Life Science Compliance Update

June 29, 2015

The Importance of Private Investment into Research and Development


Recently, we covered Thomas Stossel, M.D.’s new book, Pharmaphobia: How the Conflict of Interest Myth Undermines American Medical Innovation. The distinguished Harvard hematologist and research fights back against the “conflict of interest movement” as one that chills medical progress and hurts the people who benefit most from industry research collaboration: patients. “Physician-industry interactions have been critical to the development of a large percentage of the medical products that allow physicians to prevent heart attacks, cure cancers, and restore mobility to the elderly,” he writes. Despite their importance to modern research and development programs, critics remain undeterred, but a recent report suggests private research—which often relies upon physician-industry relationships—is critically important to the United States’ economy.

R&D Growth and Hope for the Economy

Bloomberg Business reports that amidst concerns of a permanently slowing United States economy, private investment into research and development remains “hope on the horizon,” growing at the fastest pace in 50 years. Specifically, from November 2014 through March 2015, American companies funded R&D to a tune of $316 billion, around 1.8 percent of gross domestic product. This represents the largest share ever for the private sector.

One economist quoted believes additional R&D spending will in turn spark the creation of new technologies, encouraging businesses to invest in new equipment. This domino effect by boosting worker productivity may then create higher growth rates. If funding breakthrough technologies does not bring the United States out of its economic rut, the article asserts there simply may be no other way out.

But it takes decades for research spending and subsequent development to translate into new products, if it ever happens at all. This is compounded by the fact that private partnerships with government are diminishing, despite their historic success after World War II when industry turned the most promising advances from government labs into critical products today like GPS and the Internet. As Bloomberg notes, pharmaceutical companies are one example of an industry where a substantial share of revenue is invested back into R&D. Most companies have no choice but to keep spending or risk getting left behind from important breakthroughs.

The article recommends making the R&D tax credit permanent. Since its introduction in 1981, the credit has been modeled internationally. Now, over three decades later, the United States ranks 27th in terms of the generosity of its R&D tax credit. It is one reason domestic companies have boosted overseas R&D 2.7 times faster than what companies have spent inside the United States. This corresponds with the biopharmaceutical industry which saw its largest 12 companies achieve a 4.8 percent return on R&D investments, compared to 10.5 only five years prior in 2010.

Many Other Challenges Facing R&D

The importance of private-sector R&D cannot be understated. It is critical as both public funding declines and critics continue to villainize industry-researcher collaborations, making R&D even more difficult. As we previously noted, a recent study found that it costs drugmakers $2.6 billion dollars to develop a new prescription medicine that gains marketing approval. This is up from $802 million in 2003, equal to approximately $1 billion in 2013 dollars. While the average time it takes to bring a drug through clinical trials has decreased, the rate of success has gone down by almost half, to just 12 percent.

Furthermore, the estimated cost of post-approval research and development of $312 million “boosts the full product lifecycle cost per approved drug” to close to $3 billion. R&D costs include studies to test new indications, new formulations, new dosage strength and regimens, and to monitor safety and long-term side effects in patients as required by the FDA as a condition of approval.


The importance of private investment into R&D is a key part of scientific discovery and spurs growth domestically and abroad. But the burdens upon researchers are vast, and only further complicated by additional costs related to the Open Payments program. Every dollar spent on a compliance manager is a dollar not spent on R&D or complementary departments. All of this makes it even more remarkable that despite these hurdles, industry R&D, especially in the pharmaceutical industry, remains a crucial component to jumpstart the stagnated American economy.

April 14, 2015

Doctor's Article Counters The "Myths That Undermine Medical Research"


Thomas Stossel, American Cancer Society Professor of Medicine at Harvard Medical School and a visiting scholar at the American Enterprise Institute, recently wrote an article entitled “Myths that undermine medical research.” Stossel raises important points to counter three prevailing myths about the drug and device industry.  View the article, as published in the

If you or a loved one suffers from a serious and debilitating disease and hope for improved treatment or—even better—a cure, the recent history of medical progress should be encouraging. Over the years I have practiced medicine, U.S. longevity has increased by a decade, deaths from the commonest killer, cardiovascular disease, have dropped by 60 percent, and cancer deaths, the second most prevalent cause, are at an all-time low. HIV-infected individuals, once doomed, live normal albeit medicated lives. Arthritis sufferers previously condemned to pain, crutches and wheelchairs enjoy relative comfort and mobility. Unfortunately, three pernicious myths conspire to undermine such optimism.

Myth 1: Non-profit foundation—or government-subsidized university research is the main reason for this medical progress.

Myth 2: Private industry easily exploits this research to develop medical products—for which it overcharges. If industry spent less on marketing and more on research it could charge less.

Myth 3: Billions of dollars in settlement fees paid to the Justice Department by companies accused of marketing drugs for uses not approved by the Food and Drug Administration (FDA) prove that industry marketing is corrupt.

The truth regarding the first myth is that four-fifths of new drugs and most medical devices approved by the FDA originated from inventions solely created by companies. Among many examples, an industry researcher discovered the first cholesterol-lowering statin drug. Statins, in large measure, account for the reduction in heart attacks and strokes.

Publicly supported academic research certainly advances medical knowledge. But converting that knowledge to clinical benefits isn’t straightforward. Helping patients justifies public research funding, but obtaining such funding depends far more on impressing grant review committees with the novelty and virtuosity of research than with its practical medical applications. I know, because following these precepts has certainly contributed to my success. I have had continuous government research funding for over 45 years, have published research papers in prestigious scientific journals, won prizes, and been elected to elite scientific societies. Yet no one has lived one second longer or better as a direct result of my research accomplishments.

My efforts to remedy this deficiency illustrate why the second myth—that developing treatments and cures is cheap and easy—is wrong. Clinically relevant discoveries usually emerge unexpectedly, as did one of mine that may lead to a life-saving therapy. But because academics deciding what research to support don't value the trial and error experimentation that advances such projects, it took decades of persistent effort before investors were willing to take the risk of developing it in startup companies, the route most academic research must take to benefit patients.

That risk is huge. Over my lifetime, the inflation-adjusted cost of introducing new drugs has increased 100-fold, now averaging over $2.5 billion per FDA approval. The principal reason for the rising cost is more stringent FDA testing requirements engrafted on biology’s variability. Unlike complex machines we engineer to behave predictably, our bodies evolved to respond idiosyncratically. This inconsistency enables our species to survive assaults by microorganisms that can adapt quickly to kill or disable susceptible individuals. But it also means that nine out of ten drug candidates informed by our best research efforts fail in clinical trials. There’s no easy solution other than for companies to have as many shots on the elusive product introduction goal as possible. To offset these tough odds, the industry has to be sufficiently profitable to finance as many development attempts as possible. And although vilified, marketing not only sustains profits but also provides caregivers with essential information. This information, supervised by the FDA, is far, more rigorous than what academics publish in medical journals.

Recent research discussed in Health Affairs questions whether current profits are sufficient to sustain medical innovation. Large companies may survive by ceasing medical product development and defaulting to selling pet food. Startup companies, however, like the one developing my potential treatment can only turn their lights out.

The myth that the billions of dollars confiscated from companies by the ubiquitous class action lawsuit settlements address real crimes also is false. The settlements often result from prosecutors perverting “false claims” litigation designed to punish contractors who bill the government for unperformed services. Physicians frequently—and appropriately—prescribe FDA approved drugs for unapproved uses. Since physicians, not companies, are the ones “billing” by writing prescriptions, the prosecutors have to prove at trial that corporate marketing practices forced physicians to prescribe for an unapproved indication. The notion that highly educated and trained physicians, concerned about their reputations, are so gullible is patently absurd. So, why do companies always settle these dishonest lawsuits? It’s because false claims convictions carry a draconian penalty called debarment, something media accounts never mention. A debarred company cannot do any business involving the federal government. No medical products manufacturer extensively involved in sales to federal programs, such as Medicare for example can afford to risk such an outcome.

These myths compromise medical progress. They encourage product excise taxes, price controls, weakening of essential patent protection, and other political rent-seeking schemes that erode essential corporate profitability. A prime example is the legislation recently drafted by my state’s senator, Elizabeth Warren (D-Mass.), in which she proposes to force companies settling prosecutions to subsidize government research. I’d love more funding for research—but not at the expense of diverting funds from the development of treatments and cures for my sick patients and punishing the medical industry for non-existent crimes.

**Myths that undermine medical research, by Thomas Stossel, available: 

Stossel’s book, Pharmaphobia: How the Conflict of Interest Myth Undermines American Medical Innovation is being published by Rowman & Littlefield in April.



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