PhillyDeals: Analysis: U.S. drug development inefficient
Anyone happy that one-sixth of the national income is gobbled up by health-care companies? Sure. Ask the people who own them.
Anyone happy that one-sixth of the national income is gobbled up by health-care companies?
Sure. Ask the people who own them.
The proportion Americans spend on health care "keeps going up and up, but you have to spend your GNP [gross national product] on something. Why not health care?" asks Edward P. Owens, a Boston money manager who picks drug, medical-insurer, and biotech stocks for the $18 billion Vanguard Health Care mutual fund, in the current issue of publisher Dan Wiener's Independent Adviser for Vanguard Investors.
"The result of our GNP being more heavily in
health care than any other developed country has the benefits of creating huge infrastructure in the sciences," Owens adds.
Why, Owens wonders, would we wreck a system that's working? "We are clearly world-dominant in many areas of health-care research."
That's conventional wisdom - that "most new drugs that are discovered are better than existing drugs, and most come from the United States" - but it's wrong, says Donald W. Light, professor of social medicine at the University of Medicine and Dentistry of New Jersey and a visiting professor this fall at Stanford University.
Writing in the journal Health Affairs last month, Light "re-analyzed" data from an influential study comparing drugs developed by U.S.- and Europe-based pharmaceutical companies from 1982 to 2003.
That earlier study, by Duke economist Henry Grabowski and Richard Wang, Wilmington-based AstraZeneca P.L.C. policy and research analyst, counted new and popular drugs developed by companies on both sides of the Atlantic.
They concluded that U.S. firms came from behind to beat European rivals in the 1990s in "the introduction of first-in-class biotech and orphan products."
They noted that was about what they'd expected, given "the combination of low regulatory barriers and a market-oriented approach to the pricing of new drugs" in the United States in those years, compared to those government-burdened Europeans.
Dollar for dollar
Light based his later analysis on what he said was the same data Grabowski and Wang used.
He considered not just the number of drugs developed, but also the money spent on drug research in the United States compared with Europe.
And he discounted drugs that didn't offer new treatments, but only competed with existing products by other manufacturers. By Light's count, "only about one in seven new drugs are better than existing drugs." The others are sold for mere business reasons.
"If you control for the fact that far more money is being invested here," and consider each drug is "first-in-class" as opposed to merely competing with existing products, "it turns out, dollar-for-dollar, that Europeans find more of them," Light told me.
America's pharmaceutical giants "develop and market drugs that add little value" to what's already on the market. And European companies' research - despite drug-cost controls - is more efficient, even in those European countries that, by law, limit drug-sellers' profits.
His article earned Light a quick, scolding reply from the U.S. drugmakers' lobby, the Pharmaceutical Research and Manufacturers of America.
"In the not-too-distant past, the U.S. was not the world's medicine chest," wrote PhRMA senior vice president Ken Johnson.
He credited moves by an earlier Congress to avoid "ill-conceived public policies - including government price controls and sluggish regulatory decision-making."
"Last year, America's pharmaceutical research and biotechnology companies continued to lead the world in research of new medicines, investing a record $65.2 billion in R&D," Johnson said.
American companies spend more on R&D, so I asked Light if that was a symptom of poor planning or evidence that higher profits attract more investment. By sheer volume, wouldn't that likely produce more powerful medicines, even if it wasn't as efficient on a drug-per-drug basis?
Light wasn't buying any. "The American policy that allows corporate-controlled prices, I don't see how that increases innovation," he told me. "It just means you pay more."