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The Economist’s Take On Drug Discovery

The Economist has one of those articles that makes a person wonder. It’s a long-remarked phenomenon that whenever a newspaper writes about something that you really know, the omissions and inaccuracies that show up should make you uneasy about their coverage of everything else. And so it is here, unfortunately.

The hook for the piece is the Pfizer-Allergan merger, and it comes as no great revelation that this merger is being done for tax purposes, tax purposes, and tax purposes, in that order. But the article pivots to talk about whether large drug companies are needed to do drug research at all, and how much that costs:

. . .The figure of $2.6 billion cited by PhRMA, the American drugmakers’ lobby, for the cost of developing a new drug, is questionable. And the industry is in any case moving away from a model in which giant firms throw huge sums at in-house research in a quest for ground-breaking new treatments.

Start with the $2.6 billion figure. Two years ago, when the number being bandied about was just $1 billion, even the boss of GSK, one of Pfizer’s biggest rivals, described it as a myth. Médecins Sans Frontières, a charity, claims that new drugs can be developed for as little as $50m and no more than $190m, even taking into account the cost of those that fail during clinical trials. Some of the assumptions used to arrive at the $2.6 billion figure are easy to pick apart. One example is the padded estimate for the drug firms’ cost of capital. But at least as important is that the figure is based on data from between 1995 and 2007. . .

$2.6 billion probably is too high an estimate. But by how much? The MSF estimate cited, lower than the Tufts estimate by an order of magnitude at the very least, is also the wrong number, and citing two incorrect figures at opposite ends of the scale doesn’t enlighten the reader much. If you go look at the MSF numbers, it turns out that they’re based on the Drugs for Neglected Diseases Initiative figures, and as this post shows in detail, those numbers are not relevant to current drug discovery projects at all. They’re based on compounds that were discovered decades ago, and many costs are not reflected in the figures. If you want to develop a new drug today, from the ground up, you could very easily find yourself spending over a billion dollars, but you will not, under any possible circumstance, spend “as little as $50 million”.

The Economist article goes on to say that there’s a new model in the drug industry – bringing in drug that are already partway through development. That leaves out the fact that larger companies have been doing this for decades, and in fact were doing that during that 1995-2007 period that they’re citing as unrepresentative of the New Era.

As the biggest firms have increasingly outsourced the early stages of drug discovery, they have cut back their in-house spending in those areas of research in which they are weak. But they have continued to spend heavily on what are more like beauty products than life-saving cures—think of Allergan’s Botox anti-wrinkle jabs, or Latisse, its lotion for thickening eyelashes. They have also continued to pump money into making incremental changes to their existing drugs, so as to claim some small advantage—and big price differential—over rival treatments.

Allergan is a peculiar example to use, since the company has always been focused on just those areas, and until a very recent merger, was hardly considered one of the “biggest firms”, like a Pfizer, Novartis, etc. As an earlier paragraph in this same article has already pointed out, the only reason we’re talking about them in the same sentence as Pfizer is because of tax accounting. Would the author(s) of this piece like to furnish some other examples of big drug firms spending “heavily” on beauty products? Eli Lilly (to pick one example) is spending itself into the ground trying to come up with something for Alzheimer’s; I haven’t noticed them working on face creams recently. I’d also be interested in hearing more about those incremental changes, because it’s been my impression that we’ve seen less of that in recent years. The article cites the upswing in drug approvals over the last couple of years as evidence that the “new approach” is helping efficiency, though, but without noting how many of these approvals were brought in by companies from outside, or how that figure might compare to other periods.

The article then circles around to drug prices, not neglecting the likes of Turing and Valeant, although these examples have little or nothing to do with the drug-discovery focus of the paragraphs that came before. Such companies go out of their way to not discover drugs, and seem most comfortable with compounds that are even old enough to be off patent. (The fact that such compounds shouldn’t be open to the kind of price-raising that these companies are getting away with is a regulatory and insurance problem, not a drug discovery and development one).

17 comments on “The Economist’s Take On Drug Discovery”

  1. MoBio says:

    “they have cut back their in-house spending in those areas of research in which they are weak”

    This is a particularly noxious assertion without any evidence to back it up. Outsourcing chemistry and screening was not because ‘they were weak’ but simply a gambit to save $$…nothing more nothing less. The jury is still out on that particular gambit.

  2. Ash (Wavefunction) says:

    Trashing Allergan as an example of wasteful drug discovery is clearly a straw man argument. The missed opportunity here IMO was an article about how big pharma is fishing for really early stage ideas in small biotech. As for the $2.6 billion vs $150 million, as Asimov would put it, one of them is definitely wronger than the other.

  3. Dr. Mindbender says:

    If I’m not mistaken, Latisse was originally being developed as a treatment for glaucoma, but had an unexpected side effect that they were able to market. Pretty much the same story as Viagra, trying to make lemonade from lemons. So let’s not get too hasty about vilifying Allergan and their work on beauty products, they had more noble origins.

  4. prezcamacho says:

    Notably, a side effect of outsourcing is higher drug prices. A large HTS library is a barrier to entry for small companies looking for a NCE, but they can use target insights to identify biologics that will be more expensive to the consumer if approved.

  5. Anon says:

    Can you really get through the drug discovery process then run clinical trials through phase III on $150M?

    In even a very idealistic scenario this doesn’t sound very credible. Once you realize that 90% of drugs fail that number seems absolutely impossible. Even if 100% of drug-candidates were successful this number would strain credibility.

    1. anon says:

      Thanks for the breath of fresh air anon. While the estimates seem high ( likely because the R&D costs are hard to drill down and separate ) it doesn’t make them invalid simply because they look specious – wouldn’t you need to provide an alternative estimate?

  6. Sleepless in SSF says:

    I’d argue that “new drugs can be developed for as little as $50m and no more than $190m” is perfectly accurate as long as you substitute “discovered” for “developed”.

  7. Chrispy says:

    It’s the failures that eat up your money, not the successes. Going forward, the large pharmas will be paying top dollar for the preclinical leads they are no longer able to develop themselves (eg Flexus for $1.25B). Unfortunately, these small companies will have no incentive to be completely forthright about what they know about the compounds — the kind of knowledge you get from experience. So companies will shell out more than it would have cost to develop leads in-house and in return have a less robust understanding of what they’re getting into. We’re not seen out last Sirtris, for sure. It’s really the death throes of a dying business model.

  8. Eau de Cologne says:

    Regarding Eli Lilly and face cream – several decades ago Lilly did do research on face cream and other cosmetics when it owned Elizabeth Arden. That unit was sold off to Faberge in 1987.

  9. Morten G says:

    $50m-190m for a new drug? Deal. Give me a tuberculosis drug and even with the vast majority of sufferers being poor I could easily recoup that money many times over.

  10. In the Biz says:

    I’ve seen the source data for the $2.6 billion and it’s more accurate than not. What is missing in the discussion is that $50 million doesn’t buy a phase II trial much less a phase III trial in many indications. With the regulatory authorities and payers mandating large safety and outcomes studies the cost of phase III is well over $200 million (I’ve seen study budgets close to $1 billion adjusting for inflation). MSF is right for compounds in small populations with few available therapies where there is no regulatory requirement for large population testing. I’ve been part of a small biotech that uses the repurposing methodology and it can work–occasionally.

    The movement of discovery through POC out to biotech is really a shift of core competencies to firms who can focus on these areas. Money is still paid for discovery coming initially from NIH, then a large part from VCs and IPO investors with the payback coming from Pharma if the biotech is successful getting to POC. Pharma is really just decreasing their fixed costs but is still paying top $ for viable assets. The cost of failure is still high and there are still major failures in phase III where hundreds of millions are spent along with pre-approval scale up and ramp up costs. There are potential ways to get the costs down but that’s another discussion.

  11. Some idiot says:

    Re Sleepless and In The Biz…

    Agree, but with a slight change to the definition: instead, substitute “developed up to and including phase 2” for “discovered”. After a compound has been through phase 2, and whilst not being effective, had a fine side effect profile, _then_ I would believe you could re-purpose it for $50 mil. Most of the heavy lifting (and spending) already being done…

  12. JJR says:

    Sounds like someone at the Economist developed some drugs in their basement before writing that article. This is another example of sensationalistic journalism, without facts, context or an understanding of what they’re talking about. It’s the new trend these days.

  13. Anono says:

    May be worth publishing an article explaining how articles in the Economist must surely cost no more than 10 cents to produce?

    1. dearieme says:

      Really? That much?

  14. Nick K says:

    It’s a shame. I used to respect the Economist and I tended to believe what it told me. I’ll be a lot more skeptical from now on.

  15. Sunny says:

    Did I misread the part that said “teams of volunteer scientists to work on new treatment approaches”. Right… like we’re superhuman and don’t need to pay for housing, food, etc..

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