Biotech Drugs: Are they responsible for rising treatment costs?

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Biotechnology innovation comes at a heady cost: About $1.2 billion per new medicine, according to the Tufts Center for the Study of Drug Development. On average it costs more and takes longer—97.7 months versus 90.3 months—to get a complex biologic therapy through human testing and regulatory review than it takes to do the same for more traditional medicines made by pharmaceutical companies, a recent study by the center says.

The study from the Tufts University-affiliated center, which receives funding from the drug industry, comes at a time when biotechs are facing growing criticism about the rising cost of new biologic agents, such as Genentech’s cancer therapy Avastin.

Avastin, approved three years ago as a treatment for colorectal cancer, eventually won approval as a treatment for lung cancer—at a cost of about $100,000 per patient. But the drug prolongs the life of lung cancer patients by only about two months. Last October, Genentech tried to deflect critics by capping the total cost of Avastin at $55,000 a year for patients below a certain income level.

Jerry Flanagan, health care policy director for the Foundation for Taxpayer and Consumer Rights, dismisses the Tufts report’s drug industry-generated “fuzzy numbers.” He took exception to the report’s $1.2 billion “average capitalized cost” per biotech product. The capitalized cost calculates both the cash spent by a biotech in developing a drug and the implicit cost to investors of having funds expended for years before there is a return.

In terms of real out-of-pocket cash spent by biotechs per approved new biotech drug, the figure was $559 million, according to the Tufts study. “The data the drug industry produces for these studies is highly questionable,” Flanagan says. “And the capitalization of investment income is totally irrelevant to the cost of a drug; to count that with the cost of a drug is inexcusable.”

Biotech companies like Genentech have been pricing patients out of life itself by charging astronomical prices for life-extending medications, he says. “The dirty little secret that companies don’t want people to know is that 44 percent of all health research and development is paid for by taxpayers (through government-funded research grants and clinical trials),” he says.

Joseph DiMasi, director of economic analysis for the Tufts Center, says the $1.2 billion estimate reflects the costs of drugs that fail in testing and the time costs associated with bringing a therapy to market. Such capitalized costs are relevant to the health care debate, he says. “Society should care because these are enormous sums,” DiMasi says. “If we can shorten the drug development process, and reduce the time cost, that would be a benefit to all. It would lower out-of-pocket costs, increase innovation incentives and serve as a spur to further investment.”

Adjusted for inflation, the average cost of developing a traditional drug in 2005 was about $899 million, according to the center. Making comparisons is tricky because pharmaceutical industry costs may not have changed to the same degree in recent years, and costs typically vary by therapeutic class, DiMasi says.

Unlike prescription medicines made from synthetic chemicals, biotech drugs—such as monoclonal antibodies and recombinant proteins—are derived from natural substances in the body. Joseph Panetta, president of Biocom, the San Diego, Calif., biotech industry association, says the price of biotech drugs are higher in part because the industry usually tackles tougher diseases. The biotech industry is also a comparatively new one that hasn’t yet developed the cost efficiencies, from discovery research to manufacturing, which the older pharmaceutical industry has realized.

“Biotech is still in its infancy,” says Panetta. “The kinds of therapies biotechs pursue, the ones that are on the market, are revolutionary—a monoclonal antibody like Rituxan, for non-Hodgkin’s lymphoma, can’t compare with the latest of several heartburn drugs coming out of pharma,” he says.
The Tufts biotech study, which relied on product-specific costs for a sample of 17 unidentified biotech medicines from four unidentified firms, shows that biotech products had an overall approval success rate of 30.2 percent, versus 21.5 percent for traditional pharmaceutical company drug pipelines.