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Drug Industry Exaggerates R&D Costs 
To Justify Prices, Consumer Group Says 

Sarah Lueck / Wall Street Journal 24jul01

WASHINGTON -- The drug industry exaggerates the cost of research and development for prescription drugs to justify high prices, a consumer group said in a new report.

While the drug-industry group Pharmaceutical Research and Manufacturers of America, or PhRMA, has said research and development costs total about $500 million for each new drug, the report by Public Citizen puts the amount closer to $100 million. The consumer group said that PhRMA's figure includes tax-deductible expenses and "unrealistic scenarios of risk."

The report comes as Congress is attempting to create a prescription-drug benefit within Medicare, the federal health-insurance program for the elderly and disabled. The drug industry has long argued that if the government steps in to control or lower drug prices, research and development will suffer.

The $500 million figure, Public Citizen said, only applies to development of products that had never before been tested on humans and were not purchased mid-development from other companies. The study noted that drug companies also profit from less-costly reformulations and new dosage levels.

Taxpayer-funded research also cuts the cost and risk associated with developing new remedies, the study said. An internal National Institutes of Health document obtained by Public Citizen showed that taxpayer-funded scientists conducted 55% of the studies that led to the discovery and development of the top-five selling drugs in 1995.

PhRMA spokesman Jeff Trewhitt said the group stands behind the $500 million estimate for the development of a new drug. And that estimate, he added, "may even be conservative," based on recent research. PhRMA is still looking over portions of the report, including the issue of tax deductions, he said.

On the issue of federal funding, Mr. Trewhitt said the NIH and its grants have funded basic, general research but not the type that is applicable to developing a specific prescription drug. "Applied research is predominately being done by companies" at a great financial risk, he said.

At a news conference to publicize the Public Citizen report, Democratic Reps. Pete Stark of California and Tom Allen of Maine said Congress shouldn't be afraid of the drug industry's arguments about research while deciding on how to structure a drug benefit. "They're riding roughshod over the American people on this, and they're winning," Mr. Stark said.

Mr. Trewhitt said the industry's arguments against government attempts to lower drug prices should not be taken lightly. "Part of the reason we are the most innovative pharmaceutical industry in the world is that there's a competitive marketplace rather than price controls," he said.

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