tag:blogger.com,1999:blog-8550428.post6131322736165918809..comments2024-03-27T01:34:23.434-04:00Comments on Pharma Marketing Blog: Tufts Hangs Tough on Opportunity Cost AnalysisVladhttp://www.blogger.com/profile/04114063498108633047noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-8550428.post-20072980202388746032006-12-18T16:09:00.000-05:002006-12-18T16:09:00.000-05:00Brett,
You raise an interesting point. When a c...Brett,<br /><br />You raise an interesting point. When a compound is obtained by a company from its acquisition of another company, the full R&D cost specific to that compound should include the earlier R&D expenditures made by the acquired firm. However, the purchase price of the company may be more or less than the by-then sunk R&D costs on the compound (even for a one-compound company). The purchase price will depend on what has been learned about the compound and its potential value in the marketplace.<br /><br />That said, I believe that you have your facts wrong. ETC-216 and torcetrapib are different compounds. ETC-216 is a large molecule (recombinant protein) combined with a phospholipid. Torectrapib is a small molecule that had been in development since the early 1990s. Esperion was founded in 1998. Ironically, it was Pharmacia & Upjohn (later Pfizer) that sub-licensed development rights to Esperion. ETC-216 was thought to be a complementary product to torcetrapib. It was an intravenous formulation meant to be used for short-term treatment following a heart attack and other coronary events. Esperion also had a couple of other compounds in mid-clinical development and a number of compounds in early-stage development when Pfizer acquired it in early 2004.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8550428.post-22207384760643533932006-12-15T20:34:00.000-05:002006-12-15T20:34:00.000-05:00What I find most interesting about all these discu...What I find most interesting about all these discussions (and other media articles) is that <i>no one</i> has even mentioned the $1.2 <i>billion</i> Pfizer laid out in cold, hard cash to purchase Esperion Therapeutics, the original developer of torcetrapib (then referred to as ETC-216). Esperion was essentially a one-product company, so that investment has gone pffft.<br /><br />So I would posit the actual cost of "development" for this drug to date is actually upwards of $1.2B, since Pfizer was buying a partially-developed drug, and precious little else.<br /><br />I'd be interested in hearing Dr. DiMasi's opinion on whether this would qualify as a "development" expense. From an accounting standpoint, you would separate this out to "in-process R&D" and "goodwill". Wonder if Pfizer will have to disclose how much it will have to write off in goodwill. <i>That</i> would be an interesting figure.Brett Gaspershttps://www.blogger.com/profile/09655018109311520571noreply@blogger.comtag:blogger.com,1999:blog-8550428.post-85114491972637591702006-12-11T00:54:00.000-05:002006-12-11T00:54:00.000-05:00John,
Approximately half ($399 million) consisted...John,<br /><br />Approximately half ($399 million) consisted of time costs.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8550428.post-65370545281233421862006-12-10T23:04:00.000-05:002006-12-10T23:04:00.000-05:00Thank you for your comments, Dr. DiMasi.
Althoug...Thank you for your comments, Dr. DiMasi. <br /><br />Although this discussion is a bit off topic for a blog devoted to marketing, I hope readers enjoy the dialogue and come away with some useful information.<br /><br />Of course, I am having some fun with the examples, be they right or wrong. I really liked the fish vs cocunuts one, didn't you?<br /><br />Instead of arguing whether or not opportunity costs should be figured into the estimate, let me ask you this: What part of the $802 million estimate in the 2001 study was attributable to that? You mentioned in a previous comment that this was clearly stated in your paper, which, unfortunatley, I haven't been able to get a copy of.PharmaGuyhttps://www.blogger.com/profile/10211557578124130640noreply@blogger.comtag:blogger.com,1999:blog-8550428.post-54778955287783466252006-12-10T22:24:00.000-05:002006-12-10T22:24:00.000-05:00I'm glad that you apparently are having fun with t...I'm glad that you apparently are having fun with this (I'm having a little myself). You have, however, side-stepped addressing directly the logic of my comment. You haven't, for example, told me why my analogy is wrong. Instead, you are effectively throwing up a smokescreen by encouraging people to submit more and more bizarre and flawed analogies.<br /><br />Perhaps it was a copying and pasting mishap, but you reprinted all of my comment except the last sentence. That sentence told your readers where to go to find a paper that we wrote that critiques what the critics of the study have claimed ("Assessing Claims About the Cost of New Drug Development: A Critique of the Public Citizen and TB Alliance Reports", http://csdd.tufts.edu/_documents/www/Doc_231_45_735.pdf). This is very relevant, all the more so since you have posted a comment in this entry from someone who points people to the Public Citizen report. Yes, CP, it's fine that people look at the Public Citizen report, but then they should also read our paper pointing out the lapses of logic and serious flaws in handling data that is found in the Public Citizen report.<br /><br />John, you are right that I don't like Matthew Holt's analogy and explanation. It's hard to make any sense of it. No, Matthew, the "Tufts accounting logic" (actually, the concept belongs to the fields of economics and finance, not accounting) would not imply that your friend paid $13,000 for his consumption good (beer). And even if we were talking about an investment, why would you focus on a specific asset that you know AFTER-THE-FACT had an enormously high return. You then make the odd comment that our logic "ignores the expected returns." It's not clear to me what you are talking about here, but, in fact, the cost-of-capital that is used as the discount rate to determine time costs in our study is an estimated investor expected return. This is made clear in the paper, which leads me to believe that you have never read the paper (some comments and questions from you, John, suggest the same for you). I don't think that it is too much to ask that one actually read a paper before one criticizes it publicly.<br /><br />Now, John, let's get to your analogy. While education is an investment of a sort, of course a father helping his son is not a business investment. You can indeed frame it, though, as an investment with a cost and an expected return. The return to you presumably is primarily a psychic one. That is, there is a benefit to you that comes from just seeing your son do well financially and even from just trying to help your son (unless you don't care about that and you contract with your son to appropriate a part of his future lifetime excess earnings from being a college graduate as opposed to a high school graduate; another, but more realistic, financial benefit is that the investment increases the likelihood that your son will be better able to take care of you in your old age if that were necessary). In this context, then yes, if you could value the expected benefits in monetary terms then you would want to make the investment if the value of the expected benefits equalled or exceeded the out-of-pocket plus time costs of your investment. Your example does nothing to refute what we did in the context of a business investment.<br /><br />Your flip comment about the IRS is also irrelevant. You get to deduct your son's educational expenses in the year in which they occur as a matter of social policy (it would also be practically quite difficult to treat them differently). Legislators want to encourage education as an investment in the country's future. You suggest that if the IRS considered time costs then you would be much better off (from being able to deduct, say, $200,000 instead of $100,000). Actually, if the IRS treated your son's educational expenses in the same way as they would a business investment in physical capital then, in theory, they would have to capitalize your expenses and amortize them over your son's entire working life. Believe me, you wouldn't like that.<br /><br />Finally, Matthew Holt's last comment in your blog entry is not valid. The fact that time costs here are a large part of the total cost is not a reason to ignore them. They are large because the drug development process is so lenghty. If R&D cash outlays and net returns remain the same over two periods, but the development process becomes lengthier, does Holt think that developers are in no worse a position? Does he not think that there is a cost to the longer development process? Our capitalization process simply adds to cash outlays an estimate of the monetary value of the time component. These estimates can then be compared to the present discounted value at the time of launch of the future stream of net returns. There is no double-counting here, as Holt seems to suggest.Anonymousnoreply@blogger.com