Office of Technology Assessment. Pharmaceutical R And D: Costs, Risks And Rewards

359 Pages·2005·6.009 MB·English

Pharmaceutical R&D: Costs, Risks, and
Rewards
February 1993
OTA-H-522
NTIS order #PB93-163376
GPO stock #052-003-01315-1
Huangzhiman 2003.12.30
www.dnathink.org
Recommended Citation:
U.S. Congress, Office of Technology Assessment, PhurrnaceuficaZ R&D: Costs,
Ris/u and Rewards, OTA-H-522 (Washington, DC: U.S. Government Printing
Office, February 1993).
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ISBN 0-16 -041658-2
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oreword
P
harmaceutical costs are among the fastest growing components of health
care costs today. Although increases in the inflation-adjusted prices of
ethical drugs and perceived high prices of new drugs have been a con-
cern of congressional committees for over 30 years, the growing Federal
role in paying for prescription drugs has increased the concern over the appro-
priateness of prices relative to the costs of bringing new drugs to market.
Specific policies of U.S. and other governments can alter the delicate balance
between costs and returns to pharmaceutical R&D, with ramifications for the
future health of Americans, for health care costs, and for the future of the U.S.
pharmaceutical industry.
OTA’s report focuses mainly on the economic side of the R&D process.
Pharmaceutical R&D is an investment, and the principal characteristic of an
investment is that money is spent today in the hopes of generating even more
money in the future. Pharmaceutical R&D is a risky investment; therefore, high
financial returns are necessary to induce companies to invest in researching new
chemical entities. Changes in Federal policy that affect the cost, uncertainty and
returns of pharmaceutical R&D may have dramatic effects on the investment
patterns of the industry. Given this sensitivity to policy changes, careful consid-
eration of the effects on R&D is needed.
The specific request for this study came from the House Committee on
Energy and Commerce and its Subcommittee on Health and the Environment.
The Senate Committee on the Judiciary’s Subcommittee on Antitrust,
Monopolies, and Business Rights endorsed the study.
OTA was assisted in this study by an advisory panel of business, con-
sumer, and academic leaders chaired by Frederick M. Scherer, Ph. D., Professor
of Economics, John F. Kennedy School of Government at Harvard University.
OTA gratefully acknowledges the contribution of each of these individ-
uals. As with all OTA reports, the final responsibility for the content of the
assessment rests with OTA.
Roger Herdman, Acting Director
. . .
Ill
A
dvisory Panel
Frederick M. Scherer, Chair Lewis A. Engman Judy C. Lewent
Professor of Economics Partner Senior Vice President and Chief
John F. Kennedy School of Winston & Strawn Financial Officer
Government Washington, DC Merck & Company, Inc.
Harvard University Whitehouse Station, NJ
Cambridge, MA Thomas Q. Garvey, Ill
President George B. Rathmann
Jerome Avorn Garvey Associates Inc. Chairman of the Board
Director Potomac, MD ICOS
program for Analysis of Clinical Bothell, WA
Strategies Frederic Greenberg
School of Medicine Partner Shyam Sunder
Harvard University EGS Partners Professor of Management and
Boston, MA New York, NY Economics
School of Industrial Administration
Nancy L. Buc Robert Helms Carnegie-Mellon University
Partner Resident Scholar Pittsburgh, PA
Weil Gotshal & Manges American Enterprise Institute
Washington, DC Washington, DC Jacob C. Stucki
Retired Vice President for
Martin Neil Baily Gene Kimmelman Pharmaceutical Research
Professor of Economics Legislative Director The Upjohn Company
University of Maryland Consumer Federation of America Kalamazoo, MI
College Park, MD Washington, DC
W. Leigh Thompson
William S. Comanor Jeffrey Levi Executive Vice President
Professor of Economics Director of Government Affairs Eli Lilly & Company
University of California AIDS Action Council Indianapolis, IN
Santa Barbara, CA Washington, DC
NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel
members. The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes fill responsi-
bility for the qort and the accuracy of its contents,
iv
P
roject Staff
Roger C. Herdman PRINCIPAL STAFF OTHER CONTRIBUTING STAFF
Assistant Director
JUDITH L. WAGNER Jacqueline C. Corrigan
OTA Health and Life Sciences
Project Director Senior Analyst
Division
Philip T. Polishuk
Clyde J. Behney Michael E. Gluck Research Assistant
Health Program Manager Senior Analyst
Penelope Pollard ADMINISTRATIVE STAFF
Senior Analystl
Beckie Erickson
Office Administrator
Timothy W. Brogan
Research Assistant2 Eileen Murphy
P.C. Specialist
Lara Jakubowski
Research Assistant3 Carolyn Martin
Secretary
David J. Kaufman
Research Assistant
Arna M. Lane
Research Analyst
PRINCIPAL CONTRACTORS
Roseanne Altshuler Richard Frank Stephen W. Schondelmeyer
Rutgers University The Johns Hopkins University University of Minnesota
William R. Baber Alan Garber Gordon Sick
George Washington University Palo Alto Department of Veteran Affairs University of Calgary
and Stanford University
Lester Chadwick Ellen S. Smith
University of Delaware Elizabeth Jensen consultant
Hamilton College
Robert Cook-Deegan Steven J. Wiggins
consultant Albert Link Texas A&M University
University of North Carolina at Greensboro
Joseph DIMasi
Tufts University Stewart C. Myers
Massachusetts Institute of Technology 1 From September 1989 to September 1991.
W. Gary Flamm 2 From Feb~q 1991 to Febw 1992.
SRS International, Inc. Lynn Powers 3 From Auwst 1989 to JUIY 1991.
Editorial Consultant
v
v i i
J
Conclusions, 72
Recent Trends in the Cost of R&D, 69
Tax Savings From R&D, 67
Other Factors Affecting Validity, 66
Validity of R&D Costs Estimates, 54
Existing Studies of R&D Costs, 48
A Framework for Estimating R&D Costs, 47
3 The Costs of Pharmaceutical R&D,
4 7
Interpreting Aggregate Trends, 46
Directions of Pharmaceutical R&D, 44
Expenditures, 43
,
4
Trends in Worldwide Pharmaceutical R&D
Trends in Domestic R&D Spending, 42
H o w t o M e a s u r e R & D S p e n d i n g , 3 9
Expenditures, 39
2 R e s e a r c h a n d D e v e l o p m e n t
Federal Support for Pharmaceutical R&D, 34
R & D , 3 3
Federal Tax Policies Affecting Pharmaceutical
The Regulation of Pharmaceutical R&D, 32
Payment Policy and Returns on R&D, 26
Industry Response: Increasing R&D, 24
Total Pharmaceutical Industry Returns, 23
Returns on R&D: The Evidence, 19
R&D Costs: The Evidence, 10
The Nature of Pharmaceutical R&D Investments, 4
Issues Beyond the Scope of This Study, 4
O r i g i n s a n d S c o p e o f O T A ’ s S t u d y , 3
I n t r o d u c t i o n , 3
S u m m a r y o f F i n d i n g s , 1
Summary, 1
1
c
ontents
4 Returns on Pharmaceutical R&D, 73
Returns on R&D: The Evidence, 76
Total Pharmaceutical Industry Returns, 95
Findings and Conclusions, 104
5 Trends in Science, Technology and Drug
Discovery, 105
Drugs and Receptors, 106
Protein Analysis and Proteins as Pharmaceutical
Agents, 113
Genetics in Biomedical Research, 119
DNA as a Therapeutic Agent, 127
Discovery Increasingly Driven by Biomedical
Research, 131
Implications for Future Pharmaceutical
R&D Cost, 132
6 Government Regulation and Pharmaceutical
R&D, 135
The Impact of Pharmaceutical Regulation on R&D
Costs and Output, 136
The U.S. Regulatory Review Process for New
Drugs, 138
Efforts to Expedite FDA New Product
Regulations, 151
Trends in the R&D and Regulatory Review
Processes, 158
Trends in the Regulation of Pharmaceuticals in
Other Countries, 163
Conclusions, 167
7 Product Liability and the Pharmaceutical
Industry, 169
Product Liability and Pharmaceutical R&D, 169
Pharmaceuticals and Product Liability Law, 170
Product Liability Insurance, 172
Product Liability Claims and R&D, 173
Government Policy and product Liability, 180
Conclusions, 182
. . .
Vlll
8 Federal Tax Policy and Drug Research and
Development, 183
Analyzing Tax Policy, 183
Tax Deductions and Taxable Income, 184
Tax Credits, 186
Other Nations’ R&D Tax Incentives, 197
Conclusions, 198
9 Federal Support for Pharmaceutical
Research and Development, 201
Federal Support for Life Sciences, 203
Collaboration Between Pharmaceutical Firms and
Academia, 206
Targeted Federal Pharmaceutical R&D Programs, 210
Industry Collaboration With Federal Research
Laboratories, 217
Orphan Drugs, 225
Medicare and Medicaid Support for Clinical
Drug R&D, 232
Conclusions, 233
10 Trends in Payment for Prescription
Drugs, 237
Health Insurance for Prescription Drugs in the
United States, 238
Prescription Drug Benefits in Other Countries, 250
Conclusions, 262
APPENDIXES
A Method of Study, 265
B Acknowledgments, 269
C The Cost of Capital, 276
D Congressional Access to Proprietary
Pharmaceutical Industry Data, 284
ix
E Patent Protection of Pharmaceuticals in the
United States, 290
F Summary of Methods Used to Analyze Trends in
Postpatent Revenues, 294
G Estimating the Cost of Producing and Selling
New Chemical Entities, 302
H Methods of OTA’s Survey of Clinical
Trial Size, 308
I Methods Used in OTA's Study of Success Rates for
New Molecular Entities, 309
J Estimates by OTA and JCT of Federal
Tax Credits Attributable to Pharmaceuticals, 310
K Federal Programs Dedicated to Pharmaceutical
R&D, 311
L Acronyms and Glossary of Terms, 316
REFERENCES, 323
INDEX, 347
I
n this assessment, the Office of Technology Assessment
examined the costs of pharmaceutical research and
development (R&D), the economic rewards from that
investment, and the impact of public policies on both
costs and returns. Below is a brief synopsis of the study’s major
conclusions:
SUMMARY OF FINDINGS
. Pharmaceutical R&D is a costly and risky business, but in
recent years the financial rewards from R&D have more
than offset its costs and risks.
. The average aftertax R&D cash outlay for each new drug
that reached the market in the 1980s was about $65
million (in 1990 dollars). The R&D process took 12
years on average. The full aftertax cost of these outlays,
compounded to their value on the day of market
approval, was roughly $194 million (1990 dollars).
. The cost of bringing a new drug to market is very sensitive
to changes in science and technology, shifts in the kinds
of drugs under development and changes in the regula-
tory environment. All of these changes are occurring
fast. Consequently, it is impossible to predict the cost of
bringing a new drug to market today from estimated
costs for drugs whose development began more than a
decade ago.
l Each new drug introduced to the U.S. market between 1981
and 1983 returned, net of taxes, at least $36 million more
to its investors than was needed to pay off the R&D
investment. This surplus return amounts to about 4.3
percent of the price of each drug over its product life.