Cost to Develop New Pharmaceutical Drug Now Exceeds $2.5B?

Ever heard of Forteo? It's an osteoporosis drug and not one you want to find out you need. It's got some nasty side effects (like cancer) and is a pain to take (it's a daily injection.) Drug reps push it hard because it works in a novel fashion actually causing bone regrowth rather than slowing bone loss. That said the very very specific circumstances of who should be on it are almost never mentioned (in in person discussions, the FDA mandates the website mentions everything). It is talked about as a treatment for osteoporosis generally. It's talked about as a treatment to prevent fracture. Both of those are technically true, but the slope here is so slippery that the concept of 'approved indications' is like an open window to a fly. There's a lot of room to maneuver.

People are susceptible to advertising. Doctors are people. And when an attractive 26 year old in a tight skirt walks into your office to talk about writing just a few more prescriptions a month of something you already do, well that's going to have an impact.

The distinguishing factor here though is that the consumer is left out of the loop, the person who has to suffer the side effects is not part of the marketplace. This is not your standard free market exercise where caveat-emptor is an appropriate response. This is behind the scenes manipulation of people who are often trusted blindly by their patients.

I pay good money to have access to people with the experience and expertise to diagnose and treat my ailments. However if I find out that they are being asked to be invulnerable to cognitive errors like the recency fallacy then I'm screwed. It's unreasonable to ask people to be immune to manipulation and so the only reasonable course is to limit manipulation as much as possible.

I strongly dislike the mis-alignment of incentives, where the ratings / approval group is paid by the company seeking approval. It has proven disastrous in high-money systems, and I wouldn't trust it for pharma, which has shown similar ethical outlooks as finance (that is to say, little matters except profits).

In the other direction, paying for ratings is how we got AAA-rated subprime CDOs.

Public regulators are always preferable, when a market needs to be regulated as you admit, because the public, through the press and their elected representatives, can hold them accountable for their actions. If someone from the Mayo Clinic is receiving improper benefits from pharmaceutical companies how does the public find that out? There are no laws that would force disclosure of those relationships.

In the case of public regulators like the FDA, Congress can force its leaders to testify and the press has tools like FOIA to get at private documents. They're not perfect and can still lead to corruption and regulatory capture, but are preferable to private organizations with no public accountability regulating the pharmaceutical industry.