Drug prices should be lower and the high cost of research is a myth – these are the frank words of GlaxoSmithKline’s boss Sir Andrew Witty.

Speaking to a conference in London last week and reported by Reuters, Sir Andrew (pictured) said the $1 billion price tag of R&D, often touted by pharma firms and the ABPI, was “one of the great myths of the industry”.

This is because it was an “average figure” that includes money spent on treatments that fail in later stages, costing firms hundreds of millions of dollars.

“It’s not unrealistic to expect that new innovations ought to be priced at or below, in some cases, the prices that have pre-existed them,” he went on.

“We haven’t seen that in recent eras of the (pharma) industry, but it is completely normal in other industries.”

Looking at his own UK-based firm, Sir Andrew said he has managed to increase the rate of return on R&D investment as because fewer drugs have failed in Phase III development.

“If you stop failing so often you massively reduce the cost of drug development,” he said, adding: “It’s why we are beginning to be able to price lower.”

Varying R&D costs

The average cost of developing a new medicine, including failures, is now $1.1 billion, according to a study of R&D productivity among the world’s 12 top pharma firms, conducted by Deloitte and Thomson Reuters last year.

But the report found that the performance of individual companies varies widely. For the most successful company in the group studied, the average cost was just $315 million, while at the other extreme one firm spent $2.8 billion.

And it is this variation that Sir Andrew is talking about; if all pharma firms could bring down their R&D costs by reducing failures then these savings can be passed onto healthcare payers.

In addition to improvements in research, global demand for medicines is increasing and the explosion in the volume of products sold in emerging markets should contribute to lower unit costs, Sir Andrew added.

GSK breaking ranks

GSK has a history of speaking out on contentious issues; just last month the UK firm signed the AllTrials register, which aims to increase public scrutiny of clinical trials, despite the ABPI denouncing the plans as a “PR initiative”.

The ABPI has also long held that R&D costs are a major, multi-billion dollar expense for all pharma firms, and is the reason why medicines are set at their current prices.

And this latest breaking of ranks from GSK could be a good hand for the UK Government, which is currently negotiating a new drug pricing plan with the ABPI.

If the UK’s most influential pharma firm is saying that drug prices should be lower, then the government may wish to see that in its value-based pricing plan.