Economics of drug development

A friend of mine recently quipped that pharmaceutical companies make lot of profit and also they put high price tag on their products than the real cost on the name of research and development. Obviously, this gentleman was completely oblivious of the procedure of drug development. Though, I do not want to go into the details of the politics and economics of drug development, however, I thought it was good idea to let people know the basics of drug development.

 

The discovery and development of new drugs is a very lengthy and costly process. Candidates for a new drug to treat a disease might theoretically include from 5,000 to 10,000 chemical compounds. On average, about 250 of these will show sufficient promise for further evaluation using laboratory tests, mice and other test animals. Typically, about ten of these will qualify for tests on humans. A study conducted by the Tufts Center for the Study of Drug Development covering the 1980s and 1990s found that only 21.5 percent of drugs that start phase I trials are eventually approved for marketing.

In the research-based drug industry, research and development (R&D) decisions have very long-term ramifications, and the impact of market or public policy changes may not be fully realized for many years. Recently it has been estimated that the cost of bringing a new drug to market ranges up to 1.3 billion US dollars. Thomas Lönngren, former chief of European Medicines Agency (EMA) for almost 10 years, recently complained that of the estimated US$85 billion spent globally each year on drug research and development (R&D), around $60 billion was wasted while very few new drugs (some of them are still in question for their efficacy and toxicity) were produced. In the area of Cancer Research itself, currently, almost 900 novel cancer agents are undergoing investigation in more than 6,000 clinical trials. Owing to this large number of investigational agents, a critical lack of financial and patient resources significantly reduces the chances for adequate development of many of these agents. As a result, clinical drug developers require continual innovation in their approaches to best determine which drugs to develop further, in which patient population to test the novel agents, and how to maximize resources.

            Undoubtedly, drug discovery is a big challenge, as for every new drug that is approved on average $1 billion is spent on research, at least 10 years of development are required, and nine of every ten drugs fail. With the blockbuster pipeline drying up, increasing drug development costs, and higher regulatory standards for drug approval, innovation has become even more difficult. Also, the cost of a new drug has direct bearing on the organizational structure of innovation in pharmaceuticals. With the same context, it is important to note that higher real costs in research and development of drugs have been cited as one of the main reasons underlying the recent trend toward especially in last 3 years, more mergers of big pharmaceutical companies. According to Boston Consulting Group, which published their study in 2001, average 880 Million US dollars spent to develop one single drug, have following components of costs estimates:

Component                 Pre-approval Cost (in US $ Million)

Biology                                     370 (42%) –

Chemistry                                 160 (18%) –

Preclinical safety                        90 (10%) –

Overall preclinical                    620 (70%)

Clinical                                    260 (30%)                             

Total                                       880 (100%)

 

             We have reaped extraordinary benefits from the pharmacological revolution of the twentieth century. Diseases such as such as polio, diphtheria, and whooping cough have almost been eliminated in developed countries by extensive use of vaccines. Many fatal communicable diseases can be readily cured with antibiotics. Complex surgical procedures such as heart surgeries, organ transplants are now safely and effectively undertaken using modern anaesthetics. And drugs have improved the quality of life for many people with chronic diseases such hepatitis B, and C, vascular diseases, and diabetes, to an extent that would have been unthinkable in the first half of 20th century. Nevertheless, there remains massive unmet medical need in both developed and developing countries. For example, there is a growing requirement for effective vaccines against HIV/AIDs, malaria and tuberculosis. We have little to offer those with neurodegenerative disorders such as Alzheimer’s disease, Parkinson’s disease or Huntington’s disease. Current treatments for many psychiatric disorders leave much to be desired. And the outlook for patients with the most common advanced malignancies, such as lung, breast, prostate and colorectal cancers, is still poor.

             However, it must be acknowledged that most of the drug related R&D related research has been sponsored primarily by pharmaceutical industry in North America and Europe. Also, government agencies such as NIH and few others in Europe have been contributing significantly financially   towards new drug developments. However, it is a reality that people from developing countries are equally being benefitted by all the developments in biomedical sciences without investing their share of cost. It must be noted that the increasing cost of drug development is likely to promote the situation whereby companies invest only in the development of those new drugs that are expected to yield peak annual sales greater than US $500 million. It is also worth noting that completely novel drug development — that is, against unproven disease targets— poses a greater risk of failure than developing drugs against proven targets, which means the diseases whose mechanisms have been largely deciphered versus those which are still being explored. This provides additional incentive for companies to focus on improving on approaches that have been clinically and financially successful, and a disincentive to develop products for unmet medical needs. In summary, the fact that the discovery and development of a new drug now costs in excess of US $800 million, and is rising at an annual rate of 7.4% above general price inflation, raises concerns. If the pharmaceutical industry’s R&D efforts become concentrated solely on high-selling products, the outlook in many areas of pharmacotherapy — in particular those in which the risk of failure is high — is bleak. Not only will less common conditions be ignored, but many of the potential benefits of knowledge about advances in genomics will not be realized.

           With the advancement in genomics and proteomics, the future of pharmacotherapy in the twenty-first century should be bright. Our capabilities to meet unmet clinical need should be great. We are, though, in danger of jeopardizing this potential if we do not make every attempt to reduce the cost of drug development. It will not be easy; nor will it be uncontroversial. There will be political, social and legal challenges to be addressed. But if we do not work towards this goal, we will fail future patients, their families and society as a whole. And this will and should not be expected alone from pharmaceuticals. Governments in countries whose economy is booming such as China and India must ensure sufficient funding for research into new medicines, especially for curiosity-driven science. Basic research might not have an immediate effect on medical treatments, and because of the short-term nature of research based on academic review cycles and shareholder dividends it is always difficult to get adequate funding. However, history shows us that in many instances it is such “untargeted” research that has led to major scientific advances. Also, now this is high time when developing nations must realize their responsibility and share the costs of drug development by investing into biomedical research initiatives and forcing their local pharmaceutical companies into start new research and development efforts rather than let them flourish as only money making companies that make only generics.