The wildly outrageous costs of pharmaceutical drug production

Drug companies – “Big Pharma,” as they are called – are targets in America. Especially with Mylan’s recent EpiPen pricing issue and earlier when Turing’s odious CEO Martin Shkreli raised the price of Daraprim by more than 55 times, from $13.50 per pill to $750 per, and his smug reaction to criticism over that questionable move. There are bad guys in all areas of life, of course, and pharmaceutical companies are no exception. Perhaps these two examples are evidence of bad players at work.

Without getting into the minutiae of either of these situations – and certainly not defending either Mylan or Turing – here is some badly needed and eye-opening information about the business of producing pharmaceuticals.

Making drugs is a business, and like other manufacturers drug producers find something people need or want and produce it. Life-saving drugs, or drugs that improve our health are valuable and needed. Drug companies spend billions of dollars over many years to develop useful, needed pharmaceutical products, improve them so that they will meet or surpass the FDA’s strict standards, and once approved market them.

In June of this year, the American Action Forum released research addressing the process of producing new drugs. The process “is extraordinarily expensive and time consuming,” the article stated. “A Tufts University study found that the average cost to bring just one drug to the market is about $2.6 billion. It takes an average of 15 years from the time a drug developer first begins testing a new formula until it is approved by the FDA. Only 1 in 1,000 drug formulas will ever enter pre-clinical testing, and of those, roughly 8 percent will ultimately receive FDA approval.”

Let’s say PharmX creates 100,000 drug formulas, but only one in a thousand, or 100 of them, gets to pre-clinical testing and only eight will receive FDA approval. PharmX will have invested on average $2.6 billion in each one of the eight. The company has to sell enough of each of those eight drugs to pay for its development, and to have enough left over to finance new research and development, and some profit.

Like other inventors, drug companies patent their products, or receive an exclusivity period. A patent is issued for 20 years from the date of filing, and drug makers usually file early in the development stage to prevent other companies from moving in on their idea. If it takes an average of 15 years to get a drug through approval and to market, the pharmaceutical company has on average only five years to sell enough of the drug to recoup the $2.6 billion in development, approval and marketing costs. At the end of the patent period and/or the exclusivity period, another drug maker might make a generic form of the drug, and sell it for a lot less.

So, when you do the math for a drug with development costs of $2.6 billion, you find that if PharmX charges a dollar a dose, it will have to sell 2.6 billion doses in five years just to break even. If PharmX charges $100 a dose, it will have to sell 26 million doses in five years, just to break even. John LaMattina, senior partner at PureTech venture capital, noted that drug development “is a high-risk, expensive, and long-term endeavor.” Classic understatement.

Another aspect of this issue is when drugs made by US companies cost more at home than they do in other countries, such as Canada. It doesn’t seem right that Canadians can buy American drugs cheaper than Americans can. But what is the drug company supposed to do when the Canadian government, or another government, wants to buy millions of dollars of its product at lower than market price when it is trying to recoup billions in costs? There are likely other drugs made by other companies that treat the same disease that these governments could buy instead, so should the drug company pass up that opportunity, leave the millions of dollars on the table, and perhaps suffer financially as a result, while a competitor sells millions of dollars of its product to these countries at a below-market price?

Another obstacle to manufacturers’ ability to recoup the cost of bringing a new drug to market is that regulations imposed by other countries, perhaps to protect one of their own companies, makes the potential market for sales smaller.

And, despite the rigorous development and testing process required to gain the FDA’s approval that the drug is safe for public use, the required warnings about potential side effects and such that go on product sheets, and the fact that drugs are prescribed by patient’s doctors, drug manufacturers still get sued by patients.

Doing business in the U.S. is a real challenge, with often burdensome and unreasonable regulations and other hurdles that must be negotiated that make producing needed and wanted products and services difficult and expensive.

The more expensive drug production is, the greater the need for high prices. While we would all like lower prices for drugs and healthcare in general, we also want to continue to have companies developing new and better drugs and medical devices.

So, the Republicans decreased funding for the CDC’s Ebola research

An ad produced and being run by the Agenda Project Action Fund says Centers for Disease Control and Prevention (CDC) funding has been cut by $585 million since 2010 and the National Institutes of Health (NIH) saw its budget cut by $446 million. Interspersed along the way are brief visuals of various Republicans who at some time in their public life uttered the word “cut,” and have had that split-second of their life included in this ad: “cut,” “cut,” “cut,” “cut.”

And then the CDC director, Dr. Thomas Frieden, is shown saying that there are disease outbreaks that his agency is not able to act against “as effectively as we should be able to.” And finally disturbing images of Ebola sufferers appear, followed by the words “Republican cuts kill” just prior to advising people to “Vote.”

We can forgive Dr. Frieden for ending a sentence with a preposition, which is at worst a minor slip-up, but we cannot forgive the Agenda Project for flagrantly lying that Republicans – or anyone – cut funding for the CDC and the NIH, preventing them from developing a vaccine for Ebola.

For verification of that assertion we look to one of the most liberal of voices, The Washington Post. It gave the ad its gold seal: Four Pinocchios, which the Post categorizes as “Whoppers.”

The Post story explains “For NIH, since 2006, there has been relatively little change in the size of the budget, going from about $28.5 billion in 2006 to $30.14 billion in 2014. … (The agency also received a $10 billion windfall in 2009 from the stimulus law.)”

“As for the CDC,” the Post continues, “you will see a similar pattern. The numbers have bounced around $6.5 billion in recent years. (CDC receives both an appropriation from Congress and, since 2010, hundreds of millions of dollars from the Prevention and Public Health Fund established by the Affordable Care Act.) Before 2008, the agency received less than $6 billion a year. In fiscal year 2013, the White House proposed a cut in CDC’s funding, but Congress added about $700 million. In 2014, the administration again proposed reducing the budget, but Congress boosted it to $6.9 billion.” In case you aren’t aware, the House of Representatives is under control of Republicans, and has been since 2010.

However, even if the CDC and NIH budgets had been cut, every manager in the public sector is obligated to spend the available funds in the smartest and most beneficial way; put whatever funds you have where they are most needed, and if necessary seek authorization to do so.

How well did the managers of these agencies do with the billions of taxpayer dollars they have at their disposal? The NIH thought that studying the sex life of fruit flies at a cost of $1 million took precedence over Ebola. Likewise, spending $1.5 million studying why lesbians have a tendency to be overweight, while gay men don’t was more important than an Ebola vaccine. As was spending $688,000 to determine why people watch “Seinfeld” reruns and $355,000 on a study of how quickly husbands and wives calm down after an argument.

For its part, the CDC’s mission statement says in part, “Whether diseases start at home or abroad, are chronic or acute, curable or preventable, human error or deliberate attack, CDC fights disease and supports communities and citizens to do the same.” In support of that lofty goal, the CDC used some of its billions studying seat-belt use and infant car seats, built a second finely appointed visitor center in Atlanta to the tune of $106 million, spent $10 million more on furniture for the new building, and helped Hollywood devise medical plots to the tune of $1.7 million. And of the more than $3 billion CDC received from the Affordable Care Act to research dangerous diseases, it has spent only $180 million on that project, but not on Ebola.

And after asking Congress for extra funding in 1999 for a syphilis project, and receiving double the amount of funding it requested, the CDC responded by hiring porn stars and strippers to speak at public events, all the while the number of reported syphilis cases had doubled by 2005. Oh, and the CDC spent $25 million of our money on bonuses for employees over recent years.

Both agencies spent millions to study that mysterious bacterial infection, “gun violence.”

If you want to know why the CDC doesn’t have a vaccine for Ebola and why it hasn’t prepared the nation’s hospitals to handle people infected with the Ebola virus, you probably ought to look to the party whose backside the Agenda Project is trying so desperately to cover, the one that was elected to run the government efficiently. Incidentally, Republicans are not in charge of the CDC or the NIH.

With an important mid-term election two weeks away, the message at the end of this sleazy ad to vote should be heeded. However, voters should remember dishonest ads like this one that attempt to cover up the gross incompetence in administrative agencies, along with the other scandals that still exist, but that the mainstream media has kept below the radar.