and are off-loaded to those win-or-lose-all, heroic biotechs.

    Even more fun is to read how these same economists came up with new inflators each time they re-did their study since their first in 1976. It’s a lesson in “How to inflate secret R&D costs.” Each jump in the estimate, each time they re-did the study shows how smart and creative they were.

    Chapter 2 of PHARMAGEDON is great, and if you care about your family, read Ch 6.

  11. Hi David,

    Somewhere along the line many of us in the industry began using the word “biotech” to refer to any small or pre-commercial drug development company. So the examples above are actually both of companies developing small molecule drugs of the sort that large pharma has historically worked on. Belviq (not my favorite drug) is expected to sell for about $150/month, reflecting a large patient population and modest clinical benefit (and thus lack of reimbursement). Vertex’s HCV drug, which is considered a genuine medical breakthrough (nearly doubling the cure rate from ca. 40% to ca. 75%) is going for something in the neighborhood of $70K for a 12 month course of treatment. Comparing the cost of drug to the cost of treating cirrhosis and/or liver cancer, the latter drug may actually pay for itself irrespective of its impact on QOL or longevity. And of course, as a small molecule, it will not remain expensive forever (I have much to say about the Hatch-Waxman act, but will save that for later).

    My belief is that the industry really is spending a tremendous amount of money per new drug approved, and that this reflects the fact that most drugs fail in the development process. http://www.biotech-now.org/events/2011/02/release-of-biobiomedtracker-drug-approval-rates-study .

    The current path seems unsustainable to me, and I suspect that the core of the problem is that research budgets since the 1980’s or so have been set by the need for corporate revenue growth rather than by a sober assessment of the level of scientific opportunity to improve human health. Over-investment forces money down unproductive avenues of research and creates duplication of effort. This in turn becomes a driving force for excessive marketing efforts behind the small number of successes.

    It may be that the key to reducing dollars spent per new drug approved is simply to reduce investment to match the level of scientific opportunity created by advances in basic biology and supporting technologies. I think we are in the very early stages of this painful readjustment.

  12. David:

    “Mr. Tucker’s method for estimating the true costs of R&D is reasonable but has little to do with either the data or multipliers used by the economists supported by the major companies to conclude the average cost of R&D per new drug was a mythic $1.3 billion as of 2006 and I’m sure now about $2.0 billion. ”

    But it is an independent way of reaching an estimate, and it reaches pretty much the same conclusions as those of the studies you are criticizing.

    So I am confused trying to understand what your issue is. Do you think that large companies are dramatically more efficient than small companies at developing drugs? If so, economic theory would predict that the small companies would not exist.

  13. Sorry David, did not read your response carefully enough.

    Yes, my estimate is for NMEs. My response to your comments is below:

    1) Because there is a marketplace with multiple bidders, large pharma cannot simply “steal” biotech company research at bargain basement prices. The presence of multiple bidders prevents this. Economic theory generally holds that collusion between potential bidders becomes very difficult once the marketplace exceeds 5 or so agents. In practice, BMS recently paid $2.5B for a Phase I HCV drug that failed in the clinic within 8 months. Gilead bought 2 such drugs for $12.5B, one of which failed within a month due to toxicity.

    2) The vast majority of non-NME drugs created by large pharma are reformulations of drugs originally brought to market as NMEs by themselves. So most of this work can be described as equivalent to patent life extension. Clearly this is not innovative work in most cases, but one cannot reformulate drugs that were never NMEs in the first place. So taking this into account, one might reduce estimates of “legitimate” R&D expenses, but certainly it would not support dividing them by a factor of 5 or more.

  14. Donald, I’m going to tread on some thin ice here and use as a counter-argument an area that Dr. Healy knows quite well, possibly much better than myself.

    Why do companies come out with so many drugs that are incremental improvements over existing ones? Let’s look at antipsychotics as an example. Most of the new drug approved over the last few years have been depot formulations of existing drugs or minor modifications that purportedly provide a better side effect profile. I understand that David has a very low opinion of these drugs, but hope I can use them as an example nonetheless.

    While this work has been ongoing, a tremendous variety of alternative approaches has been examined and discarded after tremendous expense. Pfizer developed the entire area of PDE inhibitors in house with little academic contribution, but found no efficacy in clinical trials. Other companies have looked at modulators of nicotinic receptors, a plethora of subtype selective 5-HT and dopamine receptor modulators, mGluR2 and mGluR2 receptors, H3 receptors, NMDA receptors, AMPA receptors, GABA receptors, GlyT-1 inhibitors, and glutamate transporter inhibitors for the treatment of schizophrenia.

    Where are the drugs? Almost all of these approaches have unambiguously failed. The same can be said for gamma secretase inhibitors and anti-amyloid antibodies in AD, along with a wide range of approaches directed at cognition enhancement.

    So when you look at the less innovative drugs coming out of the pipeline, I think it is important to remember the importance of survival bias. Look at clincialtrials.gov and not at the Orange Book to understand what the industry has attempted.

  15. John

    Well now that you’ve introduced the antipsychotics. This series of comments was triggered by an attack on Don Light’s article by Derek Lowe, who has worked in industry on drugs for schizophrenia, osteoporosis, diabetes and Alzheimer’s – see above. Now it is a touch extreme to say nothing of either value, or novelty has come out in these areas or in the entire psychotropic domain since the mid-1960s.

    But three of these are areas in which pharma has made the greatest amount of profit possibly at an overall cost in a greater number of lives lost than would have been lost had we been left with the armamentarium we had in the mid-1960s. When we talk about costs, no one factors in the lives lost. If you have schizophrenia now, you are something like 30 times more likely to be dead at the end of the first year after you’ve been diagnosed now than you would have been 100 years ago.

    As regards the range of new entities you mentioned that pharma developed and abandoned at supposedly great cost, there have been many like gabapentin that were cast aside when it looked like it would only be useful for epilepsy – not a sufficient return for the company in question. The same has happened recently for substance-P antagonists, and nearly happened for SSRIs.

    The development failure you refer to very commonly is a failure to prove efficacy in an indication that will yield blockbuster returns.

    The drugs don’t fail in scientific studies to determine whether they have effects and might be safe, they fail in what are essentially marketing studies.

    There are better, cheaper and more reliable ways to get all these drugs to the market than the ways we are using now. You have picked out the mismatch between the state of the underlying science and drug development and this undoubtedly plays a part. I would add that the regulatory framework in which drugs are developed is contributing perversely and hugely to the costs, leading companies to abandon the development of many promising compounds.

    This framework which includes patents, prescription-only arrangements and the issue of access to clinical trial data (See Pharmageddon) has a number of elements that could be rewritten – which is what this series of BarMittzva posts hopes to highlight. Will be interested in your thoughts on Shadow Dance in a few weeks time

  16. Thanks David, I’ve clearly gone on at some length and will keep this comment short.

    As someone who follows clinical trial results for a living on behalf of pharmaceutical and investment firm clients, I strongly disagree with your assessment that most drugs are dropped for marketing rather than efficacy reasons. Among the alternate mechanism of action drugs for schizophrenia I mentioned above, except for two or three mechanisms that are still under active investigation, all were dropped after multiple molecules failed to demonstrate efficacy and/or an acceptable side effect profile in clinical trials. Similar comments apply to the infectious diseases area that are my current area of focus.

    I apologize for being so direct, but I did not find your comparison of mortality rates among schizophrenia patients today relative to 100 years ago persuasive. It seemed to me that there were a lot of uncontrolled and unknown variables. We will have to disagree on this issue.

    In principle, there may well be cheaper, more efficient ways to bring drugs to market, and I look forward to your thoughts on this. My point was simply that the estimates Donald provided are incompatible with relatively simple and straightforward measures of the cost of drug development as it is in fact practiced today. If drug companies were able to develop new products for $50M, they would not be in the habit of routinely paying $500M to $1.5B to acquire companies whose primary asset is a single drug in Phase II testing.

    I guess that wasn’t short, but I look forward to your response.

    • John – re mortality in schizophrenia, have presented this at several meetings and hope to have an article to show you at some point.

      RE dropped for marketing reasons. take Prozac. Put into trials for blood pressure because bigger market than depression failed. Put into trials for obesity – bigger market than depression then – failed. Could have quickly been brought on the market for premature ejaculation at almost no cost at all but wasn’t. Why not – partly because the market was too small. We end up with depression which the company figures will only work if they grow the illness through marketing. Drugs get brought on the market for business reasons – its got little to do with their efficacy. Reboxetine failed to make it in the US because it could be shown to work in hospital depression but not primary care depression, ditto mianserin. The failing here was trying to run the drugs in trials where differentiation from placebo was always going to be tricky. It requires very large trials which pushes up the costs and this is dictated by the marketing requirement to get an indication in an area that will achieve blockbuster returns.

      Many of the compounds you mentioned likely have useful effects. Its possible that a number of them show clearcut differences from placebo in indications other than schizophrenia, but just like premature ejaculation, these areas are just not sufficient to warrant development.

  17. I think you have some good examples here in the antidepressant area but think these alternative uses may be more common here than in indications such as AD, cancer, infectious disease, etc. Nonetheless, your point is taken.

  18. Depression – they grow illness by marketing.

    This is the crux of the matter and all the discussions in the world will not alter this fact.

    Now let’s prove it, with Rxisk.

    Some of us have been victims of marketing; but I was a Marketing Director, so I know a scam when I see it. I also know a psychotic state from drugs when I experience it. So, let’s get on with the show.

    Interesting comments from a huge range of folks, but not many actual victims?

    Why not? Have they all been so destroyed by their drugs they are afraid to speak up? Or, was it too difficult to try and get through to anybody at all about their struggle trying to get off these wretched drugs? Or, does life go on and they choose to forget about their horrific experiences and life goes on?

    After Panorama and it’s series of programmes about Seroxat, thousands of people complained, where are they? Have they all given up?

    Why is it that just a handful of us are trying to get our ‘illness through marketing’ exposed for what it is?

    I would have expected thousands to jump on David’s site. Where are they?
    I would hate to think that people just jump on the bandwagon, dissolve and we are left a little bit deflated with the flat-lining of it all.

    It is a medical crisis, I know it, David Know’s it and I am kind of perplexed as to where this is all going.

  19. To understand the gap between life expectency for schizophrenics 100 years ago and today requires some really careful analysis, which I’m glad David and his group have undertaken. But take a look at the fast-widening gap in the USA since the early 1990’s — less than 20 years ago. This is not a subtle effect — more like a baseball bat upside the head. From USA Today, 5/3/2007:

    “Adults with serious mental illness treated in public systems die about 25 years earlier than Americans overall, a gap that’s widened since the early ’90s when major mental disorders cut life spans by 10 to 15 years, according to a report due Monday.”


    A lot of speculation about lifestyle factors is offered here — but face it. Poverty, homelessness, neglect and lousy access to preventive care were already entrenched facts of life for Americans with serious mental illness in the 1990’s. So were smoking, drinking, street drugs, sedentary lifestyles and bad diets. What has changed to drive life expectancy down to 51 years, compared to the not-so-great US average of 76? Not much — except that virtually all have had their prescriptions changed to the new, “atypical” antipsychotics.

    The majority of these folks are on Medicaid (far inferior to Medicare), which reimburses at a pathetic rate for actual doctor visits, hospital stays etc. but reimburses close to 100% of retail for brand-name pharmaceuticals. Our most expensive miracle drug, Abilify, starts at about $598 per month. A lot of these folks cannot find a marginally safe place to live, or get a 15-minute visit each month with a professional who remembers their name. We “can’t afford” to help them with such things, but we can buy them $1,000 a month in brand-name drugs. And there is a direct line between these two facts.

    Even if the industry’s estimates of its R&D expenses for a new molecule like this were 100% accurate, I say we’ve gotten a really bad bargain — and the poorest people are shouldering the biggest burden.

  20. I hear and agree with you Annie but Panorama was aired on bbc and that’s why people responded. compared with mainstream tv coverage this blog is not going to reach that many people.There must be hundreds of sick people out there who haven’t got a clue what is happening to them cos their doctors are telling them otherwise but how do we address this problem?

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