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[e-drug] TACD draft position on transparency and economic data

E-DRUG: TACD draft position on transparency and economic data
[copied from Pharm-Policy with thanks;
TACD = Trans Atlantic Consumer Dialogue, see their website:

This is another draft TACD position paper, this one
on transparency and pharmaceutical economics.



Transparency and pharmaceutical economics
version 1.0

a.   Policy makers need better data about pharmaceutical

     One of the most vexing issues in pharmaceutical policy
making is the paucity of data to justify pharmaceutical industry
assertions regarding drug development costs, profit margins or
other relevant economic data.  Governments have been negligent in
collecting independent data on pharmaceutical economics. 
Accurate data on the economics of the pharmaceutical industry are
needed to evaluate a wide range of government policies,
including, for example:

     i.   patent extensions,
     ii.  pricing,
     iii. market exclusivity for health registration data,
     iv.  orphan drug market exclusivity,
     v.   compulsory licensing,
     vi.  government technology transfer policies, and
     vii. scope of patents.

Disclosures of economic data should be routinely required as a
condition of market access.

b.   Drug development costs

It is common for discussions regarding pharmaceutical policy to
make reference to the high costs of new drug development. 
However, governments appear to have very little independent data
on drug development cost, and that data that does exist raises
questions about the accuracy of industry survey data.  

For example, for the years 1991 to 1994, the US IRS has data from
pharmaceutical company tax returns, including data on claimed US
R&D expenditures.  The Pharmaceutical Research and Manufacturers
Association (PhRMA) publishes a widely quoted R&D survey that
also purports to identify US R&D expenditures.  However, the
figures from the IRS are considerably lower than the numbers
published by PhrRMA.

                             Table 1

                       US R&D spending by 
                    Pharmaceutical Companies
                    (billions of US dollars)

                    PhRMA          IRS
                    Survey         Returns

     1991           $ 7.9          $4.4
     1992           $ 9.3          $5.1
     1993           $10.5          $5.9
     1994           $11.1          $6.6

Even more surprising are the figures derived from the US tax
credit for orphan drug development.  This tax credit is equal to
50 percent of the US expenditures on clinical trials.  The credit
was in effect without suspension from 1983 to 1993.  The data are
in Table 2. 

                             Table 2
                    US Orphan Drug Tax Credit
                    (millions of US dollars)

                    Orphan    Pre-Tax        Expenditures
          Tax       Drug      Expenditures   per approved
Year      Credit    Approvals on trials      drug

1983      $  .2     2         $  .5          $ .2
1984      $  .1     3         $  .2          $ .1
1985      $  .2     6         $  .4          $ .1
1986      $ 6.5     5         $13.1          $2.6
1987      $ 5.2     9         $10.3          $1.1
1988      $ 8.1     8         $16.1          $2.0
1989      $14.2     10        $28.4          $2.8
1990      $15.6     12        $31.3          $2.6
1991      $18.5     12        $37.0          $3.1
1992      $17.8     13        $35.7          $2.7
1993      $20.5     13        $41.0          $3.2
Totals   $106.9     93       $213.8          $2.3

Note that the US tax credit for orphan drug development applies
to both successful and unsuccessful clinical trials, and is thus
adjusted for risk.  Also, it is useful to appreciate that
during this period, all HIV/AIDS drugs qualified for orphan drug
benefits, that drugs for many severe illnesses are classified as
orphans, and that orphan drugs are typically very expensive.

The data from the US Orphan Drug tax credit provides evidence
that private sector contributions to R&D for particular drugs may
be far lower than is often asserted by the private sector.

c.   Government need better data on pricing, sales and margins.
There is also limited public information regarding pricing of
pharmaceutical products, the revenues or profits from specific
drugs, or company margins.  Organizations such as IMS provide
detailed information on pharmaceutical prices and revenues, but
only to selected clients, often excluding government agencies,
and with restrictions on the publication of the data. 

There are many public policy issues that should be grounded in
better empirical data.  For example, what are the pricing
differences for drugs between national markets?  How does the
expiration of patents influence prices, and what is the "cost" of
a patent extension?  How much revenue is generated from
government funded pharmaceutical inventions?  What is the
marginal cost of producing life saving HIV/AIDS drugs, in a world
where more than 30 million persons cannot afford treatment at
current prices?

Much of this data is known to the industry, but remains a mystery
to public health officials.

d.   Other disclosure issues.

There is a substantial public interest in having more detailed
disclosures of private sector R&D investments.  For example, what
percent of R&D investments are spent on development of new and
innovative products, as opposed to "me too" therapies?  How much
of the private sector R&D budget is spent on non-essential
medicines?  What is the private sector allocation of spending
between pre-clinical development, clinical trials, and post
approval R&D?  How much R&D is spent on topical illnesses and
other diseases that affect the poor?  How much did the drug
benefit from public subsidies?

e.   Proposed Actions.

The US and the EU governments should undertake the following

i).  Any application for data exclusivity should include a
     disclosure of the costs of data collection.

ii). The EU and the US should require firms that market
     pharmaceutical drugs in the US or the EU market to disclose,
     for each product,
     A.   annual global (and national) revenues,
     B.   costs of clinical trials, disaggregated by timing and
          nature of trial (Phase I, II, III, IV, etc), the number
          of patents and the duration of the trial,
     C.   when the product involves licenses from third parties,
          the royalty payments and terms, and 
     D.   the role of the government in the development of the
          drug, including the awarding of grants, cooperative
          research and development agreements, licenses, tax
          credits and other subsidies.

iii) Governments should publish data detailing the government's
     own costs of conducting clinical trials, which can be used
     as a benchmark.

iv). The government should publish reports detailing public
     expenditures on the purchase of products developed initially
     with public funds.  For example, how much do governments
     spend to buy such products as d4T, ddI, Novir, Taxol or

James Love
voice 1.202.387.8030

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