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E-DRUG: Government Funded Drugs

E-DRUG Government Funded Drugs

In response to a memo that was distributed on compulsory licensing and
health care (http://www.cptech.org/pharm/cl.html), I was asked by several
persons: what does it cost for a drug company to bring a drug to market,
if it is licensed from the government or a university which has discovered
the drug on a government grant?

According to PhRMA studies, the average costs of Clinical trials needed to
bring a drug to market are about $25 million --- or about $54 million,
after adjusting for risk (failed trials).  Sometimes, like for Taxol, and
most cancer drugs, the government pays for the trials, or at least pays
for the majority of the costs.  Also, data directly from the NIH on costs
of clinical trials suggests much lower average costs, and for Orphan
Drugs, costs are *much lower*, and the government pays for half of the
cost through the Orphan Drug Tax credit.  See
http://www.cptech.org/pharm/marketletter.html , and
http://www.cptech.org/pharm/pharm.html for additional references.

Of course, this is not the entire cost of developing a drug, because the
most difficult and important area concerns preclinical research, much of
which is also subsidized by the government, but some of which is done by
the private sector itself.  Also, companies expect to make profits, and
sometimes profits are described in "cost" studies as "costs of capital."
Thus, for example, clinical trials costs might be increased by a factor of
50 percent to account for profits (opportunity costs of capital).  Most
public health officials don`t understand this, and tend to double and
triple count risk and capital cost figures, so I think it is often helpful
to present figures for out-of-pocket costs (how government money is
reported) and risk adjusted costs, with profits listed separately, as the
money the company would need to earn in return for taking money out of the
stock market and into the research.  (When profits are listed as costs,
much confusion follows in policy debates, and I am not sure what can be
done about this).

It is also useful to acknowledge that R&D can be broken into R, which is
risky and hard to finance, and D, which is far less riskly, and not
particularly expensive, and let us always remember that if a company
licenses a drug from a government or university -- it is far far cheaper
to bring to market than if the company had borne the costs of the initial
discovery.  Bristol-Myers Squibb spent less than $10 million in return for
obtaining exclusive rights to the NIH sponsored Taxol trials.  (Assuming
one does not include the cost of long term [post NDA] supply contracts as
"development"  costs, a common ploy to exaggerate industry contributions). 
I`ll let the reader figure out if the $1 billion per year Taxol market has
worked out better for Bristol-Myers Squibb or taxpayer-consumers.  For
extra credit, I`ll ask why the NIH signs away its rights on terms so
favorable to the industry.  You might contact Dr.  Wittes at NIH and ask
him.  He should be able to shed some light on the technology transfer

Dr. Wittes worked for NIH, and among other duties, in the mid 1980s he
supervised cancer research funded by Bristol-Myers, that BMS had agreed to
fund in return for a 5 year extension on an exclusive license for
cisplatin, an expensive NIH funded cancer drug.  Dr. Wittes then went to
work for Bristol Myers.  Bristol-Myers soon "won" the competition for the
NIH Taxol license.  (zero royalities).  Following a merger between
Bristol-Myers and Squibb, Dr. Wittes returned to NIH. Dr.  Wittes then
patented a treatment regime for Taxol, which NIH then licensed on an
exclusive basis to Bristol-Myers Squibb (BMS), which BMS used in December
1997 to block a generic version of Taxol from entering the USA market. (On
the grounds that doctors who want to save lives might perscribe the drug
in the doses patented by Dr. Wittes, and thus generic drugs might be used
in a way that would infringe on the treatment regime patent). So Dr.
Wittes should be able to tell you things about the process from inside the
NIH and the industry. 

I was recently contacted by a man whose wife had breast cancer.  She was
taking treatments of carboplatin and Taxol.  They did not have insurance. 
The bill for one days treatment was about $4,200, including $2,324.70 for
Taxol, and $1,171.70 for carboplatin.  The treatments are needed about
once a month.  They were paying for this from their life savings.  I was
able to get free medicine for the woman from Bristol-Myers Squibb, the
company is quite responsive when I call about these things, and I am
grateful for that.  But not everyone knows how to get these products for
free if they are uninsured.  BMS has purchased bulk Taxol, which many
companies can manufacture, for about $.25 milligram.  The woman was
charged more than $8 milligram by her doctor.  Carboplatin is another drug
invented on an NIH grant, like cisplatin invented at Michigan State
University and licensed on an exclusive basis to Bristol-Myers Squibb. 

I also recommend examining a copy of "Federal and Private Roles in the
Development and Provision of Alglucerase Therapy for Gaucher Disease," a
U.S. Office of Technology assessment report (OTA-BP-H-104
NTIS order #PB93-101723), on the web at:

Alglucerase is now a $300 million per year market, and many of the unit
"costs" of production in the report have declined with high production
runs, but the prices are still quite high, about $150,000 per year on
average, last I looked.  As with Taxol, the company claims its long term
production costs are "development costs."  In the case of alglucerase,
Genzyme threw in the cost of the factory which was used for commerical

I had a recent call from a father of a child who has already spent
$750,000 on the drug, which the child will need for the rest of his life.
The father cannot complain publicly, because soon his private insurance
will be exhausted, and he will rely upon charity from Genzyme Corporation.

Looking at the new EU directive on patenting of genes and life forms, I
think the compulsory licensing issue is something that public health
officials have a duty to study.  Unless, of course, that you think is it
unimportant what it costs society to use these technologies, or if you
think market mechanisms are adequate for life saving therapies (how much
would you spend to save your own life?) 

I think patents will and should play an important role in promoting
investment in medical inventions.  But I also think there needs to be
protections for consumers.  If we can do compulsory licenses for computer
chips and software (plenty of investment there), or even player pianos,
maybe life saving technologies too.  


James Love 
Center for Study of Responsive Law | Consumer Project on Technology 
P.O. Box 19367, Washington, DC 20036 | http://www.cptech.org
Voice 202/387-8030 | Fax 202/234-5176 | love@cptech.org

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