by Daniel Dupuis
The pharmaceutical industry’s long and successful strategy of placing big bets on a few molecules, promoting them heavily and turning them into blockbusters, worked well for many years, but its R&D productivity has now plummeted and the environment is changing.
Various analysts (notably, Deloitte and BCG) have tried to measure Big Pharma’s R&D productivity in terms of the internal rate of return (IRR) and have concluded that it has been in steady decline and have predicted that it will be unsustainable by 2020. In short, when the estimated cost of capital is included, the return on investment for new drug development is no longer a break even investment.
WHAT IS DRIVING THESE CHANGES?
The standard formula for decades has been to assume 13 years of development and 7 years in the market as a branded drug at commensurate prices for a substantial return on investment, but this is no longer an applicable formula.
Why?
Healthcare payers are increasingly measuring the “pharmacoeconomic” performance of medicines. Medical innovation must be paired with a reduced cost of care.
Currently, a new branded drug may prove to be demonstrably superior to current standard-of-care medications, but will struggle to land on any formulary (prescribing protocol), even as a fourth-tier option with a substantial co-pay, unless it can be offered at a cost effective price or mitigate costly side effects.
Most common disease states are assumed to be effectively managed with existing generics, so there is no real demand for a new formulation. Is there any real need for a new hypertension drug?
Research expenditures have steadily increased and the odds of phase 3 approval are still no better than 1 in 5, and this is after spending an average of $700 to $800 million prior to entering phase III.
New drugs need to have flexibility which allows for numerous revenue streams. Prevention, maintenance, and disease management are now the components of a blockbuster drug.
There is little incentive to develop medications for rare diseases as the price point necessary to recoup costs would have to be at a level that would be met with not only resistance, but negative publicity (a new treatment for a rare form of hemophilia will cost $1.5 million). Areas of need with a large patient population are a mandatory requirement for new drug development.
“Corporate paralysis” has become the norm. The prevailing management culture, mental models and strategies on which the industry relies have remained unchanged for decades, even though other industries have adopted far more efficient methodologies.
HOW CAN BIG PHARMA ADDRESS THESE ISSUES?
Big Pharma has increasingly adopted a more efficient model of outsourcing research and development by forming licensing agreements with smaller, more specialized companies, to secure the rights to new therapies that are already in development.
Investing in “combination drugs,” that combine a new medication with an already accepted generic medication, where the combination of two drugs can improve the overall efficacy or side effect/safety profile at a cost effective price point.
Adopting newer, more effective methodologies. For example, using a PDX (patient-derived xenograft) model in the early stages of development. This model of implanting a live tumor into a series of mice can accurately predict the outcome of phase III trials in the early stages of drug development for immunotherapy drugs for oncology.1 See recent phase III failures of Incyte, Jounce and Vascular Biogenics.
Embracing broad changes by utilizing new technologies to treat diseases, such as gene therapy, tissue engineering, botanical formulations and regenerative medicine.
Focusing on medications that can not only treat an existing disease, but serve as a preventative and/or a post-disease maintenance therapy. This can exponentially increase the overall return on investment for any new medication.
Developing or licensing new drugs that can potentially treat a wide array of disease states.
Concentrate on chronic diseases, as they generate the most revenue, both now and in the future.
SOME CHANGE IS ALREADY TAKING PLACE
The past two years has resulted in unprecedented investment in drug development by innovative biotech companies for disease states with large and growing markets.
Oncology attracted much of this investment and is a great example of the implementation of new technologies. In fact, there are currently 2000 immuno-therapies in clinical or pre-clinical testing,
Much of the development in cancer immunotherapy was driven by smaller companies that are not immersed in traditional methods of drug development.
For example, Arvinas™ is developing a new class of drugs that engage the body’s own natural protein disposal system to treat cancers and other difficult to treat diseases. As a potential improvement over traditional small molecule inhibitors, their PROTACs (Proteolysis-Targeting Chimeras) platform is able to degrade disease-causing proteins rather than merely blocking them, which can potentially treat cancer, but elicit fewer side effects. This unique technology has resulted in an investment/licensing agreement with Pfizer for $830 million, in addition to an already existing deal with Genentech for $650 million.
Another company, Omnitura™, is a great example of applying many of the modern principles of drug development. It is a marriage of technology and medicine that has led to the development of Aneustat™, an unprecedented multivalent immuno-oncology drug candidate that was developed using the aforementioned patient-derived xenograft model.
Aneustat™ is unique in that it’s a multifunctional and multi-targeted immuno-therapy that regulates thousands of genes in molecular pathways associated with survival of cancer. The pre-clinical and clinical data indicates that it is effective as both a stand-alone drug and as a foundation for combination therapy with any current standard-of-care drugs for prostate and numerous other cancers. When compared to the existing therapies for prostate cancer (e.g., docataxel), the addition of Aneustat™ reduced toxicity, side effects and drug resistance, while providing better overall outcomes.
“It is not the strongest of the species that survives, nor the most intelligent, but the one most adaptable to change.”
Charles Darwin
1Pompili et al., Patient derived tumor xenografts: transforming clinical samples into mouse models. Journal of Experimental & Clinical Cancer Research (2016) 35:189 DOI 10.1186/s13046-016-0462-4