Home
> Authors > CEOs Have No Cure For Rising Drug Costs
CEOs Have No Cure For Rising Drug Costs
By
Shannon Snow
January 31, 2005
Dean Philip Pizzo of the Stanford University School of Medicine
told an audience of 300 health industry executives last week
that the United States healthcare system is a "failure." Moderating
a panel of CEOs of biotechnology and pharmaceutical companies
at a healthcare forum sponsored by Stanford's Graduate School
of Business, Pizzo also expressed his concern about the effect
of rising drug development costs.
"We have a broken healthcare system,'" Pizzo stated.
The high cost of developing new medicines was a top priority
of the panel, entitled "Better, Faster, Cheaper." The
current price of bringing a new drug to market is between $800
million and $1.2 billion, according to a 2001 study by the Tufts
Center for the Study of Drug Development.
The CEOs claimed that multiple factors keep both the development
and market price of medicines high.
According to the executives, U.S. research and development process
is an expensive and often unfruitful endeavor. Only one in ten
drugs that enter clinical trials ever reaches the market. Others
are abandoned after years of research, never reaching the first
phase of trials.
New technologies to make drug development more efficient are
years away, said the industry leaders. Meanwhile, the current
hit-or-miss process has left companies with bloated costs that
they pass on to American consumers.
“Before the Internet, the United States was paying for
drug research and development. Big pharmaceutical companies made
a pact with the world to take on that role," said Corey
Goodman, CEO and co-founder of Renovic, a biopharmaceutical company.
A 2004 study by the conservative think tank the Cato Institure
came to the same conclusion.
But domestic price fixing that CEOs say subsidizes development
costs are increasingly being challenged in the global marketplace.
Generic drug companies abroad often charge only a fraction of
the U.S. price, leaving American patients to foot the bill.
Critics of the drug industry also point to the high profit margins
of pharmeceutical companies as another cause of inflated costs.
The return on investment for the five largest U.S. drug makers
-- Pfizer, Merck, Eli Lilly, Pharmacia, and Schering-Plough --
has averaged 30 percent since 1998, according to figures from
2001. Return on investment averaged only 21 percent for companies
in the Standard & Poor's 500 during the same periond.
State sponsored funding programs have slowly begun picking up
some of the slack for rising drug development costs, the executives
stated. In November, California passed Proposition 71, providing
$3 billion to fund stem cell research. New Jersey and Wisconsin
are also funding medical research efforts with state money.
But the state programs are few and far between. "Even in
the U.S., citizens in the blue states pay taxes to give drugs
to the red states," said Goodman.
The federal National Institute of Health has also scaled back
funding of drug research, according to Dean Pizzo.
The resulting climate of high development costs and lack of
state and national money has contributed to production of medicines
for the wrong reasons, said Goodman.
"There is a push for drugs that can be sold to everyone,
like a vitamin, but that's not what we need," he said.
Financial pressures also lead companies to reinvent an existing
drug with a broad market, instead of developing for a smaller
unfilled market. These medicines, called "follow-ons" or "me-too" drugs,
saturate large healthcare markets with numerous prescriptions
treating high-blood pressure, male impotence and cholesterol.
"We need to clamp down on me-too drugs," said William
Ringo, CEO of Abgenix pharmaceuticals, who added that follow-ons
will continues to pervade as long as the fiscal situation continues.
The financial strain of scientific discovery weighs heavily
on CEOs like James Sabry, who was trained as a physician and
believes strongly in the power of medicine.
"The great inventions of our time, telephones, computers,
airplanes, are all eclipsed by medicine," said Sabry. "Medicine
in the invention of our age. Even penicillin was only created
in the mid nineteenth century. It is a new industry and we should
value innovation."
But, as many patients are asking, at what cost?
"For a long time price wasn't an issue," said William
Ringo, "If a drug is extending life for two months or three
months, how do you value that?"
Contact Shannon Snow at ssnow@stanford.edu
