New GAO Report Debunks Drug Industry Myths

12/19/2006 06:14 pm ET | Updated May 25, 2011

The drug industry's mantra that it costs over $1 billion to develop a new
drug gets trotted out every time someone in Congress wants to do something
about the high price of drugs. With the incoming Democratic Congress
pledging to force Medicare to negotiate drug prices like the Veterans
Administration, the industry's counteroffensive has begun. I've already seen
several full page image ads (as opposed to product-specific ads) in the
nation's leading newspapers.

The industry's claim rests on a simple proposition. Without high prices,
research and development will be cut back. For the millions of Americans
suffering from cancer, heart disease, Alzheimer's, and (fill in the blank
with your most feared disease here), the fervently hoped-for miracles that
are just over the horizon will not emerge from industry's labs.

It's a compelling story, and total hogwash, as a new
from the Government Accountability Office released by leading
Congressional Democrats today shows. Rather than replicating the Tufts
Center for Drug Development methodology that generates the industry's much
ballyhooed "cost per drug" number, the GAO investigators interviewed dozens
of experts in an effort to explain why medical innovation is lagging.

The numbers are stark. Industry's inflation-adjusted investment in
R&D jumped 147 percent to nearly $40 billion between 1993 and 2004, but the
number of new drugs rose just seven percent. If one looks at all the new
drug applications approved by the Food and Drug Administration over that
decade, one finds that just 23 percent were rated as "priorities" by the
agency. In other words, three out of every four drug applications involved
drugs that either replicated the action of medicines already on the market
or were new formulations that added minor conveniences for patients and
doctors at best.

"Increases in research and development expenditures during the period have
not led to a cmmensurate increase in the innovative potential of NDAs (new
drug applications) submitted to the FDA," the report said.

Okay, so why hasn't more money for the drug industry led to more innovative
drugs? The most important reason, the report said, was that "the complexity
of the diseases to be addressed have increased." In other words, the
low-hanging fruit of the drug revolution has been picked. The diseases that
an aging population needs to address are diseases that have defied man's
ingenuity for decades -- no, centuries. Is more money the answer? Or must we
await a better understanding of the underlying mechanisms?

Yet, between 1983 and 1998 there was a 22 percent decline in the number of
physician-scientists working on these questions, the report noted.
Physicians willing to test new drugs in their patients are a dime a dozen,
and industry has hired plenty of them. But "lengthy training and relatively
lower compensation for physicians who are scientists" has undercut our
society's ability to do the hard work that might one day lead to real

The second major reason for lagging innovation in the drug industry most
innovative drugs "do not offer the same revenue-generating potential as
blockbuster drugs," which frequently must be tested on thousands of patients
because they offer only marginal health benefits -- like
cholesterol-lowering drugs, for instance. Moreover, once one company comes
up with a blockbuster, then the rest of the industry follows suit with their
own versions, the so-called "me-too" drugs.

Even if you buy the industry's argument that that these me-toos offer
"choice" for patients (I'm skeptical, but let's accept the premise for
argument's sake), the bottom line is that they require huge investments for
marginal gains in health, thus driving up the overall cost of industry R&D
that ultimatley gets passed along to consumers.

I'm glad to see the GAO, no bastion of radicalism, saying that drug
innovation depends on the further evolution of basic science, not pouring
more money into the coffers of the drug industry. This is a point I've made
over and over in speeches I've given since my book, "The $800 Million Pill,"
came out in 2004. Further, the GAO suggests that high prices for drugs will
only lead to more me-toos, not real innovation.

That powerful grist for the mills of Senators Ted Kennedy (D-Mass.) and
Richard Durbin (D-Ill.) and Rep. Henry Waxman (D-Cal.), who released today's
report. The bottom line is that in the coming debate over Medicare drug
price negotiations, industry's trump card is a joker. And if Congress is
really concerned about innovation, it would take some of the money saved
from lower Medicare prices and put it into the training of new
physician-scientists willing to dedicate their lives to understanding and
curing disease.