Intended for healthcare professionals


High cost of new drugs

BMJ 2016; 354 doi: (Published 27 July 2016) Cite this as: BMJ 2016;354:i4136

Authors' reply to Henk Jan Out

In the BMJ editorial (High Cost of New Drugs, BMJ 2016; 354: i4136), Mazzucato argued that drug prices do not take into account the very large role of the public sector in co-financing drugs, effectively causing the tax payer to pay twice—and many patients to not getting the medicines they need. In his response to this editorial, Henk Jan Out takes issue with the amount of public finance for drugs. He cites an article by Stevens et al. (1), but cites only a portion of this study so that it supports a very different conclusion than what the article actually shows. Stevens et al state “Our data show that public sector research institutes have contributed to the discovery of 9.3 to 21.2% of all drugs involved in new-drug applications approved during the period from 1990 through 2007” and conclude that “Public-sector research has had a more immediate effect on improving public health than was previously realized”. Moreover, the study was designed to specifically look for public sector contributions “in the applied phase of research”, thus excluding earlier research stages where public sector contributions tend to be the largest (as affirmed by Stevens et al.), and focused only on “research that led to discovery of a drug if it created intellectual property specific to the drug that was subsequently transferred to a company through a commercial license”, thus excluding any public sector research that was not the subject of a patent. As the authors explain, this approach led them to exclude examples like “Julius Axelrod’s research at the National Institutes of Health regarding the basic mechanisms of neurotransmitters, for which he received the Nobel Prize in 1970. This research provided the foundation for the pharmaceutical industry’s discovery of an entirely new class of drugs, the selective serotonin-reuptake inhibitors (SSRIs), which have been important in the treatment of depression. All the major SSRIs were discovered by pharmaceutical companies with the use of Axelrod’s basic discoveries and are therefore not included in our study”

If Out reviewed the more comprehensive and well known study by Sampat and Lichtenberg that analyzed the contributions of public and private sectors in new FDA approvals between 1988-2005 (2), he would learn that 47.8% of all 379 new drugs were found to have benefited from direct or indirect public sector support. For drugs that received FDA priority review, an indicator of public health relevance, this figure was even higher: 64.5% of 155 such drugs approved. This contribution in outcomes reflects major investments by the public sector: in the US, $61 Mn or 47% of the estimated $130 Mn spent on medical and health research in 2012 came from public and philanthropic sources (mainly the federal government) (3).

The Di Masi et al. estimates on the cost of R&D have been extensively critiqued elsewhere (4,5), including because they are not based on independently verifiable data, so we won’t go into that here. It should suffice to say that this is a highly controversial figure, not an accepted fact, and even GSK CEO Andrew Witty has admitted that the (then) “$1 billion price tag was one of the great myths of the industry" (6). For example, it includes ‘opportunity costs’ as though pharma companies could realistically NOT spend on R&D, but simply invest their funds in the stock market. Looking at actual expenditures on R&D, one could also cite the experience of the Drugs for Neglected Diseases initiative, whose not-for-profit R&D outlays for developing a new chemical entity are €30-40 Mn (7). The ever increasing figures for R&D costs cited ($5 Bn in the Forbes piece) may reflect more the financialized business model of the pharmaceutical industry in which advanced drug candidates are acquired as part of a company’s financial speculation than actual research investments (8). It also remains true that drug companies spend more on marketing than on R&D, and also more on share buybacks to boost stock prices (9) Indeed, more transparency on R&D costs, and the need to achieve a better innovation model for both the public and private sector, was the key point of the editorial.

Finally on the quality of the medical innovation. While just 16 (36%) and not “nearly half” of the 45 novel drugs approved by the FDA in 2015 were first-in-class, Out mistakenly assumes that a first-in-class drug that receives regulatory approval represents useful medical innovation and provides added clinical benefit. Unfortunately, this is not the case. As the FDA observes on their website (9): “in some cases a new molecular entity may have actions similar to earlier drugs and may not necessarily offer unique clinical advantages over existing therapies”, and this is independent of being first-in-class. Notably, the FDA itself has only designated 10 of the 2015 novel drugs (22%) as “breakthrough therapies”, drugs with preliminary clinical evidence demonstrating that the drug may result in substantial improvement on at least one clinically significant endpoint over other available therapies (10). A series of independent studies have repeatedly demonstrated how a large majority of newly approved drugs has no or limited added therapeutic value (11,12,13,14). While the exact figures vary depending on the methodology used or the country/period under study, the overall trend is clear and widely accepted to be more than 70% (some studies suggest even close to 90%). The main reason for this is that, after intense lobby efforts from the pharmaceutical industry, the FDA and other regulatory authorities do not require the demonstration of added clinical benefit compared to what is already on the market (15), leading to an enormously wasteful R&D process. Unfortunately, the lack of added therapeutic value does not prevent a drug to be a blockbuster, as is illustrated in the high price of new cancer drugs, despite their often very limited clinical benefit (16). Meanwhile, the current short term profitability focused pharmaceutical business model is distorting research priority setting in ways that undermine the public health interest. For instance, high cancer drug prices are stifling progress by encouraging enormous expenditures of time, money, and resources on marginal therapeutic indications while promoting a me-too mentality that is stifling innovation and creativity (16). Similarly, pharmaceutical firms are thought to “underinvest” in drugs that would combat early-stage cancers and could have major long term benefits, partly because the corresponding clinical trials for such cancers simply take longer than those for drugs treating patients with late-stage cancers, where expected clinical benefits are much smaller (17).

Mariana Mazzucato, RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex

Els Torreele, PhD, Director Access to Medicines and Innovation, Open Society Foundations

1. Stevens AJ et al. The Role of Public-Sector Research in the Discovery of Drugs and Vaccines. N Engl J Med 2011; 364: 535-41.
2. Sampat B and Lichtenberg F. What Are The Respective Roles Of The Public And Private Sectors In Pharmaceutical Innovation? Health Affairs 2011; 30: 332-339
3. Research America report. Truth and consequences: Health R&D spending in the US (FY11-12), available at
4. KEI comment on the new Tufts Study on Drug Development Costs, 2014, available at
5. Light D and Warburton R. Pharmaceutical R&D’s Costly Myths. PLoS Blog Speaking of Medicines 2012, available at
6. Hirschler B. GlaxoSmithKline boss says new drugs can be cheaper. Reuters 2013, available
7. An Innovative Approach to R&D for neglected patients: ten year of experience & lessons learned by DNDi. Drugs for Neglected Diseases initiative, 2013, available at
8. Roy V and King L. Betting on hepatitis C: how financial speculation in drug development influences access to medicines. BMJ 2016;354:i3718
9. Lazonick, W. (2014). Profits without prosperity. Harvard Business Review, 92(9), 46-55
11. Light D and Lexchin J. Pharmaceutical research and development: what do we get for all that money? BMJ 2012;344:e4348, available at
12. Ward D, Slade A, Genus T, et al. How innovative are new drugs launched in the UK? A retrospective study of new drugs listed in the British National Formulary (BNF) 2001-2012. BMJ Open 2014; 4:e00623, available from
13. New drugs and indications in 2014. Some advances this year, but many drugs are poorly evaluated, too expensive, or more dangerous than useful. Rev Prescrire Feb 2015; 35(376):132-136, available at
14. Vitry AI, Shin NH, Vitre P. Assessment of the therapeutic value of new medicines marketed in Australia. Journal of Pharmaceutical Policy and Practice. 2013;6:2. doi:10.1186/2052-3211-6-2, available at
15. Angell M. The truth about the drug companies: how they deceive us and what to do about it. Random House, 2004.
16. Fojo T, Mailankody S, Lo A. Unintended Consequences of Expensive Cancer Therapeutics—The Pursuit of Marginal Indications and a Me-Too Mentality That Stifles Innovation and Creativity: The John Conley Lecture . JAMA Otolaryngol Head Neck Surg. 2014;140(12):1225-1236
17. Williams H, Budish E, Roin B. Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials. American Economic Review 2015; 105(7): 2044-2085

Competing interests: No competing interests

17 August 2016
Mariana Mazzucato
R M Phillips professor in the economics of innovation
Els Torreele (Director, Access to Medicines & Innovation Public Health Program, Open Society Foundations, New York, NY 10019, USA)
Science Policy Research Unit, University of Sussex, UK