Richard A. Epstein is a law professor at the University of Chicago and a senior fellow at the Hoover Institution. His new book is Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation (Yale). He has from time to time consulted for Pfizer and PhRMA, an industry trade group.
So concludes an essay in today's Boston Globe headlined "What's Good for Big Pharma Is Good for America." Consider this essay and Professor Epstein's book the opening salvo in the coming war over drug pricing, which the Democrats vow to join in January.
What was shocking to me in reading this essay was how the good law professor could get so many basic facts wrong. For instance, at one point, he trots out the tired argument that it costs over $1 billion to develop a new drug. "In addition, their successful drugs must generate additional revenues to cover the predictable flops," he adds. Actually, the series of Pharma-funded Tufts University studies that generated the $1.2 billion number INCLUDES the cost of failure in its calculation.
But I long ago gave up expecting the various law and economics professors hired by Big Pharma to trot out something other than big lies. And, as a journalist, I am saddened by the fact that the editors of the Boston Globe, whose circulation area includes Tufts, are unable to catch such grievous errors.
But let's press on with our critique. Woe betides us, Epstein asserts, because $21 billion in annual industry sales will go off patent this year, and $24 billion over the next three years, "a sharp dent for an industry that today generates about $250 billion in revenue." With the FDA making it harder and harder to approve new drugs, the future of drug innovation is grave indeed.
Let's subject this shibboleth to some scrutiny. Add the two numbers up and we get an estimate (from Standard & Poors) that the industry will lose patent protection on $45 billion or 18 percent of its total sales over four years. Patents run for 20 years. Therefore, you'd expect to lose about five percent of revenue per year to generics. Over four years, that's 20 percent. So, if anything, the loss to patents over the next four years is running slightly below what you'd expect.
Having established his fact foundation on quicksand, Epstein begins building his real argument. Critics are making unreasonable safety demands, he argues, making it almost impossible to bring "innovative" new drugs to market. "The FDA has consistently upped the number and type of clinical trials for companies seeking approval of new drugs, so that today as many as 60 separate trials are often required. Fewer drugs make it through these hurdles, and those that survive the ordeal cost ever more to bring to market, "he writes.
Let's take today's Pfizer example, a new drug for raising good cholesterol (and thus lowering heart attack risk). The company's trial combined it with standard of care -- Pfizer's best-selling Lipitor ($13 billion in annual sales). Forget for a moment that the company originally planned to sell the new drug as part of a combination pill that included Lipitor so that it could extend the patent life of its biggest franchise, which runs out in 2010.
Over the weekend, the company had to pull this promising drug after learning the definitive clinical trial (the one aimed at FDA registration) turned up an excess of heart attacks. Whoops.
On the surface, the numbers did seem awfully small: a 60 percent increase in deaths, but only on a 51-death baseline. There were 7,500 people in the trial. But what does that increase mean when you give the drug to millions of people? If half the patients were in the new drug arm (3,750), and that resulted in an excess of 30 deaths, then that would add up to 8,000 extra deaths for every million people who took the drug combination. Since there's nearly 20 million people on Lipitor in this country, if even half of them were successfully switched to this new combination pill, that could have resulted in 80,000 excess deaths -- twice as many as die in car accidents every year.
No, Professor Epstein, I don't think the FDA has become "too strict." I think Pfizer did what any responsible company would do. And if they didn't, we, the public, would need a strong FDA to ensure that they did.
But now let's get to the real bottom line of his argument. All this cash flow is to get real innovation through the pipeline. But are new cholesterol management pills really what's needed to launch a major assault on heart disease in this country (it's the leading killer at nearly 900,000 deaths per year).
My apologies to Steven Nissen (he's the Cleveland Clinic cardiologist who was running the trial for Pfizer), who was widely quoted this morning lamenting the outcome of the trial. He's still looking for the next big thing in cholesterol management.
But I would humbly submit that the nation doesn't need to spend an extra $20 billion a year once Lipitor goes off patent on the next generation of pills. It needs to use half that money to hire an army of public health nurses to go out into communities that are being devastated by uncontrolled hypertension, poor diet, lack of exercise, excessive drinking, and unrelieved financial and social stress that are the real causes of the heart disease epidemic in this country.
We need the nation's preventive cardiologists to start sending that message -- every day, and in every way.