Guest col­umn: The re­al cost of drug de­vel­op­ment

Pun­dits of drug de­vel­op­ment costs use very dif­fer­ent mod­els in com­put­ing the true spend in de­vel­op­ing drugs. At one end of the spec­trum is the phar­ma mod­el: Take all the R&D costs over a decade, and di­vide by the num­ber of drug ap­provals in a sim­i­lar time frame. This gives an in­dus­try av­er­age of over a bil­lion dol­lars per drug and in­cludes the cost of drug fail­ures and re­peat­ed in­di­ca­tions be­fore a suc­cess­ful one is achieved.

Mike Pow­ell

The Tufts Cen­ter for Drug De­vel­op­ment tracks this care­ful­ly, and their re­cent es­ti­mate is $2.6 bil­lion cost per new NME drug. It seems in­cred­i­ble that a phar­ma com­pa­ny may know­ing­ly spend over a bil­lion dol­lars up­front on a sin­gle de­vel­op­ment plan, but by the time the drug hits the ship­ping dock on the way to cus­tomers, this is a fair­ly re­al­is­tic way of ex­press­ing the cost of de­vel­op­ment for that drug.

At the oth­er end of the spec­trum is a pre­dic­tion based on the ac­tu­al costs to con­duct a study with the min­i­mal num­ber of pa­tients for an or­phan in­di­ca­tion. A re­cent study in End­points re­port­ed that the mean piv­otal tri­al cost was $19 mil­lion for a drug ap­proval.

With­out giv­ing away the punch­line, sad­ly, this is some­what akin to claim­ing the re­al cost of dri­ving your car is the cost to fill the gas tank. Or the cost of rais­ing kids is just the food they eat and clothes they wear. In all three cas­es, noth­ing could be fur­ther from the truth.

Ja­son Pitts

Biotech/ven­ture firms al­so have a point of view on the cost for clin­i­cal-stage biotech drug de­vel­op­ment to FDA ap­proval, ie, what do we ac­tu­al­ly spend to take drugs from Phase I through ap­proval. This ap­proach has some con­ve­nient cost sav­ings built in: for ex­am­ple, for aca­d­e­m­ic start-ups, much of the pri­ma­ry re­search cost is borne by NIH and oth­er gov­ern­ment fund­ing, and for phar­ma spin-out com­pa­nies much of the ear­ly work is con­ve­nient­ly tak­en care of by the phar­ma be­fore the biotech com­pa­ny is formed. That leaves just the costs for a clin­i­cal de­vel­op­ment pro­gram from Phase I through FDA ap­proval.

Sim­ple.

Well, hard­ly sim­ple. Sofinno­va, like oth­er ven­ture firms that spe­cial­ize in clin­i­cal-stage drug de­vel­op­ment, has learned through ex­pe­ri­ence what the re­al cost is to push drugs from Phase 1 to FDA ap­proval. Sofinno­va tracks the ‘ful­ly loaded cost of per-pa­tient’ for our com­pa­nies, and has done so for more than a decade. This is ba­si­cal­ly the ful­ly-loaded costs look­ing at what a biotech com­pa­ny spends to dose each pa­tient in­clud­ing the ful­ly loaded costs (GMP man­u­fac­tur­ing, leased space, cost of em­ploy­ees, and oth­er fac­tors).

Tak­ing this ap­proach — and as­sum­ing you can run a biotech com­pa­ny as ef­fi­cient­ly as pos­si­ble — then you take the to­tal spend di­vid­ed by the ac­tu­al num­ber of pa­tients dosed with the drug/place­bo. For ex­am­ple, if a biotech spends $20 mil­lion over 2 years and dos­es 100 pa­tients, the ful­ly loaded cost is $200,000 per pa­tient. This large, ful­ly amor­tized cost per pa­tient num­ber some­times caus­es con­ster­na­tion in the in­dus­try as the di­rect clin­i­cal costs to the CRO are, say, on­ly $5.5 mil­lion, where the re­main­ing $14.5 mil­lion was spent on every­thing else: ba­si­cal­ly the in­fra­struc­ture need­ed to do drug de­vel­op­ment: strong sci­en­tists and clin­i­cians, GMP drug sup­ply, tox­i­col­o­gy stud­ies, and the elec­tric bills that keep the lights on. Va­ca­tion pay, em­ploy­ee bonus and health plans, busi­ness trav­el, IPO and fundrais­ing costs.

If they are do­ing things right, toss in the De­cem­ber hol­i­day par­ty, and jour­nal club costs. It is these ful­ly amor­tized costs that add up quick­ly.

We first com­put­ed the ful­ly loaded cost per pa­tient math cir­ca 2005. As our own biotech port­fo­lio was still grow­ing, we in­for­mal­ly so­licit­ed da­ta from dozens of clin­i­cal com­pa­nies fund­ed by brand name ven­ture firms, in­clud­ing sev­er­al brand-name, Sand Hill Rd firms, and com­bined them to make a con­fi­den­tial dataset of sev­er­al dozen, clin­i­cal­ly ma­ture com­pa­nies, yield­ing the fol­low­ing com­piled da­ta:

Av­er­age com­pa­ny spend = $78 mil­lion

Av­er­age num­ber of pa­tients = 402 (geo­met­ric mean av­er­age)

Av­er­age per pa­tient cost = $168,000.

We felt this was shock­ing­ly high. When we ex­am­ined on­col­o­gy com­pa­nies on­ly, the av­er­age cost per pa­tient was even high­er, $258,000, and for pro­tein ther­a­peu­tic com­pa­nies it was $345,000 per pa­tient.

Al­though this sub­set of biotech com­pa­nies was lim­it­ed at the time, the mes­sage was un­mis­tak­able: The cost to run a ven­ture-backed, clin­i­cal stage biotech for a few years, dos­ing hun­dreds of pa­tients (which is typ­i­cal­ly a very ag­gres­sive num­ber re­quired for FDA ap­proval) is cer­tain­ly not $19 mil­lion.

In the last decade, we have had 17 FDA drug ap­provals come out of Sofinno­va-fund­ed com­pa­nies. Three of these com­pa­nies were ac­quired be­fore FDA ap­proval, and so we don’t have full in­sight in­to the to­tal cost of de­vel­op­ment for these com­pa­nies.

Nonethe­less, the re­main­ing 14 com­pa­nies that took their drugs all the way to FDA ap­proval col­lec­tive­ly raised/spent $4.65 bil­lion, giv­ing an av­er­age cost per drug to ap­proval of $327 mil­lion (+/-264 mil­lion, SD).

Ven­ture-backed biotech com­pa­nies are fair­ly ef­fi­cient at de­vel­op­ing drugs, and we be­lieve this is part of the rea­son why the biotech in­dus­try has boomed for more than two decades.

Bot­tom line: Drug de­vel­op­ment is an ex­pen­sive busi­ness, but those that can do it more ef­fi­cient­ly and cheap­ly than oth­ers should be able to stay in busi­ness.

So why do we do it? Why do we spend so much on de­vel­op­ing drugs, and in­vest­ing in the qual­i­ty of life, for our­selves and our chil­dren? Many things in life are more ex­pen­sive than they might seem on face val­ue, in­clud­ing the car you dri­ve, the chil­dren you raise, and the life-sav­ing drugs you take. Yet all pro­vide a quan­tum change in qual­i­ty of life, de­spite the oc­ca­sion­al flat tire, the di­a­pers and cost of col­lege and, yes, the cost to demon­strate drug ef­fi­ca­cy and safe­ty, held to one of the high­est stan­dards imag­in­able: FDA ap­proval.


Mike Pow­ell is a gen­er­al part­ner and Ja­son Pitts is an as­so­ciate at Sofinno­va Ven­tures.
Im­age: SHUT­TER­STOCK

A New Fron­tier: The In­ner Ear

What happens when a successful biotech venture capitalist is unexpectedly diagnosed with a chronic, life-disrupting vertigo disorder? Innovation in neurotology.

That venture capitalist was Jay Lichter, Ph.D., and after learning there was no FDA-approved drug treatment for his condition, Ménière’s disease, he decided to create a company to bring drug development to neurotology. Otonomy was founded in 2008 and is dedicated to finding new drug treatments for the hugely underserved community living with balance and hearing disorders. Helping patients like Jay has been the driving force behind Otonomy, a company heading into a transformative 2020 with three clinical trial readouts: Phase 3 in Ménière’s disease, Phase 2 in tinnitus, and Phase 1/2 in hearing loss. These catalysts, together with others in the field, highlight the emerging opportunity in neurotology.
Otonomy is leading the way in neurotology
Neurotology, or the treatment of inner ear neurological disorders, is a large and untapped market for drug developers: one in eight individuals in the U.S. have moderate-to-severe hearing loss, tinnitus or vertigo disorders such as Ménière’s disease.1 With no FDA-approved drug treatments available for these conditions, the burden on patients—including social anxiety, lower quality of life, reduced work productivity, and higher rates of depression—can be significant.2, 3, 4

Joe Jimenez, Getty

Ex-No­var­tis CEO Joe Jimenez is tak­ing an­oth­er crack at open­ing a new chap­ter in his ca­reer — and that in­cludes a new board seat and a $250M start­up

Joe Jimenez is back.

The ex-CEO of Novartis has taken a board seat on Century Therapeutics, the Versant and Bayer-backed startup focused on coming up with a brand new twist on cell therapies for cancer — a field where Jimenez made his mark backing the first personalized CAR-T approved for use.

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Can we make the an­tibi­ot­ic mar­ket great again?

The standard for-profit model in drug development is straightforward. Spend millions, even billions, to develop a medicine from scratch. The return on investment (and ideally a tidy profit) comes via volume and/or price, depending on the disease. But the string of big pharma exits and slew of biotech bankruptcies indicate that the model is sorely flawed when it comes to antibiotics.

The industry players contributing to the arsenal of antimicrobials are fast dwindling, and the pipeline for new antibiotics is embarrassingly sparse, the WHO has warned. Drugmakers are enticed by greener pastures, compared to the long, arduous and expensive path to antibiotic approval that offers little financial gain as treatments are typically priced cheaply, and often lose potency over time as microbes grow resistant to them.

The FTC and New York state ac­cuse Mar­tin Shkre­li of run­ning a drug mo­nop­oly. They plan to squash it — and per­ma­nent­ly ex­ile him

Pharma bro Martin Shkreli was jailed, publicly pilloried and forced to confront some lawmakers in Washington riled by his move to take an old generic and move the price from $17.50 per pill to $750. But through 4 years of controversy and public revulsion, his company never backed away from the price — left uncontrolled by a laissez faire federal policy on a drug’s cost.

Now the FTC and the state of New York plan to pry his fingers off the drug once and for all and open it up to some cheap competition. And their lawsuit is asking that Shkreli — with several years left on his prison sentence — be banned permanently from the pharma industry.

UP­DAT­ED: Ac­celeron res­ur­rects block­buster hopes for so­tater­cept with pos­i­tive PhII — and shares rock­et up

Acceleron $XLRN says that its first major trial readout of 2020 is a success.

In a Phase II study of 106 patients with pulmonary arterial hypertension (PAH), Acceleron’s experimental drug sotatercept hit its primary endpoint: a significant reduction in pulmonary vascular resistance. The drug also met three different secondary endpoints, including the 6-minute walking test.

“We’re thrilled to report such positive topline results from the PULSAR trial,” Acceleron CEO Habib Dable said in a statement. The company said in a conference call they plan on discussing a Phase III trial design with regulators.

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Amber Saltzman (Ohana)

Flag­ship's first ven­ture of 2020 is out, and it's all about sperm

A couple years ago, Amber Salzman got a call as she was returning East full-time after a two-year stint running a gene therapy company in California.

It was from someone at Flagship Pioneering, the deep-pocketed biotech venture firm. They had a new company with a new way of thinking about sperm. It had been incubating for over a year, and now they wanted her to run it.

“It exactly fit,” Salzman told Endpoints News. “I just thought I had to do something.”

Pfiz­er ax­es 6 ear­ly to late-stage can­cer stud­ies from the pipeline — with one oth­er cut for sick­le cell dis­ease

Pfizer trimmed a group of 3 R&D programs using their PD-L1 Bavencio — partnered with Merck KGaA — in their latest pipeline cull.

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UP­DAT­ED: In­cyte scores much need­ed PhI­II suc­cess — and of course it’s de­liv­ered by rux­oli­tinib

Incyte’s efforts to breathe a second life into ruxolitinib — its JAK inhibitor sold in pill form as Jakafi — has been greeted with clear, if preliminary and unsurprising, Phase III success.

Topline data from the TRuE-AD2 cements ruxolitinib’s foundational importance for Incyte, and gives analysts hope that there might yet be room for growth in a pipeline that’s suffered multiple R&D setbacks.

Stephen Hahn, AP

The FDA un­veils a new reg­u­la­to­ry frame­work to speed along gene ther­a­pies, re­ward­ing the lead­ing play­ers

Bioregnum Opinion Column by John Carroll

The emphasis at the FDA over the past 5 years or so has been on assisting drug developers as much as they can to speed up regulatory reviews and push more drugs into the market. And they are now crafting a final set of regulations aimed at flagging through a whole new generation of gene therapies in clinical testing at a rapid clip.

In a set of 6 prospective guidances posted on the FDA web site Tuesday morning, FDA commissioner Stephen Hahn committed the agency to staying flexible in handing out designations that are critical to gaining early approvals for drugs that claim to be once-and-done but don’t have anything close to the data needed to prove it.

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