But why contend with the DiMasi numbers and submit your analysis to a leading economic journal when you can just fabricate your own lowball estimates and get published in a second-tier medical journal run by your friends and allies in the war against Big Pharma?
That’s what Vinay Prasad and Sham Mailankody did when they published Research and Development Spending to Bring a Single Cancer Drug to Market and Revenues After Approval in JAMA Internal Medicine. The study looks at 10 small biotech companies that successfully developed a cancer drug over the past 15 years, The authors conclude that on average it costs $648 million (not including capital costs) to develop a drug to generate an average of $7 billion in revenue. They also claim that “sales of these 10 drugs since approval was $67.0 billion compared with total R&D spending of $7.2 billion.”
In a shot at DiMasi, Prasad and Sham claim “this analysis provides a transparent estimate of R&D spending on cancer drugs and has implications for the current debate on drug pricing.”
In fact, the article consists of falsehoods, carefully constructed to fit that narrative. And that’s not including many of the study’s methodological flaws such as inflating all prior spending and revenues to 2017 dollars and using a low cost of capital (7 percent) when the cost of capital for biotech is closer to 16-20 percent.
Far worse is the outright distortion of data to reach a preordained conclusion. To get to $67 billion in revenues from $7.2 billion in R&D, the authors had to count the proceeds of acquisitions as product sales. They included Pfizer’s acquisition of Medivation for $14 billion, Takeda’s purchase of Ariad for $4 billion, Abbie Vie’s acquisition of Pharmacyclics for $22 billion.
Next, the authors understate R&D expenditures. (To find that data and other information the authors “reviewed publicly available SEC 10-K filings, available at the SEC website ...and all expenses listed as R&D were totaled for the cumulative duration of R&D for each drug.”)
In fact, after reviewing the same 10-K filings it is clear the authors deliberately exclude R&D for expanded uses of the approved drug, post-marketing studies and trials needed for approvals in other countries. They also exclude any R&D spending for new projects even though the revenues of the approved drug were being used to fund those efforts.
The charts below take the data from the 10K reports of the companies the authors surveyed and states it as reported to the SEC. Absent the Enron style accounting of the authors, the data is a more truthful representation of the total R&D and profits (or losses) the companies generated individually and as a ‘portfolio’.
Whereas the authors want you to believe there is a $60 billion profit from R&D in fact, only 2 of the 10 companies had cumulative profits. As a ‘portfolio’ the group lost money and spent 66 percent of gross profits on R and D. Prasad and Sham claim that it’s only 10 percent of revenues.
Further, the authors are conspicuously uninterested about what companies did with revenues from approved products. In fact, every company increased R&D and spent more on production facilities over the years reviewed. As I noted, much of the added spending went to finding new therapeutic uses for their products, as well as completing post-marketing studies and trials to obtain approval overseas. Ignoring that R&D investment is also hypocritical since the purchase price of the companies that the authors misleadingly count as revenue were based on the pipeline and the platform producing the each firm's approved drug.
Indeed, an objective editor of a journal of economics would have caught this intellectual malfeasance. More broadly, an editor might have if developing new drugs is anywhere from 75 to 90 percent cheaper than reliable and reproducible estimates of about $2 billion, why haven’t more companies jumped in? If these activists have cracked the code of drug development set up a company and sell drugs at their “just price” (slightly above the cost of production) why haven’t venture capitalists funded their startup? Because the model the authors construct is based on lies that promote a fiction that cannot be found in the real world.
But that’s the point. The depiction of profitability especially among the smaller companies that are the largest source of new medicines is deliberately deceptive. It is designed to replace objective truth with a narrative and hard evidence with soft propaganda.
The article should be retracted, but that’s unlikely. Prasad discloses that he receives funding from the Laura and John Arnold Foundation. So does ICER. That connection is important because Rita Redberg, the editor of JAMA Internal Medicine is also working for ICER and her position is largely possible because of Arnold funding as well. Moreover, Redberg wrote an article with Prasad to support ICER’s position on the price of specific medicines and supports Prasad’s assertion that most cancer drugs are not really that effective.
The Prasad and Redberg collaboration, including the use of medical journals as outlets, is part of a bigger effort and group of activists funded by the Arnold Foundation. In addition to Prasad and ICER (and others), the Arnold Foundation is funding media outlets to spread these mistruths once they are placed in medical journals friendly to the cause. The goal is to replace objective truth with a narrative in which the enlightened Arnold acolytes tell the rest of us what drugs should cost, what medicines we should use and what lives are worth saving.