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About this Author
DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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January 3, 2014

Prices Rising - Every Year, Every Drug?

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Posted by Derek

Via AndyBiotech on Twitter, here's a disturbing chart of price trends of drugs in several therapeutics areas. Annualized, these are hikes of 10% or more per year.

Now, it seems clear that one big reason for this is that hey, insurance will pay for it. And no one needs to tell me (or most readers of this site) about the state of drug discovery and the corresponding need to make hay while the sun shines. I also think that companies should be able to charge what they think they can charge for their goods and services, and I would very much dislike handing over those decisions to some sort of review board that decides what the "right" prices should be.

But. . .(and it's a big "but", to use a phrase that sent my kids into floor-pounding hysterics when I used it inadvertently while trying to lecture them) there's another factor at work here. We've had a lot of discussions about drug pricing around here, and one theme I've brought up several times is that unless our business is seen as providing good value for the money, we are inviting the various hammers to come down on us.

Comments (37) + TrackBacks (0) | Category: Drug Prices

December 6, 2013

Outcomes, Expensive Outcomes

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Posted by Derek

Well, to go along with that recent paper on confounding cell assays, here's a column by John LaMattina on the problem of confounding clinical results. For some years now, the regulatory and development trend has been away from surrogate markers and towards outcome studies. You'd think that lowering LDL would be helpful - is it? You'd think that combining two different mechanisms to lower blood pressure would be a good thing - is it? The only way to answer the questions is by looking at a large number of patients in as close to a real-world setting as possible.

And in many cases, we're finding out that some very reasonable-sounding ideas don't, in fact, work out in practice. These aren't just findings with new or experimental drugs, either - as LaMattina shows, we're finding out things about drugs that have been on the market for years. This illustrates several important points: (1) There's a limit to what you can find out in clinical trials. (2) There is a limit to what reasonable medical hypotheses are worth. (3) We do not understand as much as we need to about human biology, in either the healthy or diseased state. (4) A drug, even when it's been approved, even when it's been on the market for years, is always an experimental medication.

LaMattina also points out just how crazily expensive the outcomes trials are that can generate the data that we really need. He's hoping that companies that spend that sort of money will emerge with a compelling enough case to be able to recoup it. I certainly hope that, too - but I'm absolutely 50/50 on whether I think it's true.

Comments (16) + TrackBacks (0) | Category: Clinical Trials | Drug Prices

October 21, 2013

Catalyst Pharmaceuticals And Their Business Plan

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Posted by Derek

The orphan-drug model is a popular one in the biopharma business these days. But like every other style of business, it has something-for-nothing artists waiting around it. Take a look at this article by Adam Feuerstein on Catalyst Pharmaceuticals, and see what category you think they belong in.

They're developing a compound called Firdapse for Lambert-Eaton Myasthenic Syndrome (LEMS), a rare neuromuscular disorder. It's caused by an autoimmune response to one set of voltage-gated calcium channels in the peripheral nervous system. Right now, the treatments for the condition that seem to provide much benefit are intravenous immunoglobin and 3,4-diaminopyridine (DAP). That latter compound is a potassium channel blocker that allows calcium to accumulate intracellularly in neurons and thus counteracts some of the loss of function in the system.

DAP is not an FDA-approved treatment, but it's officially under study at a number of medical centers, and the FDA is allowing it to be given to patients under a compassionate-use protocol. It's supplied, free of charge, by a small company in New Jersey, Jacobus Pharmaceuticals, who got into the area through a request from the Muscular Dystrophy Association. So how well does Firdapse work compared to this existing drug? Pretty much the same, because it's the same damn compound.

Yep, this is another one of those unexpected-regulatory-effects stories, such as happened with colchicine and with hydroxyprogesterone. The FDA has wanted to get as many therapies as possible through the actual regulatory process, and has provided a marked-exclusivity incentive for companies willing to do the trials needed. But if you're going to offer incentives, you need to think carefully about what you're giving people an incentive to do. In this case, the door is open for a company to step in, pick up an existing drug that is being given away to patients for free, a compound that it has spent no money discovering and no money developing, run the fastest trial possible with it, and then jack the price up to whatever the insurance companies might be able to pay. Now, pricing drugs at what the market will pay for them is fine by me. But that's supposed to be a reward for taking on the risk of discovering them and getting them through the approval process. This Catalyst case is another short-circuit in the system, a perverse incentive that some people seem to have no shame about taking advantage of. A similar situation has taken place in the EU with DAP and Biomarin Pharmaceuticals.

The LEMS patient community is not a large one, and they seem to be getting the word out for people to not sign up for Catalyst's clinical trials. Jacobus themselves have realized what's going on, and are running a trial of their own, hoping to file before Catalyst does and pick up the market exclusivity for themselves, so they can continue to supply the compound at the current price: nothing.

It's worth taking a minute to contrast this situation with Biogen's Tecfidera. That's another very small molecule (dimethyl fumarate) being given to patients with a neurological disease. It's also expensive. But in this case, MS patients had not been taking dimethyl fumarate for years (to the best of my knowledge). It was not already in the medical literature as an effective treatment (the way DAP is already there for LEMS). Biogen bought the company with the rights (Fumapharm) and took on the expense of the clinical trials, taking the risk that things might not work out at all. A lot of stuff doesn't. And they're pricing their drug according to what the market will pay, because they also have to fund the many other projects they're working on, most of which can be expected to wipe out at some point.

So how does a situation like Catalyst and DAP affect the drug companies who actually do research? Not too much, you might think, and they apparently think so, too, because I don't recall any statements about any of these cases so far from that end of the industry. They may not want to take any stands that call into question the ability of a company to set the price of its drugs according to what it thinks the market will bear. But since we are not, last I saw, living in some sort of radical libertarian free-for-all, it would be worth remembering that the ability to set such prices is not some sort of inalienable right. It can be restricted or even abrogated entirely by governments all around the world. And one way to get that to happen is for these governments and (in the democratic states, their constituents) to feel as if they're being taken advantage of by a bunch of cynical manipulators.

Comments (19) + TrackBacks (0) | Category: Drug Prices | Regulatory Affairs | The Central Nervous System

September 13, 2013

Value For the Money

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Posted by Derek

BioCentury always does a big issue for the fall, entitled "Back to School". They often use this as a state-of-biopharma platform, going into depth on what they see as the biggest issues that need to be addressed. This year, the September 2 issue, they're telling people (and not for the first time!) to get braced for higher standards for what health insurance is going to pay for:

Drug companies must start creating the case for value differentiation in discovery and then steadily build a body of evidence throughout the product development process.

Some drug developers have figured this out and have reshaped both their pipelines and development practices accordingly. But the number of me-too and purportedly me-better products still in the pipeline — coupled with the fact that drugs are still getting to Phase III and beyond without comparisons to relevant SOC (standard of care) or data on quality of life and other metrics that patients value — shows efforts in this department are still wanting.

For example, BioCentury’s BCIQ online database shows 54 compounds in active development that target VEGF or its receptors, not counting line extensions of approved VEGF and VEGF receptor inhibitors.

Even accounting for different variants of the receptor and its ligand and differences in delivery, formulation and dosing, it is highly unlikely that so many compounds could be differentiated sufficiently that physicians and patients would strongly prefer them to marketed alternatives — or that payers would be willing to reimburse them without restrictions.

. . .Back to School argues bio-industry must abandon efforts to block third-party assessments of value, and instead ramp up nascent efforts to be at the table where technology assessment takes place in the U.S., Europe and the rest of the world. Comparative effectiveness and cost effectiveness assessments will not be stopped. Industry can either contribute its expertise to improve the quality of the results, or stand by while others who may know less about both the drugs and the best ways to study them do the work based on their own priorities. Right now that priority is finding ways to avoid paying for new drugs.

Well put. But doing so is not going to be easy, or cheap. Differentiating new drug candidates in the clinic has often been left for later on in Phase III, and smaller companies often don't do much of it at all, figuring that'll be a job for their bigger partners when the time comes. The FDA "Breakthrough" designations can help here, because they explicitly encourage companies to show, as early as possible, why their compound stands out from the others. But as the Biocentury piece goes on to say, even then companies are going to have to be get ready to collect even more data on real-world outcomes, after the drug is approved, if they want to be able to persuade the various payers out there.

There's another issue here, too. Incremental innovation is just as much a part of the business (and the science) as are sudden leaps forward. There's room to wonder if the frequency of those sudden leaps (and the distance they cover) will go down if we don't get to take as many steps in the run-up to them. This is one of those issues that moves slowly enough to be effectively unprovable on any sort of reasonable financial or political time scale, but there are a lot of very real things out there that don't fit themselves to our calendars.

BioCentury recommends that (1) companies should work with regulatory agencies, insurance (both public and private), and patient groups to define just what constitutes real value for a given disease area, (2) they should immediately get to work with those payers who are already mandated to show improvements in their quality of care, (3) as mentioned above, whenever some government or international agency starts rating health care and medical technology advances, the industry had better be there, and (4) the drug industry had better change some of its traditional attitudes, and fast, because its pricing power is clearly diminishing.

As a drug-discovery guy, I don't spend as much time thinking about these issues as I do scientific ones. But if I'm discovering new things that no one wants, because no one needs them, that no one will then feel like paying for, all my work (and that of my colleagues) will be in vain. None of us can afford to keep our heads down these days.

Comments (20) + TrackBacks (0) | Category: Business and Markets | Drug Prices | Regulatory Affairs

May 16, 2013

The Atlantic on Drug R&D

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Posted by Derek

"Can you respond to this tripe?" asked one of the emails that sent along this article in The Atlantic. I responded that I was planning to, but that things were made more complicated by my being extensively quoted in said tripe. Anyway, here goes.

The article, by Brian Till of the New America Foundation, seems somewhat confused, and is written in a confusing manner. The title is "How Drug Companies Keep Medicine Out of Reach", but the focus is on neglected tropical diseases, not all medicine. Well, the focus is actually on a contested WHO treaty. But the focus is also on the idea of using prizes to fund research, and on the patent system. And the focus is on the general idea of "delinking" R&D from sales in the drug business. Confocal prose not having been perfected yet, this makes the whole piece a difficult read, because no matter which of these ideas you're waiting to hear about, you end up having a long wait while you work your way through the other stuff. There are any number of sentences in this piece that reference "the idea" and its effects, but there is no sentence that begins with "Here's the idea"

I'll summarize: the WHO treaty in question is as yet formless. There is no defined treaty to be debated; one of the article's contentions is that the US has blocked things from even getting that far. But the general idea is that signatory states would commit to spending 0.01% of GDP on neglected diseases each year. Where this money goes is not clear. Grants to academia? Setting up new institutes? Incentives to commercial companies? And how the contributions from various countries are to be managed is not clear, either: should Angola (for example) pool its contributions with other countries (or send them somewhere else outright), or are they interested in setting up their own Angolan Institute of Tropical Disease Research?

The fuzziness continues. You will read and read through the article trying to figure out what happens next. The "delinking" idea comes in as a key part of the proposed treaty negotiations, with the reward for discovery of a tropical disease treatment coming from a prize for its development, rather than patent exclusivity. But where that money comes from (the GDP-linked contributions?) is unclear. Who sets the prize levels, at what point the money is awarded, who it goes to: hard to say.

And the "Who it goes to" question is a real one, because the article says that another part of the treaty would be a push for open-source discovery on these diseases (Matt Todd's malaria efforts at Sydney are cited). This, though, is to a great extent a whole different question than the source-of-funds one, or the how-the-prizes-work one. Collaboration on this scale is not easy to manage (although it might well be desirable) and it can end up replacing the inefficiencies of the marketplace with entirely new inefficiencies all its own. The research-prize idea seems to me to be a poor fit for the open-collaboration model, too: if you're putting up a prize, you're saying that competition between different groups will spur them on, which is why you're offering something of real value to whoever finishes first and/or best. But if it's a huge open-access collaboration, how do you split up the prize, exactly?

At some point, the article's discussion of delinking R&D and the problems with the current patent model spread fuzzily outside the bounds of tropical diseases (where there really is a market failure, I'd say) and start heading off into drug discovery in general. And that's where my quotes start showing up. The author did interview me by phone, and we had a good discussion. I'd like to think that I helped emphasize that when we in the drug business say that drug discovery is hard, that we're not just putting on a show for the crowd.

But there's an awful lot of "Gosh, it's so cheap to make these drugs, why are they so expensive?" in this piece. To be fair, Till does mention that drug discovery is an expensive and risky undertaking, but I'm not sure that someone reading the article will quite take on board how expensive and how risky it is, and what the implications are. There's also a lot of criticism of drug companies for pricing their products at "what the market will bear", rather than as some percentage of what it cost to discover or make them. This is a form of economics I've criticized many times here, and I won't go into all the arguments again - but I will ask:what other products are priced in such a manner? Other than what customers will pay for them? Implicit in these arguments is the idea that there's some sort of reasonable, gentlemanly profit that won't offend anyone's sensibilities, while grasping for more than that is just something that shouldn't be allowed. But just try to run an R&D-driven business on that concept. I mean, the article itself details the trouble that Eli Lilly, AstraZeneca, and others are facing with their patent expirations. What sort of trouble would they be in if they'd said "No, no, we shouldn't make such profits off our patented drugs. That would be indecent." Even with those massive profits, they're in trouble.

And that brings up another point: we also get the "Drug companies only spend X pennies per dollar on R&D". That's the usual response to pointing out situations like Lilly's; that they took the money and spent it on fleets of yachts or something. The figure given in the article is 16 cents per dollar of revenue, and it's prefaced by an "only". Only? Here, go look at different industries, around the world, and find one that spends more. By any industrial standard, we are plowing massive amounts back into the labs. I know that I complain about companies doing things like stock buybacks, but that's a complaint at the margin of what is already pretty impressive spending.

To finish up, here's one of the places I'm quoted in the article:

I asked Derek Lowe, the chemist and blogger, for his thoughts on the principle of delinking R&D from the actual manufacture of drugs, and why he thought the industry, facing such a daunting outlook, would reject an idea that could turn fallow fields of research on neglected diseases into profitable ones. "I really think it could be viable," he said. "I would like to see it given a real trial, and neglected diseases might be the place to do it. As it is, we really already kind of have a prize model in the developed countries, market exclusivity. But, at the same time, you could look at it and it will say, 'You will only make this amount of money and not one penny more by curing this tropical disease.' Their fear probably is that if that model works great, then we'll move on to all the other diseases."

What you're hearing is my attempt to bring in the real world. I think that prizes are, in fact, a very worthwhile thing to look into for market failures like tropical diseases. There are problems with the idea - for one thing, the prize payoff itself, compared with the time and opportunity cost, is hard to get right - but it's still definitely worth thinking about. But what I was trying to tell Brian Till was that drug companies would be worried (and rightly) about the extension of this model to all other disease areas. Wrapped up in the idea of a research-prize model is the assumption that someone (a wise committee somewhere) knows just what a particular research result is worth, and can set the payout (and afterwards, the price) accordingly. This is not true.

There's a follow-on effect. Such a wise committees might possibly feel a bit of political pressure to set those prices down to a level of nice and cheap, the better to make everyone happy. Drug discovery being what it is, it would take some years before all the gears ground to a halt, but I worry that something like this might be the real result. I find my libertarian impulses coming to the fore whenever I think about this situation, and that prompts me to break out an often-used quote from Robert Heinlein:

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as "bad luck."

Comments (44) + TrackBacks (0) | Category: Drug Development | Drug Prices | Why Everyone Loves Us

April 29, 2013

Costing Just Too Much

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Posted by Derek

There's been a lot of rumbling recently about the price of new cancer drugs (see this article for a very typical reaction). It's a topic that's come up around here many times, as would be only natural - scrolling back in this category will turn up a whole list of posts.

I see that Bernard Munos has weighed in on the topic in Forbes. He's not being Doctor Feelgood about it, either:

All this adds up to a giant pushback against the astronomical drug prices that are becoming commonplace. It seems that price tags of $100,000 or above are becoming the norm. Of 12 cancer drugs approved in 2012, 11 cost more than that. As more drugs are offered at that level and their sponsors get away with it, it seems to set a floor that emboldens drug companies to push the envelope. They are badly misjudging the brewing anger.

The industry’s standard defense has been to run warm-hearted stories about the wonders of biomedical innovation, and to point out that drugs represent only 10% of healthcare costs. Both arguments miss the point. Everyone loves biomedical innovation, but the industry’s annual output of 25 to 35 new drugs is a lousy return for its $135 billion R&D spending. . .

That's a real problem. We in the industry concentrate on our end of it, where we wonder how we can spend this much for our discovery efforts and survive. But there are several sides to the issue. From one angle, as long as we can jack up the prices high enough on what does get through, we can (in theory) stay in business. That's not going to happen. There are limits to what we can charge, and we're starting to bang up against them, in the way that a Martingale player at a roulette table learns why casinos have betting limits at the tables. It's not a fun barrier to bump into.

And there's the problem Munos brings up, which is one that investors have been getting antsy about for some time: return on capital. The huge amounts of money going out the door are (at least in some cases) not sustainable. But we're not spending our money as if there were a problem:

Perhaps the mood would be different if the industry was a model of efficiency, but this is hardly the case. Examples of massive waste are on display everywhere: Pfizer wants to flatten a 750,000-square-foot facility in Groton, CT, and won’t entertain proposals for alternative uses. Lilly writes off over $100 million for a half-built insulin plant in Virginia, only to restart the project a few years later in Indiana. AstraZeneca shutters its R&D labs at Alderley Park and goes on to spend $500 million on a new facility in Cambridge.

Munos is right. We have enough trouble already without asking for more. Don't we?

Comments (37) + TrackBacks (0) | Category: Cancer | Drug Prices | Why Everyone Loves Us

April 2, 2013

Tecfidera's Price

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Posted by Derek

Let us take up the case of Tecfidera, the new Biogen/Idec drug for multiple sclerosis, known to us chemists as dimethyl fumarate. It joins the (not very long) list of industrial chemicals (the kind that can be purchased in railroad-car sizes) that are also approved pharmaceuticals for human use. The MS area has seen this before, interestingly.

A year's supply of Tecfidera will set you (or your insurance company) back $54,900. That's a bit higher than many analysts were anticipating, but that means "a bit higher over $50,000". The ceiling is about $60,000, which is what Novartis's Gilenya (fingolomod) goes for, and Biogen wanted to undercut them a bit. So, 55 long ones for a year's worth of dimethyl fumarate pills - what should one think about that?

Several thoughts come to mind, the first one being (probably) "Fifty thousand dollars for a bunch of dimethyl fumarate? Who's going to stand for that?" But we have an estimate for the second part of that question - Biogen thinks that quite a few people are going to stand for it, rather than stand for fingolomod. I'm sure they've devoted quite a bit of time and effort into thinking about that price, and that it's their best estimate of maximum profit. How, exactly, do they get away with that? Simple. They get away with it because they were willing to take the compound through clinical trials in MS patients, find out if it's tolerated and if it's efficacious, figure out the dosing regimen, and get it approved for this use by the FDA. If you or I had been willing to do that, and had been able to round up the money and resources, then we would also have the ability to charge fifty grand a year for it (or whatever we thought fit, actually).

What, exactly, gave them the idea that dimethyl fumarate might be good for multiple sclerosis? As it turns out, a German physician described its topical use for psoriasis back in 1959, and a formation of the compound as a cream (along with some monoesters) was eventually studied clinically by a small company in Switzerland called Fumapharm. This went on the market in Germany in the early 1990s, but the company did not have either the willingness or desire to extend their idea outside that region. But since dimethyl fumarate appears to work on psoriasis by modulating the immune system somehow, it did occur to someone that it might also be worth looking at in multiple sclerosis. Biogen began developing dimethyl fumarate for that purpose with Fumapharm, and eventually bought them outright in 2006 as things began to look more promising.

In other words, the connection of dimethyl fumarate as a possible therapy for MS had been out there, waiting to be made, since before many of us were born. Generations of drug developers had their chances to see it. Every company in the business had a chance to get interested in Fumapharm back in the late 80s and early 90s. But Biogen did, and in 2013 that move has paid off.

Now we come to two more questions, the first of which is "Should that move be paying off quite so lucratively?" But who gets to decide? Watching people pay fifty grand for a year's supply of dimethyl fumarate is not, on the face of it, a very appealing sight. At least, I don't find it so. But on the other hand, cost-of-goods is (for small molecules) generally not a very large part of the expense of a given pill - a rule of thumb is that such expenses should certainly be below 5% of a drug's selling price, and preferably less than 2%. It's just that it's even less in this case, and Biogen also has fewer worries about their supply chain, presumably. The fact this this drug is dimethyl fumarate is a curiosity (and perhaps an irritating one), but that lowers Biogen's costs by a couple of thousand a year per patient compared to some other small molecule. The rest of the cost of Tecfidera has nothing to do with what the ingredients are - it's all about what Biogen had to pay to get it on the market, and (most importantly) what the market will bear. If insurance companies believe that paying fifty thousand a year for the drug is a worthwhile expense, the Biogen will agree with them, too.

The second question is divorced from words like "should", and moves to the practical question of "can". The topical fumarate drug in Europe apparently had fairly wide "homebrew" use among psoriasis patients in other countries, and one has to wonder just a bit about that happening with Tacfidera. Biogen Idec certainly has method-of-use patents, but not composition-of-matter, so it's going to be up to them to try to police this. I found the Makena situation more irritating than this one (and the colchicine one, too), because in those cases, the exact drugs for the exact indications had already been on the market. (Dimethyl fumarate was not a drug for MS until Biogen proved it so, by contrast). But KV Pharmaceuticals had to go after people who were compounding the drug, anyway, and I have to wonder if a secondary market in dimethyl fumarate might develop. I don't know the details of its formulation (and I'm sure that Biogen will make much of it being something that can't be replicated in a basement), but there will surely be people who try it.

Comments (58) + TrackBacks (0) | Category: Drug Development | Drug Prices | The Central Nervous System

March 27, 2013

The NIH, Pfizer, and Senator Wyden

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Posted by Derek

Senator Ron Wyden (D-Oregon) seems to be the latest champion of the "NIH discovers drugs and Pharma rips them off" viewpoint. Here's a post from John LaMattina on Wyden's recent letter to Francis Collins. The proximate cause of all this seems to be the Pfizer JAK3 inhibitor:

Tofacitinib (Xeljanz), approved last November by the U.S. Food and Drug Administration, is nearing the market as the first oral medication for the treatment of rheumatoid arthritis. Given that the research base provided by the National Institutes of Health (NIH) culminated in the approval of Xeljanz, citizens have the right to be concerned about the determination of its price and what return on investment they can expect. While it is correct that the expenses of drug discovery and preclinical and clinical development were fully undertaken by Pfizer, taxpayer-funded research was foundational to the development of Xeljanz.

I think that this is likely another case where people don't quite realize the steepness of the climb between "X looks like a great disease target" and "We now have an FDA-approved drug targeting X". Here's more from Wyden's letter:

Developing drugs in America remains a challenging business, and NIH plays a critically important role by doing research that might not otherwise get done by the private sector. My bottom line: When taxpayer-funded research is commercialized, the public deserves a real return on its investment. With the price of Xeljanz estimated at about $25,000 a year and annual sales projected by some industry experts as high as $2.5 billion, it is important to consider whether the public investment has assured accessibility and affordability.

This is going to come across as nastier than I intend it to, but my first response is that the taxpayer's return on this was that they got a new drug where there wasn't one before. And via the NIH-funded discoveries, the taxpayers stimulated Pfizer (and many other companies) to spend huge amounts of money and effort to turn the original discoveries in the JAK field into real therapies. I value knowledge greatly, but no human suffering whatsoever was relieved by the knowledge alone that JAK3 appeared to play a role in inflammation. What was there was the potential to affect the lives of patients, and that potential was realized by Pfizer spending its own money.

And not just Pfizer. Let's not forget that the NIH entered into research agreements with many other companies, and that the list of JAK3-related drug discovery projects is a long one. And keep in mind that not all of them, by any means, have ever earned a nickel for the companies involved, and that many of them never will. As for Pfizer, Xeljanz has been on the market for less than six months, so it's too early to say how the drug will do. But it's not a license to print money, and is in a large, extremely competitive market. And should it run into trouble (which I certainly hope doesn't happen), I doubt if Senator Wyden will be writing letters seeking to share some of the expenses.

Comments (35) + TrackBacks (0) | Category: Academia (vs. Industry) | Drug Development | Drug Prices | Regulatory Affairs

March 18, 2013

GlaxoSmithKline's CEO on the Price of New Drugs

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Posted by Derek

Well, GlaxoSmithKline CEO Andrew Witty has made things interesting. Here he is at a recent conference in London when the topic of drug pricing came up:

. . . Witty said the $1 billion price tag was "one of the great myths of the industry", since it was an average figure that includes money spent on drugs that ultimately fail.

In the case of GSK, a major revamp in the way research is conducted means the rate of return on R&D investment has increased by about 30 percent in the past three or four years because fewer drugs have flopped in late-stage testing, he said.

"If you stop failing so often you massively reduce the cost of drug development ... it's why we are beginning to be able to price lower," Witty said.

"It's entirely achievable that we can improve the efficiency of the industry and pass that forward in terms of reduced prices."

I have a feeling that I'm going to be hearing "great myths of the industry" in my email for some time, thanks to this speech, so I'd like to thank Andrew Witty for that. But here's what he's trying to get across: if you start research on for a new drug, name a clinical candidate, take it to human trials and are lucky enough to have it work, then get it approved by the FDA, you will not have spent one billion dollars to get there. That, though, is the figure for a single run-through when everything works. If, on the other hand, you are actually running a drug company, with many compounds in development, and after a decade or so you total up all the money you've spent, versus the number of drugs you got onto the market, well, then you may well average a billion dollars per drug. That's because so many of them wipe out in the clinic; the money gets spent and you get no return at all.

That's the analysis that Matthew Herper did here (blogged about here), and that same Reuters article makes reference to a similar study done by Deloitte (and Thomson Reuters!) that found that the average cost of a new drug is indeed about $1.1 billion when you have to pay for the failures.

And believe me, we have to pay for them. A lottery ticket may only cost a dollar, but by the time you've won a million dollars playing the lottery, you will have bought a lot of losing tickets. In fact, you'll have bought far more than a million dollar's worth, or no state would run a lottery, but that's a negative-expectations game, while drug research (like any business) is supposed to be positive-expectations. Is it? Just barely, according to that same Deloitte study:

In effect, the industry is treading water in the fight to deliver better returns on the billions of dollars ploughed into the hunt for new drugs each year.

With an average internal rate of return (IRR) from R&D in 2012 of 7.2 percent - against 7.7 percent and 10.5 percent in the two preceding years - Big Pharma is barely covering its average cost of capital, estimated at around 7 percent.

Keep that in mind next time you hear about how wonderfully profitable the drug business is. And those are still better numbers than Morgan Stanley had a couple of years before, when they estimated that our internal returns probably weren't keeping up with our cost of capital at all. (Mind you, it seems that their analysis may have been a bit off, since they used their figures to recommend an "Overweight" on AstraZeneca shares, a decision that looked smart for a few months, but one that a person by now would have regretted deeply).

But back to Andrew Witty. What he's trying to say is that it doesn't have to cost a billion dollars per drug, if you don't fail so often, and he's claiming that GSK is starting to fail less often. True, or not? The people I know at the company aren't exactly breaking out the party hats, for what that's worth, and it looks like the company's might have to add the entire Sirtris investment to the "sunk cost" pile. Overall, I think it's too soon to call any corners as having been turned, even if GSK does turn out to have been doing better. Companies can have runs of good fortune and bad, and the history of the industry is absolutely littered with the press releases of companies who say that they've Turned A New Page of Success and will now be cranking out the wonder drugs like nobody's business. If they keep it up, GSK will have plenty of chances to tell us all about it.

Now, one last topic. What about Witty's statement that this new trend to success will allow drug prices themselves to come down? That's worth thinking about all by itself, on several levels - here are my thoughts, in no particular order:

(1) To a first approximation, that's true. If you're selling widgets, your costs go down, you can cut prices, and you can presumably sell more widgets. But as mentioned above, I'm not yet convinced that GSK's costs are truly coming down yet. And see point three below, because GSK and the rest of us in this business are not, in fact, selling widgets.

(2) Even if costs are coming down, counterbalancing that are several other long-term trends, such as the low-hanging fruit problem. As we move into harder and harder sorts of targets and disease areas, I would assume that the success rate of drugs in the clinic will be hard pressed to improve. This is partly a portfolio management problem, and can be ameliorated and hedged against to some degree, but it is, I think, a long-term concern, unless we start to make some intellectual headway on these topics, and speed the day. On the other side of this balance are the various efforts to rationalize clinical trials and so on.

(3) A larger factor is that the market for innovative drugs is not very sensitive to price. This is a vast topic, covered at vast length in many places, but it comes down to there being (relatively) few entrants in any new therapeutic space, and to people, and governments, and insurance companies, being willing to spend relatively high amounts of money for human health. (The addition of governments into that list means also that various price-fixing schemes distort the market in all kinds of interesting ways as well). At any rate, price mechanisms don't work like classical econ-textbook widgets in the drug business.

So I'm not sure, really, how this will play out. GSK has only modest incentives to lower the prices of its drugs. Such a move won't, in many markets, allow them to sell more drugs to make up the difference on volume. And actually, the company will probably be able to offset some of the loss via the political capital that comes from talking about any such price changes. We might be seeing just that effect with Witty's speech.

Comments (30) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Prices

December 7, 2012

Pharmaceutical Shortages in Greece

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Posted by Derek

If you'd like to see how thoroughly a drug market can be screwed up, have a look at Greece. They're leading the way here as well:

Ten years after entering the eurozone, Greece is faced with the herculean challenge of persuading pharmaceutical companies to strike a bargain and lower the cost of the medicines they sell in the country. At present, there are fears of drug shortages in certain hospitals as a result of unpaid bills. . .During the last two decades Greece became a paradise for branded-drug producers, with generic medicines constituting only 12% of the drugs consumed in the country. Between 1997 and 2007, the amount of health spending per Greek citizen grew annually by 6.6%, bringing the country to fourth place worldwide, after South Korea, Turkey and Ireland, in terms of this growth.

The crisis comes, in part, as a result of the Greek National Health System racking up debts by treating pensioners and poorer locals with expensive branded drugs instead of generics. The government paid the pharmaceuticals mostly with state bonds that lost substantial value in the fiscal crisis, and, in response, they started turning off the faucet. . .

But there's another factor at work, too:

For many months, pharmacies have been reporting shortages of medicines as some distributors have reexported comparatively cheap drugs from Greece over to Germany and other European markets, achieving monetary gains of as much as 600%.

Yep, Greece has simultaneously managed to pay too much for pharmaceuticals and provide a lucrative opportunity to export cheap ones. If economics worked like electrical engineering, there would be huge sparks jumping across these gaps and things would be shorting out all over the place. Actually, that's pretty much what's happening as it is.

Comments (7) + TrackBacks (0) | Category: Drug Prices

December 3, 2012

Marcia Angell's Interview: I Just Can't

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Posted by Derek

I have tried to listen to this podcast with Marcia Angell, on drug companies and their research, but I cannot seem to make it all the way through. I start shouting at the screen, at the speakers, at the air itself. In case you're wondering about whether I'm overreacting, at one point she makes the claim that drug companies don't do much innovation, because most of our R&D budget is spent on clinical trials, and "everyone knows how to do a clinical trial". See what I mean?

Angell has many very strongly held opinions on the drug business. But her take on R&D has always seemed profoundly misguided to me. From what I can see, she thinks that identifying a drug target is the key step, and that everything after that is fairly easy, fairly cheap, and very, very profitable. This is not correct. Really, really, not correct. She (and those who share this worldview, such as her co-author) believe that innovation has fallen off in the industry, but that this has happened mostly by choice. Considering the various disastrously expensive failures the industry has gone through while trying to expand into new diseases, new indications, and new targets, I find this line of argument hard to take.

So, I see, does Alex Tabarrok. I very much enjoyed that post; it does some of the objecting for me, and illustrates why I have such a hard time dealing point-by-point with Angell and her ilk. The misconceptions are large, various, and ever-shifting. Her ideas about drug marketing costs, which Tabarrok especially singles out, are a perfect example (and see some of those other links to my old posts, where I make some similar arguments to his).

So no, I don't think that Angell has changed her opinions much. I sure haven't changed mine.

Comments (59) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices | Why Everyone Loves Us

November 29, 2012

When Drug Launches Go Bad

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Posted by Derek

For those connoisseurs of things that have gone wrong, here's a list of the worst drug launches of recent years. And there are some rough ones in there, such as Benlysta, Provenge, and (of course) Makena. And from an aesthetic standpoint, it's hard not to think that if you name your drug Krystexxa that you deserve what you get. Read up and try to avoid being part of such a list yourself. . .

Comments (8) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices

October 31, 2012

The Coming Battle Over Alzheimer's Disease

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Posted by Derek

Solanezumab is a story that won't go away. Eli Lilly's antibody therapy for Alzheimer's is the subject of a lot of arguing among investors: some people (and I'm one of them) think that there is no strong evidence for its efficacy, not yet, and that the amount of time and effort devoted to finding that out means that there likely isn't any meaningful efficacy to be found. Others are more optimistic, which is why Lilly's stock has risen in recent months.

The latest point of contention is an independent analysis of biomarker data which came out this week at a conference in Monaco. This suggests that there was a meaningful change in the amount of circulating beta-amyloid after treatment, which could mean that the antibody was working as planned to increase clearance of soluble amyloid, thus altering the amyloid balance in the CNS. It should be noted that this line of attack depends on several factors - first among them, that amyloid is a causative factor in Alzheimer's, and secondly, that clearing it from the periphery can affect its concentration and distribution inside the brain. There's evidence for both of these, and there's evidence against both of them. Such questions can only be answered in the clinic, and I'm glad that Lilly, Roche/Genentech, and others are trying to answer them.

What I want to focus on today, though, is an issue that comes up in passing in the Fierce Biotech link above:

Biomarkers and pooled data may help support further studies of the drug, as well as other programs that rest on the beta amyloid hypothesis, but they don't prove that solanezumab works as hoped. Nevertheless, the first sign of success in this field has fueled tremendous enthusiasm that something in the pipeline could eventually work--perhaps even pushing regulators to approve new therapies with something less than clear efficacy data. And any newly approved drug would find a massive market of millions of desperate patients.

That's a big "perhaps", one that's worth tens of billions of dollars. What I worry about is pressure building for the FDA to approve an Alzheimer's therapy (solanezumab or something else) based on these hints of mechanistic efficacy. The problem is, solanezumab hasn't shown much promise of improving the lives of actual Alzheimer's patients. Lilly's own trials showed a possible improvement in a measure of cognitive decline, but this did not show up again in a second patient group, even when they specifically modified the endpoints of the trial to look for it. And neither group showed any functional effects at all, which I think are what most Alzheimer's patients (and their family members) would really want to see.

But there really is such a huge demand for something, anything, with any hint of hope. People would line up to buy anything that got FDA approval, no matter how tenuous the evidence was. And that puts the agency in a very tough position, similar to the one it was in with the Avastin breast cancer issue. Update: there was, to be sure, more of a safety question with Avastin at the same time. You can argue that one of the main purposes of the agency is to make sure that medicines that people can be prescribed in this country will actually do some good, rather than raise hopes for nothing. You could also argue that responsible adults - and their physicians, and their insurance companies - should be able to make such choices for themselves, and should be able to spend their time and money in the ways that they best see fit. You could argue that companies with marginally effective (or ineffective) therapies face a huge moral hazard, in that their incentives are to get such treatments onto the market whether they do anyone else any good or not. None of these are foolish positions, but they are also, in places, mutually incompatible. Alzheimer's disease might well turn into the next place in which we thrash them out.

Comments (17) + TrackBacks (0) | Category: Alzheimer's Disease | Clinical Trials | Drug Prices | Regulatory Affairs

August 17, 2012

Good Forum for a Response on Drug Innovation?

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Posted by Derek

I wanted to mention that a version of my first post on the Light/Lexchin article is now up over at the Discover magazine site. And if you've been following the comments to that one and to Light's response here, you'll note that readers here have found a number of problems with the original paper's analysis. I've found a few of my own, and I expect there are more.

The British Medical Journal has advised me that they consider a letter to the editor to be the appropriate forum for a response to one of their published articles. I don't think publishing this one did them much credit, but what's done is done. I'm still shopping for a venue for a detailed response on my part - I've had a couple of much-appreciated offers, but I'd like to continue to see what options are out there to get this out to the widest possible audience.

Comments (23) + TrackBacks (0) | Category: Drug Development | Drug Prices

August 15, 2012

A Quick Tour Through Drug Development Reality

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Posted by Derek

I wanted to let people know that I'm working on a long, detailed reply to Donald Light's take on drug research, but that I'm also looking at a few other publication venues for it. More on this as it develops.

But in trying to understand his worldview (and Marcia Angell's, et al.), I think I've hit on at least one fundamental misconception that these people have. All of them seem to think that the key step in drug discovery is target ID - once you've got a molecular target, you're pretty much home free, and all that was done by NIH money, etc., etc. It seems that these people have a very odd idea about high-throughput screening: they seem to think that we screen our vast collections of molecules and out pops a drug.

Of course, out is what a drug does not pop, if you follow my meaning. What pops out are hits, some of which are not what they say on the label any more. And some of the remaining ones just don't reproduce when you run the same experiment again. And even some of the ones that do reproduce are showing up as hits not because they're affecting your target, but because they're hosing up your assay by some other means. Once you've cleared all that underbrush out, you can start to talk about leads.

Those lead molecules are not created equal, either. Some of them are more potent than others, but the more potent ones might be much higher molecular weights (and thus not as ligand efficient). Or they might be compounds from another project and already known to hit a target that you don't want to hit. Once you pick out the ones that you actually want to do some chemistry on, you may find, as you start to test new molecules in the series, that some of them have more tractable structure-activity relationships than others. There are singletons out there, or near-singletons: compounds that have some activity as they stand, but for which every change in structure represents a step down. The only way to find that out is to test analogs. You might have some more in your files, or you might be able to buy some from the catalogs. But in many cases, you'll have to make them yourself, and a significant number of those compounds you make will be dead ends. You need to know which ones, though, so that's valuable information.

Now you're all the way up to lead series territory, a set of compounds that look like they can be progressed to be more potent and more selective. As medicinal chemists know, though, there's more to life. You need to see how these compounds act on real cells, and in real animals. Do they attain reasonable blood levels? Why or why not? What kinds of metabolites do they produce - are those going to cause trouble? What sort of toxicity do you see at higher doses, or more long-running ones? Is that related to your mechanism of action (sorry to hear it!), or something off-target to do with that particular structure? Can you work your way out of that problem with more new compound variations without losing all of what you've been building in so far? Prepare to go merrily chasing down some blind alleys while you work all this stuff out; the lights are turned off inside the whole maze, and the only illumination is what you can bring yourself.

Now let's assume that you've made it far enough to narrow down to one single compound, the clinical candidate. The fun begins! How about formulations - can this compound be whipped up into a solid form that resembles a real drug that people can put in their mouths, leave on their medicine cabinet shelves, and stock in their warehouses and pharmacies? Can you make enough of the compound to get to that stage, reliably? Most of the time the chemistry has to change at that point, and you'd better hope that some tiny new impurities from the new route aren't going to pop up and be important. You'd really better hope that some new solid form (polymorph) of your substance doesn't get discovered during that new route, because some of those are bricks and their advent is nearly impossible to predict.

Hey, now it's time to go to the clinic. Break out the checkbook, because the money spent here is going to make the preclinical expenses look like roundoff errors. Real human beings are going to take your compound, and guess what? Of all the compounds (the few, the proud) that actually get this far, all the way up to some volunteer's tongue. . .well, a bit over ninety per cent of those are going to fail in trials. Good luck!

While you're nervously checking the clinical results (blood levels and tolerability in Phase I), you have more questions to ask. Do you have good commercial suppliers for all the starting materials, and the right manufacturing processes in place to make the drug, formulate it, and package it? High time you thought about that stuff; your compound is about to go into the first sick humans it's ever seen, in Phase II. You finally get to find out if that target, that mechanism, actually works in people. And if it does (congratulations!), then comes the prize. You get to spend the real money in Phase III: lots and lots of patients, all sorts of patients, in what's supposed to be a real-world shakedown. Prepare to shell out more than you've spent in the whole process to date, because Phase III trials will empty your pockets for sure.

Is your compound one of the five or ten out of a hundred that makes it through Phase III? Enjoy the sensation, because most medicinal chemists experience that only once in their careers, if that. Now you're only a year or two away from getting your drug through the FDA and seeing if it will succeed or fail on the market. And good luck there, too. Contrary to what you might read, not all drugs earn back their costs, so the ones that do had better earn out big-time.

There. That wasn't so easy, was it? And I know that I've left things out, too. The point of all this is that most people have no idea of all these steps - what they're like, how long they can take, that they even exist. It wouldn't surprise me if many people imagine drug discovery, when they imagine it at all, to be the reach-in-the-pile-and-find-a-drug process that I mentioned in the second paragraph. Everything else is figuring out what color to make the package and how much to overcharge for it.

That's why I started this blog back in 2002 - because I was spending all my time on a fascinating, tricky, important job that no one seemed to know anything about. All these details consume the lives and careers of vast numbers of researchers - it's what I've been doing since 1989 - and I wanted, still want, to let people know that we exist.

In the meantime, for the Donald Lights of the world, the Marcia Angells, and the people who repeat their numbers despite apparently knowing nothing about how drugs actually get developed - well, here are some more details for you. The readers of this site with experience in the field will be able to tell you if I haven't described it pretty much as it is. It's not like I and others haven't tried to tell you before.

Comments (60) + TrackBacks (0) | Category: Drug Development | Drug Prices

August 13, 2012

Donald Light Responds on Drug Innovation and Costs

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Posted by Derek

Here's a response from Prof. Light to my post the other day attacking his positions on drug research. I've taken it out of that comments thread to highlight it - he no longer has to wonder if I'll let people here read what he has to say.

I'll have a response as well, but that'll most likely be up tomorrow - I actually have a very busy day ahead of me in the lab, working on a target that (as far as any of us in my group can tell) no one has ever attacked, for a disease that (as far as any of us in my group can tell) no one has ever found a therapy. And no, I am not making that up.

It's hard to respond to so many sarcastic and baiting trashings by Dr. Lowe and some of his fan club, but let me try. I wonder if Dr. Lowe allows his followers to read what I write here without cutting and editing.

First, let me clarify some of the mis-representations about the new BMJ article that claims the innovation crisis is a myth. While the pharmaceutical industry and its global network of journalists have been writing that the industry has been in real trouble because innovation has been dropping, all those articles and figures are based on the decline of new molecules approved since a sharp spike. FDA figures make it clear that the so-called crisis has been simply a return to the long-term average. In fact, in recent years, companies have been getting above-average approvals for new molecules. Is there any reasonably argument with these FDA figures? I see none from Dr. Lowe or in the 15 pages of comments.

Second, the reported costs of R&D have been rising sharply, and we do not go into these; but here are a couple of points. We note that the big picture, total additional investments in R&D (which are self-reported from closely held figures) over the past 15 years were matched by six times greater increase in revenues. We can all guess various reasons why, but surely a 6-fold return is not a crisis or "unsustainable." In fact, it's evidence that companies know what they are doing.

Another point from international observers is that the costs of clinical trials in the U.S. are much higher than in equally affluent countries and much higher than they need to be, because everyone seems to make money the higher they are in the U.S. market. I have not looked into this but I think it would be interesting to see in what ways costly clinical trials are a boon for several of the stakeholders.

Third, regarding that infamously low cost of R&D that Dr. Lowe and readers like to slam, consider this: The low estimate is based on the same costs of R&D reported by companies (which are self-reported from closely held figures) to their leading policy research center as were used to estimate the average cost is $1.3 bn (and soon to be raised again). Doesn't that make you curious enough to want to find out how we show what inflators were used to ramp the reported costs up, which use to do the same in reverse? Would it be unfair to ask you to actually read how we took this inflationary estimate apart? Or is it easier just to say our estimate is "idiotic" and "absurd"? How about reading the whole argument at www.pharmamyths.net and then discuss its merits?

Our estimate is for net, median corporate cost of D(evelopment) for that same of drugs from the 1990s that the health economists supported by the industry used to ramp up the high estimate. Net, because taxpayer subsidies which the industry has fought hard to expand pay for about 44% of gross R&D costs. Median, because a few costly cases which are always featured raise the average artificially. Corporate, because a lot of R(eseach) and some D is paid for by others "“ governments, foundations, institutes. We don't include an estimate for R(eseach) because no one knows what it is and it varies so much from a chance discovery that costs almost nothing to years and decades of research, failures, dead ends, new angles, before finally an effective drug is discovered.

So it's an unknown and highly variable R plus more knowable estimate of net, median, corporate costs. Even then, companies never so show their books, and they never compare their costs of R&D to revenues and profits. They just keep telling us their unverifiable costs of R&D are astronomical.

We make clear that neither we nor anyone else knows either the average gross cost or the net, median costs of R&D because major companies have made sure we cannot. Further, the "average cost of R&D" estimate began in 1976 as a lobbying strategy to come up with an artificial number that could be used to wow Congressmen. It's worked wonderfully, mythic as it may be.

Current layoffs need to be considered (as do most things) from a 10-year perspective. A lot industry observers have commented on companies being "bloated" and adding too many hires. Besides trimming back to earlier numbers, the big companies increasingly realize (it has taken them years) that it's smarter to let thousands of biotechs and research teams try to find good new drugs, rather than doing it in-house. To regard those layoffs as an abandonment of research misconstrues the corporate strategies.

Fourth, we never use "me-too." We speak of minor variations, and we say it's clinically valuable to have 3-4 in a given therapeutic class, but marginal gains fall quite low after that.

Fifth, our main point about innovation is that current criteria for approval and incentives strongly reward companies doing exactly what they are doing, developing scores of minor variations to fill their sales lines and market for good profits. We don't see any conspiracy here, only rational economic behavior by smart businessmen.

But while all new drug products are better than placebo or not too worse than a comparator, often against surrogate end points, most of those prove to be little better than last year's "better" drugs, or the years before"¦ You can read detailed assessments by independent teams at several sites. Of course companies are delighted when new drugs are really better against clinical outcomes; but meantime we cite evidence that 80 percent of additional pharmaceutical costs go to buying newly patented minor variations. The rewards to do anything to get another cancer drug approved are so great that independent reviewers find few of them help patients much, and the area is corrupted by conflict-of-interest marketing.

So we conclude there is a "hidden business model" behind the much touted business model, to spend billions on R&D to discover breakthrough drugs that greatly improve health and works fine until the "patent cliff" sends the company crashing to the canyon floor. The heroic tale is true to some extent and sometimes; but the hidden business model is to develop minor variations and make solid profits from them. That sounds like rational economic behavior to me.
The trouble is, all these drugs are under-tested for risks of harm, and all drugs are toxic to one degree or another. My book, The Risks of Prescription Drugs, assembles evidence that there is an epidemic of harmful side effects, largely from hundreds of drugs with few or no advantages to offset their risks of harm.

Is that what we want? My neighbors want clinically better drugs. They think the FDA approves clinically better drugs and don't realize that's far from the case. Most folks think "innovation" means clinically superior, but it doesn't. Most new molecules do not prove to be clinically superior. The term "innovation" is used vaguely to signal better drugs for patients; but while many new drugs are technically innovative, they do not help patients much. The false rhetoric of "innovative" and "innovation" needs to be replaced by what we want and mean: "clinically superior drugs."

If we want clinically better drugs, why don't we ask for them and pay according to added value "“ no more if no better and a lot more if substantially better? Instead, standards for testing effectiveness and risk of harms is being lowered, and "“ guess what "“ that will reward still more minor variations by rational economic executives, not more truly superior "innovative" drugs.

I hope you find some of these points worthwhile and interesting. I'm trying to reply to 20 single-space pages of largely inaccurate criticism, often with no reasoned explanation for a given slur or dismissal. I hope we can do better than that. I thought the comments by Matt #27 and John Wayne #45 were particularly interesting.

Donald W. Light

Comments (71) + TrackBacks (0) | Category: "Me Too" Drugs | Drug Development | Drug Prices

August 9, 2012

Getting Drug Research Really, Really Wrong

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Posted by Derek

The British Medical Journal says that the "widely touted innovation crisis in pharmaceuticals is a myth". The British Medical Journal is wrong.

There, that's about as direct as I can make it. But allow me to go into more detail, because that's not the the only thing they're wrong about. This is a new article entitled "Pharmaceutical research and development: what do we get for all that money?", and it's by Joel Lexchin (York University) and Donald Light of UMDNJ. And that last name should be enough to tell you where this is all coming from, because Prof. Light is the man who's publicly attached his name to an estimate that developing a new drug costs about $43 million dollars.

I'm generally careful, when I bring up that figure around people who actually develop drugs, not to do so when they're in the middle of drinking coffee or working with anything fragile, because it always provokes startled expressions and sudden laughter. These posts go into some detail about how ludicrous that number is, but for now, I'll just note that it's hard to see how anyone who seriously advances that estimate can be taken seriously. But here we are again.

Light and Lexchin's article makes much of Bernard Munos' work (which we talked about here), which shows a relatively constant rate of new drug discovery. They should go back and look at his graph, because they might notice that the slope of the line in recent years has not kept up with the historical rate. And they completely leave out one of the other key points that Munos makes: that even if the rate of discovery were to have remained linear, the costs associated with it sure as hell haven't. No, it's all a conspiracy:

"Meanwhile, telling "innovation crisis" stories to politicians and the press serves as a ploy, a strategy to attract a range of government protections from free market, generic competition."

Ah, that must be why the industry has laid off thousands and thousands of people over the last few years: it's all a ploy to gain sympathy. We tell everyone else how hard it is to discover drugs, but when we're sure that there are no reporters or politicians around, we high-five each other at how successful our deception has been. Because that's our secret, according to Light and Lexchin. It's apparently not any harder to find something new and worthwhile, but we'd rather just sit on our rears and crank out "me-too" medications for the big bucks:

"This is the real innovation crisis: pharmaceutical research and development turns out mostly minor variations on existing drugs, and most new drugs are not superior on clinical measures. Although a steady stream of significantly superior drugs enlarges the medicine chest from which millions benefit, medicines have also produced an epidemic of serious adverse reactions that have added to national healthcare costs".

So let me get this straight: according to these folks, we mostly just make "minor variations", but the few really new drugs that come out aren't so great either, because of their "epidemic" of serious side effects. Let me advance an alternate set of explanations, one that I call, for lack of a better word, "reality". For one thing, "me-too" drugs are not identical, and their benefits are often overlooked by people who do not understand medicine. There are overcrowded therapeutic areas, but they're not common. The reason that some new drugs make only small advances on existing therapies is not because we like it that way, and it's especially not because we planned it that way. This happens because we try to make big advances, and we fail. Then we take what we can get.

No therapeutic area illustrates this better than oncology. Every new target in that field has come in with high hopes that this time we'll have something that really does the job. Angiogenesis inhibitors. Kinase inhibitors. Cell cycle disruptors. Microtubules, proteosomes, apoptosis, DNA repair, metabolic disruption of the Warburg effect. It goes on and on and on, and you know what? None of them work as well as we want them to. We take them into the clinic, give them to terrified people who have little hope left, and we watch as we provide with them, what? A few months of extra life? Was that what we were shooting for all along, do we grin and shake each others' hands when the results come in? "Another incremental advance! Rock and roll!"

Of course not. We're disappointed, and we're pissed off. But we don't know enough about cancer (yet) to do better, and cancer turns out to be a very hard condition to treat. It should also be noted that the financial incentives are there to discover something that really does pull people back from the edge of the grave, so you'd think that we money-grubbing, public-deceiving, expense-padding mercenaries might be attracted by that prospect. Apparently not.

The same goes for Alzheimer's disease. Just how much money has the industry spent over the last quarter of a century on Alzheimer's? I worked on it twenty years ago, and God knows that never came to anything. Look at the steady march, march, march of failure in the clinic - and keep in mind that these failures tend to come late in the game, during Phase III, and if you suggest to anyone in the business that you can run an Alzheimer's Phase III program and bring the whole thing in for $43 million dollars, you'll be invited to stop wasting everyone's time. Bapineuzumab's trials have surely cost several times that, and Pfizer/J&J are still pressing on. And before that you had Elan working on active immunization, which is still going on, and you have Lilly's other antibody, which is still going on, and Genentech's (which is still going on). No one has high hopes for any of these, but we're still burning piles of money to try to find something. And what about the secretase inhibitors? How much time and effort has gone into beta- and gamma-secretase? What did the folks at Lilly think when they took their inhibitor way into Phase III only to find out that it made Alzheimer's slightly worse instead of helping anyone? Didn't they realize that Professors Light and Lexchin were on to them? That they'd seen through the veil and figured out the real strategy of making tiny improvements on the existing drugs that attack the causes of Alzheimer's? What existing drugs to target the causes of Alzheimer are they talking about?

Honestly, I have trouble writing about this sort of thing, because I get too furious to be coherent. I've been doing this sort of work since 1989, and I have spent the great majority of my time working on diseases for which no good therapies existed. The rest of the time has been spent on new mechanisms, new classes of drugs that should (or should have) worked differently than the existing therapies. I cannot recall a time when I have worked on a real "me-too" drug of the sort of that Light and Lexchin seem to think the industry spends all its time on.

That's because of yet another factor they have not considered: simultaneous development. Take a look at that paragraph above, where I mentioned all those Alzheimer's therapies. Let's be wildly, crazily optimistic and pretend that bapineuzumab manages to eke out some sort of efficacy against Alzheimer's (which, by the way, would put it right into that "no real medical advance" category that Light and Lexchin make so much of). And let's throw caution out the third-floor window and pretend that Lilly's solanezumab actually does something, too. Not much - there's a limit to how optimistic a person can be without pharmacological assistance - but something, some actual efficacy. Now here's what you have to remember: according to people like the authors of this article, whichever of these antibodies that makes it though second is a "me-too" drug that offers only an incremental advance, if anything. Even though all this Alzheimer's work was started on a risk basis, in several different companies, with different antibodies developed in different ways, with no clue as to who (if anyone) might come out on top.

All right, now we get to another topic that articles like this latest one are simply not complete without. That's right, say it together: "Drug companies spend a lot more on marketing than they do on research!" Let's ignore, for the sake of argument, the large number of smaller companies that spend all of their money on R&D and none on marketing, because they have nothing to market yet. Let's even ignore the fact that over the years, the percentage of money being spent on drug R&D has actually been going up. No, let's instead go over this in a way that even professors at UMDNJ and York can understand it:

Company X spends, let's say, $10 a year on research. (We're lopping off a lot of zeros to make this easier). It has no revenues from selling drugs yet, and is burning through its cash while it tries to get its first on onto the market. It succeeds, and the new drug will bring in $100 dollars a year for the first two or three years, before the competition catches up with some of the incremental me-toos that everyone will switch to for mysterious reasons that apparently have nothing to do with anything working better. But I digress; let's get back to the key point. That $100 a year figure assumes that the company spends $30 a year on marketing (advertising, promotion, patient awareness, brand-building, all that stuff). If the company does not spend all that time and effort, the new drug will only bring in $60 a year, but that's pure profit. (We're going to ignore all the other costs, assuming that they're the same between the two cases).

So the company can bring in $60 dollars a year by doing no promotion, or it can bring in $70 a year after accounting for the expenses of marketing. The company will, of course, choose the latter. "But," you're saying, "what if all that marketing expense doesn't raise sales from $60 up to $100 a year?" Ah, then you are doing it wrong. The whole point, the raison d'etre of the marketing department is to bring in more money than they are spending. Marketing deals with the profitable side of the business; their job is to maximize those profits. If they spend more than those extra profits, well, it's time to fire them, isn't it?

R&D, on the other hand, is not the profitable side of the business. Far from it. We are black holes of finance: huge sums of money spiral in beyond our event horizons, emitting piteous cries and futile streams of braking radiation, and are never seen again. The point is, these are totally different parts of the company, doing totally different things. Complaining that the marketing budget is bigger than the R&D budget is like complaining that a car's passenger compartment is bigger than its gas tank, or that a ship's sail is bigger than its rudder.

OK, I've spend about enough time on this for one morning; I feel like I need a shower. Let's get on to the part where Light and Lexchin recommend what we should all be doing instead:

What can be done to change the business model of the pharmaceutical industry to focus on more cost effective, safer medicines? The first step should be to stop approving so many new drugs of little therapeutic value. . .We should also fully fund the EMA and other regulatory agencies with public funds, rather than relying on industry generated user fees, to end industry’s capture of its regulator. Finally, we should consider new ways of rewarding innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137, rather than through the high prices generated by patent protection. The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again. This approach would save countries billions in healthcare costs and produce real gains in people’s health.

One problem I have with this is that the health insurance industry would probably object to having "several billion dollars a year" collected from it. And that "several" would not mean "two or three", for sure. But even if we extract that cash somehow - an extraction that would surely raise health insurance costs as it got passed along - we now find ourselves depending on a committee that will determine the worth of each new drug. Will these people determine that when the drug is approved, or will they need to wait a few years to see how it does in the real world? If the drug under- or overperforms, does the reward get adjusted accordingly? How, exactly, do we decide how much a diabetes drug is worth compared to one for multiple sclerosis, or TB? What about a drug that doesn't help many people, but helps them tremendously, versus a drug that's taken by a lot of people, but has only milder improvements for them? What if a drug is worth a lot more to people in one demographic versus another? And what happens as various advocacy groups lobby to get their diseases moved further up the list of important ones that deserve higher prizes and more incentives?

These will have to be some very, very wise and prudent people on this committee. You certainly wouldn't want anyone who's ever been involved with the drug industry on there, no indeed. And you wouldn't want any politicians - why, they might use that influential position to do who knows what. No, you'd want honest, intelligent, reliable people, who know a tremendous amount about medical care and pharmaceuticals, but have no financial or personal interests involved. I'm sure there are plenty of them out there, somewhere. And when we find them, why stop with drugs? Why not set up committees to determine the true worth of the other vital things that people in this country need each day - food, transportation, consumer goods? Surely this model can be extended; it all sounds so rational. I doubt if anything like it has ever been tried before, and it's certainly a lot better than the grubby business of deciding prices and values based on what people will pay for things (what do they know, anyway, compared to a panel of dispassionate experts?)

Enough. I should mention that when Prof. Light's earlier figure for drug expense came out that I had a brief correspondence with him, and I invited him to come to this site and try out his reasoning on people who develop drugs for a living. Communication seemed to dry up after that, I have to report. But that offer is still open. Reading his publications makes me think that he (and his co-authors) have never actually spoken with anyone who does this work or has any actual experience with it. Come on down, I say! We're real people, just like you. OK, we're more evil, fine. But otherwise. . .

Comments (74) + TrackBacks (0) | Category: "Me Too" Drugs | Business and Markets | Cancer | Drug Development | Drug Industry History | Drug Prices | The Central Nervous System | Why Everyone Loves Us

July 30, 2012

Cancer Drugs: Value for the Money?

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Posted by Derek

And while we're talking oncology, here's a piece from Luke Timmerman at Xconomy that brings up a lot of tough questions. We've talked about some of these before around here, but everyone who works in oncology drug discovery is going to hear them again: How much should a new cancer therapy cost? Who's going to pay for it? Are patients (and their insurance companies) getting value for their money?

I wouldn’t go so far as to say we need a draconian system to discourage drug developers from creating new products. Drug prices are rising fast, but there are a lot of other factors contributing to increased healthcare spending. Drug companies can, and should, be able to recoup the investments they make in the form of high drug prices. But if you’re going to charge a high price for a drug, I think a company needs to have a much stronger value proposition than “Hey, we shrank tumors in half for 20 percent of patients. Now hand over your $100,000.” It needs to be more like, “Hey, my drug has an 80 percent chance of helping people with this genetic profile, and those people can expect to live an extra year, with high quality of life.” Now you’re starting to really talk about $100,000 of value.

Sadly, drug companies tend to be more interested in satisfying the short-term profit desires of their investors than they are in truly delivering cost-effective care to patients. . .

Well, it's like this: we realize that people want inexpensive drugs that work great. But we have an awful time delivering anything like that. As I've said before here, we keep swinging for those fences and missing. That's why these drugs come out, the ones that only extend life span for a limited amount of time: every one of those are drugs that people had higher hopes for, but that's how they performed in the real world, so out they come onto the market to do as best they can. And if they're only going into a small patient population, then the pricing gets set accordingly.

So we have two trend lines that are trying to intersect: the amount of money one can hope to recoup from a new cancer medication, and the amount of money that it takes to find one. They haven't quite crossed, not yet, but they're on course to. If it were less costly to develop these things, or if they delivered more value in the end, we could push them back apart. Will either of those be realized in time to help?

Comments (31) + TrackBacks (0) | Category: Cancer | Drug Prices

March 13, 2012

Nexavar Licensed by Force in India

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Posted by Derek

India has decided to invoke compulsory licensing, and is approving a local generic company's application to make and sell Bayer's Nexavar (sorafenib).

I'm assuming that there's a political dimension to this that I'm not quite following. There must be something else going on between Bayer and the Indian authorities. Nexavar is indeed expensive, but (meaning no offense to the people who discovered it, whom I know), it's not the most necessary part of the oncology drug world, either. Anyone have more details?

The most recent time this issue has come up here is 2007.

Comments (26) + TrackBacks (0) | Category: Drug Prices | Regulatory Affairs

March 8, 2012

Eroom's Law

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Posted by Derek

There's another "Troubles of Drug Discovery" piece in Nature Reviews Drug Discovery, but it's a good one. It introduces the concept of "Eroom's Law", and if you haven't had your coffee yet (don't drink it, myself, actually), that's "Moore's Law" spelled backwards. It refers, as you'd fear, to processes that are getting steadily slower and more difficult with time. You know, like getting drugs to market seems to be.

Eroom's Law indicates that powerful forces have outweighed scientific, technical and managerial improvements over the past 60 years, and/or that some of the improvements have been less 'improving' than commonly thought. The more positive anyone is about the past several decades of progress, the more negative they should be about the strength of countervailing forces. If someone is optimistic about the prospects for R&D today, they presumably believe the countervailing forces — whatever they are — are starting to abate, or that there has been a sudden and unprecedented acceleration in scientific, technological or managerial progress that will soon become visible in new drug approvals.

Here's the ugly trend (dollars are inflation-adjusted:
R%26D%20trend.png

I particularly enjoyed, in a grim way, this part:

However, readers of much of what has been written about R&D productivity in the drug industry might be left with the impression that Eroom's Law can simply be reversed by strategies such as greater management attention to factors such as project costs and speed of implementation, by reorganizing R&D structures into smaller focused units in some cases or larger units with superior economies of scale in others, by outsourcing to lower-cost countries, by adjusting management metrics and introducing R&D 'performance scorecards', or by somehow making scientists more 'entrepreneurial'. In our view, these changes might help at the margins but it feels as though most are not addressing the core of the productivity problem.

In the original paper, each of those comma-separated phrases is referenced to the papers that have proposed them, which is being rather scrupulously cruel. But I don't blame the authors, and I don't really disagree with their analysis, either. As they go on to say, investors don't seem to disagree, either. The cost-cutting that we're seeing everywhere, particularly cutbacks in research (see all that Sanofi stuff the other day!) are the clearest indicator. People are acting as if the return on pharmaceutical R&D is insufficient compared to the cost of capital, and if you think differently, well, now's a heck of a time to clean up as a contrarian.

Now, the companies (and CEOS) involved in this generally talk about how they're going to turn things around, how cutting their own research will put things on a better footing, how doing external deals will more than make up for it, and so on. But it's getting increasingly hard to believe that. We are heading, at speed, for a world in which fewer and fewer useful medicines are discovered, while more and more people want them.

The authors have four factors that they highlight which have gotten us into this fix, and all four of them are worth discussing (although not all in one post!) The first is what they call the "Better Than the Beatles" effect. That's what we face as we continue to compete against our greatest hits of the past. Take generic Lipitor, as a recent example. It's cheap, and it certainly seems to do the job it's prescribed for (lowering LDL). Between it and the other generic statins, you're going to have a rocky uphill climb if you want to bring a new LDL-lowering therapy to market (which is why not many people are trying to do that).

I think that this is insufficiently appreciated outside of the drug business. Nothing goes away unless it's well and truly superseded. Aspirin is still with is. Ibuprofen still sells like crazy. Blood pressure medicines are, in many cases, cheap as dirt, and the later types are inexorably headed that way. Every single drug that we discover is headed that way; patents are wasting assets, even patents on biologics, although those have been wasting more slowly (with the pace set to pick up). As this paper points out, very few other industries have this problem, or to this degree. (Even the entertainment industry, whose past productions do form a back catalog, has the desire for novelty on its side). But we're in the position of someone trying to come up with a better comb.

More on their other reasons in the next posts - there are some particularly good topics in there, and I don't want to mix everything together. . .

Comments (45) + TrackBacks (0) | Category: Business and Markets | Drug Industry History | Drug Prices

February 10, 2012

The Terrifying Cost of a New Drug

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Posted by Derek

Matthew Herper at Forbes has a very interesting column, building on some data from Bernard Munos (whose work on drug development will be familiar to readers of this blog). What he and his colleague Scott DeCarlo have done is conceptually simple: they've gone back over the last 15 years of financial statements from a bunch of major drug companies, and they've looked at how many drugs each company has gotten approved.

Over that long a span, things should even out a bit. There will be some spending which won't show up in the count, that took place on drugs that got approved during the earlier part that span, but (on the back end) there's spending on drugs in there that haven't made it to market yet, too. What do the numbers look like? Hideous. Appalling. Unsustainable.

AstraZeneca, for example, got 5 drugs on the market during this time span, the worst performance on this list, and thus spent spent nearly $12 billion dollars per drug. No wonder they're in the shape they're in. GSK, Sanofi, Roche, and Pfizer all spent in the range of $8 billion per approved drug. Amgen did things the cheapest by this measure, 9 drugs approved at about 3.7 billion per drug.

Now, there are several things to keep in mind about these numbers. First - and I know that I'm going to hear about this from some people - you might assume that different companies are putting different things under the banner of R&D for accounting purposes. But there's a limit to how much of that you can do. Remember, there's a separate sales and marketing budget, too, of course, and people never get tired of pointing out that it's even larger than the R&D one. So how inflated can these figures be? Second, how can these numbers jibe with the 800-million-per-new-drug (recently revised to $1 billion), much less with the $43 million per new drug figure (from Light and Warburton) that was making the rounds a few months ago?

Well, I tried to dispose of that last figure at the time. It's nonsense, and if it were true, people would be lining up to start drug companies (and other people would be throwing money at them to help). Meanwhile, the drug companies that already exist wouldn't be frantically firing thousands of people and selling their lab equipment at auction. Which they are. But what about that other estimate, the Tufts/diMasi one? What's the difference?

As Herper rightly says, the biggest factor is failure. The Tufts estimate is for the costs racked up by one drug making it through. But looking at the whole R&D spend, you can see how money is being spent for all the stuff that doesn't get through. And as I and many of the other readers of this blog can testify, there's an awful lot of it. I'm now in my 23rd year of working in this industry, and nothing I've touched has ever made it to market yet. If someone wins $500 from a dollar slot machine, the proper way to figure the costs is to see how many dollars, total, they had to pump into the thing before they won - not just to figure that they spent $1 to win. (Unless, of course, they just sat down, and in this business we don't exactly have that option).

No, these figures really show you why the drug business is in the shape it's in. Look at those numbers, and look at how much a successful drug brings in, and you can see that these things don't always do a very good job of adding up. That's with the expenses doing nothing but rising, and the success rate for drug discovery going in the other direction, too. No one should be surprised that drug prices are rising under these conditions. The surprise is that there are still people out there trying to discover drugs.

Comments (62) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices

November 10, 2011

Makena's Market. Or Lack of One.

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Posted by Derek

I put up a note here yesterday about KV Pharmaceuticals and their complaint to the FDA about compounding pharmacies selling a version of their Makena progesterone ester drug. The conclusion was that the combination of Makena's high price and the FDA's we-won't-enforce attitude towards the compounders was hurting sales.

And that it is. The people at BioCentury have more. Basically, the estimate is that about 140,000 women per year fall into the potential treatment class of high-risk pregnancies. How much Makena has been sold since its launch last March? The company says that about 2,400 patients have started treatment or are enrolled to start. Now, we don't have figures on how many patients have filled prescriptions from compounding pharmacies, and I don't know how many people took this therapy before KV got involved.

But still. . .that's what, a 2 or 3% market penetration? I'll bet KV's sales projections weren't at that level.

Comments (4) + TrackBacks (0) | Category: Drug Prices | Regulatory Affairs

August 8, 2011

More On Cancer Drug Shortages

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Posted by Derek

I wrote here back in June about the growing problem of shortages of oncology drugs. The blog post I linked to then (at Marginal Revolution) blamed regulatory factors and price controls as two major contributors to the shortages, but pointed out that you can't point your finger at just one factor. A pile of them, taken together, can gum up the system enough to cause trouble.

Now Ezekiel Emanuel in the New York Times has weighed in with a good editorial on the situation, and it blames. . .price controls and regulatory factors. For those who thought I was engaging in dangerous FDA-bashing in my last post, here's another factor to consider:

Historically, this “buy and bill” system was quite lucrative; drug companies charged Medicare and insurance companies inflated, essentially made-up “average wholesale prices.” The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug’s actual average selling price, plus 6 percent fo