U.S. drug manufacturers actually spend about one-fifth of the amount that they claim it costs for the research and development required to market a new prescription drug. This finding was published last month in a report issued by Public Citizen’s Congress Watch, a Washington-based consumer advocacy organization. Rx R&D Myths is based on reviews of government and industry data.


The drug industry’s historic defense of extraordinarily high profitability has been that its revenues are critical for adequately funding the very high and risky investment costs of drug research and development (R&D). Current political efforts to control costs and thus industry profits will, the industry threatens, deprive Americans of important treatments. Alan Holmer, President of the Pharmaceutical Research and Manufacturers of America (PhRMA), the brand-drug industry trade association warned on National Public Radio, Believe me, if we impose price controls and if you reduce the R&D it’s going to harm my kids and it’s going to harm those millions of Americans who have life-threatening conditions.


But, according to Frank Clemente, director of Congress Watch, This R&D scare is built on myths and falsehoods. The report’s findings are politically important because the industry’s previously unchallenged scare tactics have been very effective in stymying efforts to provide Medicare drug coverage and rein in skyrocketing drug costs. PhRMA, of course, never mentions the fact that the majority of drugs brought to market (over 75%) are not innovative products with clinically important therapeutic gains. Many are so-called me-too drugs offering no advantages over existing products and with R&D costs that are much lower than those for truly innovative new products.


Congress Watch researchers found that the actual after-tax cash outlay for the R&D involved in getting a new drug to market is approximately $110 million dollars as opposed to the $500 million figure traditionally bandied about by the PhRMA. The new estimate of $110 million R&D outlay per new approved drug also includes the costs of R&D for those drugs that fail to reach the market.


The report also found that Industry R&D risks and costs are significantly reduced by taxpayer-funded research. An internal National Institute of Health document obtained by Congress Watch through the Freedom of Information Act showed that publically funded research is critical to the development of top-selling drugs. NIH estimated that 55% of the research projects leading to the discovery and development of the five top-selling drugs in 1995 were taxpayer funded.


Undaunted, PhRMA has stood by its $500 million per new drug R&D estimate. Jeff Trewitt, a spokesperson for the association said that the figure may even be conservative. PhRMA’s own higher estimate is based on a 1991 published study that, according to Public Citizen, included significant expenses that are tax deductible as well as higher than justifiable estimates of the financial risks of R&D.


The industry successfully fought a nine-year court battle all the way to the U.S. Supreme Court to keep the federal watchdog General Accounting Office from seeing all of its R&D financial records. While Congress has the authority to subpoena industry records it has so far failed to do so. Its reluctance just might be influenced by the industry behavior documented in another recent Congress Watch report.


The Other Drug War describes the drug industry as spending over $92 million to hire 625 lobbyists in 2000, half of whom were former members of Congress or had worked in Congress or other federal agencies. In all of 2000, the industry spent a total of $177 million on lobbying, $65 million on so-called issue ads attacking its political opponents and sprinkled $20 million around the halls of Congress in campaign contributions.


I wonder, if the industry has nothing to hide about how it calculates the R&D costs of a new drug, why does it so strenuously resist efforts by the independent General Accounting Office to examine its financial records?