Drug Development - Is There Another Way?

I'd like to start this by saying that I am by no means an expert in health care and do not invest in health care companies. 

This post was inspired by Alex Berensons's piece on the NY Times today talking about the looming lawsuit crisis in the pharmaceutical industry.

Here are the problems as I see them with the way the pharmaceutical industry is set up today:

1 - Drug prices are sky high making them unafordable for many lower and middle income people.
2 - Medicare is going to cost even more because of the new drug benefit which to date over 30 million people have signed up for.
3 - New innovative drugs are not available because of the lenghty clinical trial process.
4 - There is limited competition in the pharmaceutical market due to long term patent protection
5 - It takes at least $100mm and often many times that amount to develop a new drug and get it to market.
6 - The pharma companies are starting to get hammered with lawsuits resulting from deaths or people becoming seriously ill from approved medications.

What if we set up a second way for drugs to come to market?

What if the person who discovers a new compound "open sources" the discovery?  What if they allow any company with a valid license to make the drug?  What if the government allowed anyone to take the drug who knowingly signed off on the risks involved?  What if the person who took the drug waived all rights to sue the maker of the drug?  What if the person who took the drug was required to complete a questionaire on the outcome and side effects that was made publicly available? What if the maker of the drug was not allowed to market the drug to patients?  What if doctors were required to analyze the public data on outcomes and side effects before prescribing the drug?

I have no idea if any of this makes any sense for the drug development business.  But this is akin to the new way that technology is developed and taken to market.  Why doesn't this make sense for drugs as well?

Comments

[Dave]

Never trust anything written about business or economics in the New York Times, and you'll be set for life.

[Ted]

Are you sure that you really want to waive the ability to sue pharma companies? While this sounds like a good approach it is utopic and unfortunately will only cause more problems. Under our present tort reform, in order to go forward (i.e Vioxx) you have to have a pretty damn strong case. Moreover you will show that the company did a calculus of risk and chose to market the drug despite the inherent dangers. People tell me that such decision making never occurs. I can tell you as a corporate attorney, it most certainly does. People will say it is immoral, unethcial, which, if a corporation were a being that would be true, but a corporation by its very existance is amoral and will analyze aspects void of the human dynamic. Do I agree with it? No, but this is a product of our times and the recourse is that if a corporation gives short shrift attention to the "human" factor they should be ready to pay the piper. The market will not correct for this- unfortunately it will be the attorneys (as no one else is standing up to them). I am certainly not praising attorneys as I hold most in my profession in disdain, however this seems to be the last wall of wide-spread corporate abuse.
I think that both prescription drug companies and hospitals cry "its the attorneys" all the time, when, in reality, we have seen a substantial DROP in lawsuits over the past 10 years, yet they still have the same argument. Attorneys are an easy target, but unfortunately it is a red herring to larger social issues.
I tend to agree with most of your comments. As I have stated before, I think that health care is one area that does not work on the open market in the same way that a Google, NetFlix or even Whole Foods does. By its very nature, most health care decisions are under duress, thus the patient is not an a strategically sound position to negotiate. Without this factor, one will never have a true market scenario.

[Yali Friedman]

I think that many of the problems you've cited are unavoidable. The traditional pharmaceutical way of making drugs (chemical synthesis and biological extracts) is in coda; all the low hanging fruit has been harvested. Biotechnology approaches (de novo biological synthesis and alteration of in vivo processes) still have room to grow, but we are far too accustomed to the sort of innovation and magic bullets that were seen in decades past.

We expect side effect-free drugs with instant gratification but are unwilling to pay the prices that foster the double-digit growth that investors demand. Just as drug prescription is an economic nightmare - the decision makers, consumers, and payers are all distict parties who do not share common interests - the demands among investors to see double-digit growth in drug companies combined with payer's desire to reduce their expenditures and patient's expectation for ready access to best-in-class treatments is tearing the industry apart.

Check your mailbox - a signed copy of my book is on it's way.

[brian]

why don't we allow new drugs to be tested on death row inmates rather than innocent animals? this would accelerate the drug approval process and save tremendous amounts of money to boot.

[scott]

Try this on for size, take one big step back. Make all drugs illegal orange bottle and the illegal ones and enforce elimination of them all, and let nature take it's course.

What might be found is teachers would have to earn there pay and teach the young boys that are no longer zombies or robots something new for the whole year, instead drugging them into addiction.

This comes from a dexidrin dad with a ritlyn son. The teacher/doctor mob will distroy our future before the end of the decade if something is not done soon.

People might live longer more productive lives with no side effects, many older people have been saved by there pharmacist.

Of course three very top heavy industrys would have to go out and work for a living, sounds cruel, right or to easy.

[Beth]

I have been in the pharmaceutical business for over 16 years, and I tend to agree with many of the points that Yali brings up in his comment. Everybody, including the patient wants a wonder pill - one that will make him healthy, pretty, thin and be able to have sex until they drops. God forbid their are any side effects that have to be dealt with - and please don't even think about holding the patient responsible for their own health - like eating healthy, or exercising. And the same baby boomers who are taking all the drugs are the ones screaming at the drug companies to continue to have double digit growth so their portfolios continue to grow so they can continue the lifestyle that makes them need the pills in the first place.
Your ideas are utopic - but until their is a great mind shift in how people make money I don't see much change.
I will point out however, their a few companies like you are speaking about. OneWorld Health is working on drug development for the drugs that nobody is going to make a ton of money on - those diseases that strike many of the poverty striken nations of the world. I, for one, hope this company succeeds beyond their wildest imagination....

[Brouhaha]

"What if the government allowed anyone to take the drug who knowingly signed off on the risks involved? What if the person who took the drug waived all rights to sue the maker of the drug? "

Fred, if the drug maker is immune from lawsuits, who has the incentive under your proposed system to even determine all of "the risks involved?"

The answer is no one. A knowing waiver is impossible under these circumstances. I'd hate to be among the first to take these drugs, which would be rushed to market without clinical safety testing in order to start generating lawsuit-free licensing fees!

[just.a.guy]

going from concept to commercial sales actually costs around $1 BILLION, far more than the $100mm you cited.

oh and it takes, on average, almost 10 years too.

[Yali Friedman]

Just.a.guy - the $802 million figure that often gets rounded up to $1 billion is not an accurate representation of how much it costs to develop a drug.

For one thing, half that cost is attributed to the 'cost of capital', reflecting the cost to investors of having to wait a decade to get a return (a quick back-of-envelope estimate indicates that this must be assuming 7%+ for inflation and opportunity cost - the rule of 72). So, one can either say that drugs cost $400mm and take ten years to develop, or that they cost $800 million of today's dollars, because the time is already factored into the second number.

To put it simply, quoting an $800 million dollar price for drug development is like factoring in interest payments into your house or car price. Nobody cites the post-lease or post-mortgate price; they always cite the sticker price.

What's more, the $400 million price comes from historical averages of pharmaceutical drugs serving large populations. Biotech drugs tend be cheaper to develop, and often serve smaller populations, meaning lower clinical trial expenses.

Based on anecdotal data, the cost to develop a drug today can be as cheap as $40-100 million in out-of-pocket expenses.

[fred]

just a guy,

i said "It takes at least $100mm and often many times that amount to develop a new drug and get it to market".

fred

[Tom]

You'd still have to conduct Phased clinical trials at huge costs, but the returns wouldn't be there. Nobody's going to be the first person to take the drug (i.e. be a "Phase 1") not even knowning toxicity. And self-reporting (without controls) doesn't provide useful efficacy data.

Unfortunately, what you're describing sounds a heck of a lot like the "nutraceutical" industry of present to me (generic/non-proprietary products, differentiated primarily by branding, with limited or no testing), and I think it's obvious that marketing and greed wins out there over good sense 90% of the time. In the end, consumers aren't doctors, and they're just not able to make informed decisions about medication without being vulnerable to marketing and commercial influence.

[ted]

Hi Fred,

My reference to "utopian" was certainly not an ad hominem argument. I tend to agree with your central conclusion and have idealistic perspectives on this subject myself. However I think that healthcare is an anomoly that does not always respond predictably to a pure market-driven economy. Ideally, there should be the light hand of the government gently encouraging the various players to do the right thing, however in our current 'free-for-all' healthcare system, I truly believe that trial attorneys are the only effective barrier to a widespread fleecing of Americans. I am certainly no apologist to trial attorneys, as corporate counsel I am cognizant of the near extortion-like practices implemented by a few unsavory members of the Bar. However, with proper planning, corporations can have some degree of certainty of their potential exposure and can also implement measures to mitigate risks. Thus, the pharma companies are in the best position to guard against this.
I think that your "utopic" ideal could come to some semblance of fruition if we had a paradigm-shift in this country to understand that there are societal issues that can only be solved by society at large. I, for one, am not against profit, but, however, I do tend to think that much of this money is due to opportunism and governmental protections given to the existing pharma companies. With sweetheart-like deals in the medicare prescription drug benefits, I am not overly sympathetic to thier cries of lawsuits.

Fred, your site is my first read in the morning. Thank you very much for spending the time on it as you have a lot of loyal readers! I have learned a great deal from you and your readers and have suggested decisions based on trends that you have brought up. Keep up the great work!

-Ted

[Darren Fast]

Great post and discussion. I agree that Pharma/Biotech companies and their investors are going to have to figure out new ways of developing drugs that serve smaller and smaller markets. The personalized medicine approach is one way this starts to happen. If you can screen people and get them drugs that will work for their particular indication, rather than trying to get a blockbuster that only works for 40-50% of the diseased population, perhaps companies will be able to complete smaller, more focused clinical trials and there will be less adverse events as they will be able to be screened out prior to the patient ever receiving the drug. This will lead to premium prices for the drugs, but the trade off is that patients should need fewer drugs and their disease will be treated more effectively.

Our current tools for treatment of disease are still rather blunt as we are treating symptoms not causes in many instances, but we are coming to a time where we will start to treat root causes. This will lead to less adverse reactions and more effective therapies.

[Adam Rubenstein]

the human biology is so incredibly complex that it is more like $1 Billion dollars to develop a drug! and ten to fifteen years to get it to market! The human clinical trials alone take approximately 5 to 8 years, add all of the pre-clinical development on to that. now add insult to injury...the patent clock starts ticking looong before a compound ever makes it to market. this leaves a uniquely difficult time horizon to recover costs, and not just for the 1:100 compounds that make it to market, but consider the massive expense of the 99 failed compounds.

complexity+time+cost=a difficult road to hoe. having smart people outside of the industry may catalyze new approaches to the developmental process. i am thrilled to see this discourse initiated.

[Carlos N Velez]

Good discussion.

I think the oft-quoted $800 million figure from DiMasi's otherwise excellent work has done more harm than good.

I think many problems with pharma development and pricing can be attributed to the overlap between the drug development process and the patent process, as Adam points out. In theory, a longer patent life post-approval would give companies more time to recoup their investment. Would this cause a lowering of prices? No. The cat's already out of the bag since Taxol was switched from yew tree production to total synthetic production.

All is not lost. I think there are a few approaches which will help accelerate drug development:

1. Phase 0 studies, where microdoses are given to humans, is an important step forward. There will always be differences between animals and humans. So the earlier you can get human PK/PD data, the more likely you are to kill a project that has no chance of succeeding.

2. It's still early, but the emergence of personalized medicine is going to help as well. Various techniques can be used to rationally select clinical trial candidates and conduct smaller (faster) trials. The FDA needs to have clearer guidance on this point.