Help Me Understand Pharma R&D Economics in Layman's Terms

Factual Questions
1

I belong to a community centerd around a certain disease. There is a human clinical trial coming up through a pharmaceutical company for a drug in the research pipeline.

Some of us in the community are skeptical of this project in particular and other projects in general. As to this project, the published pre-clinical data and some of the statements of those surrounding the project give rise to some concern.

Part of our skepticism is generally rooted in the fact that pharma has a profit motive, unlike the more altruistic efforts of many families in our community. This gives an incentive for pharma to…

[ul]
[li]trumpet a project’s successes to help generate research funding[/li][li]upsell project potential[/li][li]engage in puffery[/li][li]give projects overly euphamistic names[/li][li]minimize project limitations[/li][li]sweep project limitations under the rug[/li][li]omit project drawbacks from publications and public speaking engagements[/li][li]bury potential negatives in footnotes[/li][li]limit selection criteria for clinical trials to those patients most likely to show improvement instead of a true cross-section of the community[/li][li]etc.[/li]
[li]and maybe … sell snake oil.[/li]
[/ul]

The information we have suggests this drug may provide some limited benefit for our disease as well as help a handful of other diseases. However, as to our disease, the effective window may not be very wide, as it may not work in younger and “older” patients. This limitis the potential patient population to a somewhat narrower segment of our population.

I can’t think of any other reason pharma would do this clinical trial unless pharma believed the drug was ultimately “safe enough” and “effective enough” (albeit perhaps with side effects) to get through the trial, get past the FDA, and benefit some of our patient population such that pharma could bank on future sales revenue from that segment of our population (at least enough to justify the cost of this clinical trial).

Some of us think this trial may not be very beneficial for our community, especially compared to other research in the pipeline. That gives rise to questions about funding priorities of our community.

My question here is how does a project get this far at this much cost if there seems to be only marginal upside? Maybe it’s because any treatemnt for our disease is better than no treatment at all, and whoever is the first to come up with SOME marginally beneficial treatement for SOME of us stands to profit, at least until some more effective treatment enters the marketplace or a cure comes along.

How much cost and risk is pharma bearing on this project? Are they sinking a ton of their own money in it and banking on future revenue streams to cover R&D? Are they somehow profiting off this project now through grants, etc., even though none of the product is being sold yet? Perhaps all their cost is covered by grants, etc. so they really have little reason not to go forward with a clinical trial as long as the grant money keeps coming in.

How does the basic cost-benefit of pharma R&D work? I Googled it and only came up with very complicated articles on the subject. Is there a layman’s answer to this?

2

Thread moved from IMHO to GQ.

I think you’ll get more factual, better informed analysis here.

Regards,
Gukumatz
Game Room & IMHO moderator.

3

I work for a pharma company in preclinical safety. One thing I hear occasionally is that there’s a difference between large and small pharma companies. Small ones only have a few projects in the pipeline, so they try hard as they can to get one approved. The very survival of the company can hinge on just a small handful of compounds. Big pharma companies are more likely to dump any compound right away if it shows toxicity or lack of efficacy. This way they can conserve their resources for the more promising drugs in their pipeline. The worst possible outcome is to get a drug approved and quickly withdrawn due to toxicity, because of all the resulting lawsuits.

4

I’m a reporter who covers the pharmaceutical industry. If you’re asking how much it costs to get one drug to market, the generally cited figure is $800 million. That’s based on what’s referred to as the Tufts study, which looked at a bunch of successes and failures.

Is there an incentive to develop specialty drugs for smaller populations? Abso-freaking-lutely. High cost specialty drugs are huge money makers. Consider that a month’s supply of copaxone, an MS drug, wholesales for over $3000 a month. You don’t need millions of patients for it to be lucrative. And unlike, say, a statin for treating cholesterol, there’s less concern over competitors developing a similar drug in the same family or a generic when the patent expires. Injectable drugs for treating cancer, AIDS, and auto-immune diseases are huge money makers.

And most pharma research gets no outside funding through grants. NIH funding goes for basic research, and accepting those grants means you sacrifice ownership at the backend, which companies definitely don’t want to do.

5

So do these pharma companies run up a huge bar tab in R&D and bank on success? If they fail, they are out a bunch of money that they hope is paid for by the sucess of other projects?

6

You’re being incredibly vague and it’s hard to make generalizations. I assume you are referring to a rare disease? (<200K in the US population). The pharm company is bearing considerable cost and risk in developing this drug. Grant money is not going to cover even a small fraction of drug development costs the vast majority of the time. Grant money might get you off the ground until you have enough results to actually attract some real capital but that’s about it. No one’s making a profit off grant money.

Most drugs fail. AstraZeneca recently wrote off the cost of developing two failed drugs for ovarian cancer and depression to the tune of a couple hundred million dollars. The 800 million dollar number that’s commonly cited is debatable but it’s not a bad place to start.

If there’s no other drug on the market that treats the same condition, it will no doubt be prescribed even in the benefits are small. In the US billions are spent on chemotherapy regimens that have what some would consider fairly modest benefits in part because the alternative is doing nothing. However, trying to predict something like that at this stage in development is… difficult.

7

Absolutely, just like any other company that does R&D. The $800 million figure takes int account that some research is a dead end, that some drugs aren’t effective, and some times another company will win the race to a patent.

8

Dear Bearflag

You have asked many questions here. The drug development process is complicated but you have heard the average price $800 million per approval and the time line of roughly 10 years.

The Pharma industry is not a singular entity so each company has its strategies. The larger pharma companies - Pfizer, Roche, GSK etc will want programs that return $1billion or more per year. The mid tier companies - Biogen/Idec, Genzyme, Amgen etc will progress programs that have smaller markets. And finally the small biotech companies can progress programs that have small markets.

Why is this - a company the size of Pfizer needs multiple $1b NEW drugs in order to grow their company’s revenue by 8 to 10%. And because all but the smaller biotech companies are publicly traded companies they have a responsibility to the shareholders to grow the value of the company. Therefore, much of the decision making process is based on high return projects.

A small biotech is typically trying to demonstrate value of their technology, drug, or overall company so that they can take the company public, be purchased by a larger Pharma, or partner with a large Pharma. Again the company has a responsibility to its investors to maximize the value of that investment. While this seems a cold, capitalistic approach the venture capital approach to biotechnology has been responsible for many important drug discoveries.

Regarding grants - as answered above few of the larger companies will use NIH grants to fund programs - not enough money and potential loss of control. Smaller, startup companies will use SBIR grants (small business innovative research) to fund some aspect of their work -however these never reach reach more then a few million dollars. If you want to know if the company you refer too has substantial grants you can search them on the NIH Reporter site.

It is also important that FDA has control of any clinical trial in which any drug goes into people. Furthermore, these clinical trials are typically run by a rsearch hospital and the trial protocol has to pass that group’s IRB - institutional review board to make sure the protocol is safe and worthwhile. Overall, the goal of the FDA is similar to physicians - do no harm. So if a drug shows efficacy in animals models and has little chance of toxicity then it can be tested in normal volunteers for safety in a Phase 1 trial. Before progressing to latter stages for efficacy testing in the patient population requires FDA approval. ( note that there are some different paths here - for example with cancer drugs but this is the general path). Details about the FDA, drug trials and even specific drug trials can be found at Clinicaltrials (dot) gov

I wish you the best of luck

9

Could you clarify this? My understanding, according to this document, is that the only ownership right ceded due to NIH funding is a non-transferable license granted to the government. Other than that, the awardee organization gets control. Since I doubt the government engages in any commercialization of its own, this restriction doesn’t seem all that onerous.

10

Generally, the government doesn’t fund research into purely commercial medicines. They primarily provide funding for basic research, or for research in areas that the NIH has identified as priorities, like the development of a malaria vaccine. The NIH isn;t going to fund research for drugs like viagra or rogaine.