Audit Notes: Hiltzik on Drug R&D, A 1 Percent “Score”, Paywalls

The Los Angeles Times’s Michael Hiltzik finds a study that questions the drug lobby’s line on how much it costs to develop medicines:

The statistic that may be most hazardous to your health is one pegging the research and development cost of bringing a new drug to market at $1.3 billion. Its purveyor is the Pharmaceutical Research and Manufacturers of America (PhRMA), which exploits the number’s shock value to secure its lobbying agenda on Capitol Hill….

The industry’s R&D claim has been questioned for years, but seldom as thoroughly as in a recently published paper that calculates the true mean R&D cost as less than $60 million per drug in 2000 dollars ($76 million today).

The study’s authors, Donald W. Light of the University of Medicine and Dentistry of New Jersey and Rebecca Warburton of the University of Victoria in Canada, systematically dismantle what they call “the wholly artificial ‘fact’ of average R&D costs per new drug” by removing inflated multipliers and calculating the tax breaks drug companies get for their R&D, among many other steps.

The author of the original study defends himself, of course, and a lesser columnist would have left us hanging at the he said/she said stage. But Hiltzik shows that the $1.3 billion figure—or at least how the industry uses it— is seriously phony. Besides not revealing the data it’s based upon, which means it can’t be verified, there’s this:

Another issue is that the cost figure produced by DiMasi and his team includes “opportunity costs” — that is, the potential income the drug companies might have made on other investments, such as equity securities, if they hadn’t bothered to tie their money up for years developing drugs and getting them to market. The authors essentially doubled their calculations of out-of-pocket spending to accommodate these speculative lost profits. By financial alchemy, in other words, they made $403 million in tangible spending look like $802 million.


The Wall Street Journal would like you to know, in an A4 headline, that:

Public-College Presidents Score Raises

An outrage! This is a time of belt-tightening for everybody else, except for top executives. Like ConocoPhillips’s CEO, whose paycheck jumped a quarter to $18 million. Or Ford’s CEO, whose takehome soared by half to $27 million. As the Journal itself reported a couple of weeks ago:

CEO bonuses at 50 major corporations jumped a median of 30.5%, the biggest gain in at least three years, according to a study of the first batch of corporate CEO pay disclosures by consulting firm Hay Group for The Wall Street Journal.

So how big a raise did these public-college presidents “score”?

One percent. To a median $444,000 among 185 “large public universities.”

— Vivian Schiller, the recently deposed CEO of NPR and self-described “antipay wall zealot” is changing her tune on charging for news. Romenesko has her speech:

The conditions are finally right to give newspaper pay walls a fair shake

This is the first time I’ve felt this way, and possibly the first time I’ve said this in a public setting. Back In 2007, that’s a generation ago in internet time, I was at and a free content absolutist. That was the year my colleagues and I led the effort to end Times Select. (You may recall that Times Select completely locked out the columnists and the archive to all but paying subs. It was not the metered model The Times is launching now. Then, you were a home delivery subscriber, a paying digital subscriber - the no Tom Friedman for you) I was an antipay wall zealot, and for good reason…..based on the conditions of that time. But times have changed:

* What mattered to advertisers then was scale. The race was on to smash through thresholds, based on unique visitor counts in order to break through to the next tier where a new set of advertisers became viable. Like a video game, reaching the next level opened up rich rewards. And in fact when we ended Times Select, unique visitors jumped from 12 million to 20 million fast. That mattered a great deal…at the time. Now? Scale still matters, but brand is back, baby. It never really went away, but for marketers it’s the new new thing. In the cacophony of choices, users look to brands they trust — and the advertiser have come back to basics.

* Human behavior has changed thanks to iTunes. It’s no longer anathema to pay, even when you can steal content for free. That’s why the debate about the porousness of the New York Times pay wall is a red herring in my view. Sure there are ways to get around it - but I’m not sure the people that matter will.

* Tablets are a game changer for print, and smashing records for new platform adoption. According to the Pew study, tablet penetration was 4% of the US population in September…7% in January…and as much as 10% in March, according to the report’s Tom Rosenstiel.

The NYT paywall launched earlier this week. We’ll see - but I have my fingers crossed they it will succeed.

We do, too.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,