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.