Tuesday, December 05, 2006

torcetrapib: "$800 Million" Failure but Kindler Safe

Expect to see Pfizer’s failed attempt to bring torcetrapib to market as an oft-cited object lesson of why the costs of drugs needs to remain high. The following comment from Rich Meyer, author of the World of DTC Marketing Blog, is perhaps the first example of this:
"After spending more than $800 million [my emphasis] to develop a successor for its block buster Lipitor Pfizer, the world's largest drug maker, halted development on Saturday of its top experimental medicine the cholesterol drug torcetrapib, due to safety concerns. This is a key example of the risks that America's pharmaceutical companies face when developing new products and why spending on R&D needs to remain at high levels…when asked to explain their marketing practices to a skeptical public or to Congress Pfizer should use torcetrapib as an example of why costs continue to remain high." -- quoted from "$800 million does not guarantee success."
Where did Meyer get that $800 million figure? I'm guessing it came from the many stories written in the press about the clinical trial, including a couple in the Wall Street Journal by Scott Hensley. I know that's where I got the number when I first wrote about this on Sunday (see "Pfizer's torcetrapib: Who Knew What, When?").

On November 13, 2006, for example, in the article "Pfizer Presentation Is Limited Due to a Disclosure Violation," Hensley says "Pfizer is spending more than $800 million on clinical tests of the drug."

If Pfizer really spent $800 million on the 15,000-patient torcetrapib trial, that would mean that it spent $53,000 per patient! Even at $10K per patient for a trial--two to three times a typical CRO estimate and 50 percent higher than the NCI's reported average costs--a 15,000 patient trial would cost about $150 million, not $800 million. Granted, there were probably other trials, but this was the biggest by far. Even doubling the estimate to $300 million doesn't get us close to $800 million.

Where did Hensely/WSJ get that number?
He got it from Pfizer. In a December 4, 2006 article entitled "Demise of a Blockbuster Drug Complicates Pfizer's Revamp,” Hensely reports: “Pfizer said at the time it would invest $800 million to prove the drug's effectiveness and win approval from the Food and Drug Administration..." This time "win approval" is included in the estimate, which we didn't have before.
The $800 million figure was cited again in today's WSJ thusly: "Pfizer had committed $800 million to getting its HDL-raising torcetrapib to market" (see "After Pfizer Blockbuster's Failure, What's Next for the Heart?").
So, in this one newspaper alone, we've gone from "is spending" to "would invest" to "committed" (which I interpret meaning a budget line item, but not yet all spent).

Aside from this confusion about whether or not $800 million was actually spent or was committed to be spent, the number itself is suspicious.

Where did Pfizer get the $800 million figure?
I suspect Pfizer pulled the number out of an often-quoted--and much disputed--PhRMA sponsored Tufts University survey of 10 major pharmaceutical companies. The drug development cost estimate based on this study is disputed. Apparently, about half of the estimate is financing costs; aka "opportunity cost of capital." It's like me saying that the cost of my BMW equals the actual $50,000 I spent on it plus the money I didn't earn by failing to invest that $50,000 elsewhere.

But, as the industry always points out, "Today’s drugs finance tomorrow’s innovation." Therefore, the $150 million or $300 million or whatever Pfizer spent on torcetrapib, was really the best investment it could have made, although not a guaranteed winner, obviously.

However many millions of dollars Pfizer lost on torcetrapib, it lost much more in credibility as an innovator. The talk on Wall Street now revolves around the innovation that Pfizer must buy through mergers, not innovation! In other words, Wall Street investors have little patience for the "Today’s drugs finance tomorrow’s innovation" argument. They need more instant gratification.

Kindler Is Safe
Don't expect Kindler to lose his job over this. He inherited the problem. However, I suspect other heads will roll -- probably a lot of marketers and sales reps who now won't have much to do in the next few years.

10 comments:

  1. Fard Johnmar11:21 AM

    John:

    The $800 million number is not that surprising. I would assume that the number is not just from the phase III trials, but pre-clinical, Phase I and Phase II testing. If you also count the time and money spent on market analysis, preliminary positioning, and testing, the number would certainly get pretty high.

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  2. Anonymous2:16 PM

    I would bet $800 million that Pfizer would never provide the back up. Obviously outside observers forget about some of the fixed costs like exorbitant executive salaries, the private jet and the hookers and blow.

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  3. Peter Rost, is that you, you old sly dog?

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  4. Anonymous6:09 PM

    from a 6/22/05 pfizer pr:
    "Pfizer has undertaken the largest and most comprehensive
    clinical trial development program ever. Torcetrapib/
    atorvastatin's clinical program will involve 25,000 patients at
    hundreds of medical centers worldwide at a cost of about $800
    million."

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  5. Thanks for that.

    $800 million per 25,000 patients is $32,000 per patient, which is patently absurd! My point is still valid -- phony numbers!

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  6. Throwing marketing into r&d here and there probably accounts for some of the large price tag.

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  7. Joseph DiMasi5:55 PM

    Mr. Mack,

    I don't read your blog, so I don't know all that you may have written about R&D costs, but someone forwarded this particular blog entry to me. I won't comment about torcetrapib because I don't know (nor do you) what their actual or projected costs were or what they included (i.e., discovery costs, preclinical development, chemistry, manufacturing and controls R&D throughout the process, all clinical trials for all indications, infrastructure costs for an ongoing concern, interaction with regulatory authorities and preparation of regulatory submissions, etc.). I doubt, given in particular statements that I recall from Pfizer people about what they think average costs are for a more recent period than we analyzed, that they simply took $800 million from our (Tufts) study (which included the costs of failures and what may be called time or financing costs).

    I will, however, correct you on what you have written in this blog entry about our study and its methodology. For your information, PhRMA did not, as you wrote, sponsor the study (nor, for that matter, did pharma). You write that the study is disputed. That's true, but, as far as I can see, the ultimate sources of that criticism are those with obvious political agendas and who lack appropriate expertise. I have never seen a criticism of the methodology from a bona fide economist. The paper and its predecessor were published in the most methodologically rigorous journal in the field of health economics. Anonymous referees and the editors of the journal, who are among world's leading health economists, reviewed the methodology.

    What you call financing costs were clearly quantified in these papers and distinguished from actual cash outlays. Economists do not dispute the relevance of the time, or financing, costs. You wrote: "It's like me saying that the cost of my BMW equals the actual $50,000 I spent on it plus the money I didn't earn by failing to invest the $50,000 elsewhere. Well, actually no. It's nothing at all like that. You have confused a consumption good with an investment good. That makes it impossible to present a realistic analogy, but keeping to your context an appropriate analogy would go as follows. It's rather like you paying $50,000 for your BMW in cash today, but dealer won't deliver the car to you for ten years.

    If you still doubt this logic, then I have a proposition for you. The next time that you want to buy a BMW send me a $50,000 check instead. I promise to pay you back exactly $50,000 ten years from now. By your logic you should be OK with that. Both possibilities should be equally valuable to you. In fact, I would sweeten the pot and pay you an extra dollar ten years from now so that, by your logic, you would actually be better off by sending me the $50,000 check.

    For your information, your readers and you can find a paper that we wrote that critiques this and other flaws that the critics have made at this web address: http://csdd.tufts.edu/_documents/www/Doc_231_45_735.pdf.

    Joseph A. DiMasi, Ph.D.

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  8. Joseph,

    Thanks for your comment, but no thanks, I'll keep my $50,000.

    Regarding who paid for the Tufts study, can you say where Tufts gets money to finance these studies? Where did the money come from? I guess it's from the alumni fund? or general contributions? No pharma money there? No strings attached?

    John

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  9. Joseph DiMasi6:49 PM

    John,

    No funding was sought or obtained for that particular study. It's simply not accurate to say that PhRMA funded our study. The Tufts Center receives a little more than half of its funding in the form of general unrestricted grants from a large number of firms in the pharmaceutical, biotechnology, and related industries. My two co-authors for the project were not part of the Tufts Center.

    Too bad. I was hoping you would take me up on my offer.

    Joe

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  10. OK. All your money came from Tufts Center (?) and a little more than half of the Tufts Center money came from the pharmaceutical and "related" industries. I guess the money for the study came from the other half?

    Where did the other 2 authors come from? Who paid them?

    Eventually, if I ask the right questions, we may get to the bottom of this.

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