The Big Red Biotech Blog

US Drug Market Contracts for First Time - EVER!

As Fierce Biotech reports via IMS data, te US drug market shrunk by 1% in 2012.  This is the first time that has ever happened. This is due, of course, to the much talked about patent cliff arriving in a big way -- mpacting market share and revenues of some of the world's top selling small molecules. The US market is now down to $325.8 B. 

Patent cliff drugs took a $29.8 B dollar hit. Yes, with a Big B.  Branded producers in general saw revenues decline by $11.8 B.  Generics producers of course saw he upside of things as their sales increased by $8 B. A drug market Yin and Yang as it were. Generics now account for 84% of all drugs prescriptions dispensed in the US.

The bright side for branded manufacturers are for their new drugs (< 24 months old). These actually grew by $0.5 B to a total of $10.8 B.  These all fell into the specialty category with drugs like - Incivek (hep C), Eylea (macular degeneration), Xgeva (bone drug), Gilenya (MS), and Yervoy (melanoma).  At least the FDA is on an upward trend with approvals, so there may be hope for a continued flow of more new drugs to bolster brand name revenues. 

However, the next wave over the patent cliff is also still coming.  Here's a report from the end of last year in Fierce Biotech that outlines the next 15 top sellers to go off patent this year.

Posted by Bruce Lehr May 9th 2013.

 

 

 

Myriad BRCA Test Cost is In-Line

This post from Patent Docs blog is self-explanatory.  Suffice it to say that any hoo-haw over the exhorbitant price of a BRCA diagnostic test at $3000 is -- shall we say overblown.  Assertions of this sort couldn't be more wrong-headed.  If you want to blame somebody on this front, it is likely more apt to blame a particular insurer for NOT covering the test cost. 

Posed by Bruce Lehr May 3rd 2013

 

VC Deals - especially Life Science - Have BAD 1st Quarter

New reports from PricewaterhouseCooper (MoneyTree Report) and National Venture Capital Association (Reuters data) show that VC investment in Qtr 1 2013 dropped 12% by dollars and 15% by number of deals as compared to Qtr 4 2012.  In a Qtr over Qtr comparison with Q1 2012, the amount of dollars invested this Qtr was down 6%. 

VC funding was therefore $5.9 B for 863 deals in Qtr1 vs $6.7 B for 1013 deals in Qtr4.  Life Science specific investment fared even worse - with $875 M for 96 deals versus $1.3 B for 138 deals in Qtr 4.  That represented a 33% drop in dollars and 30% drop in deals. Even worse, first-time deals dropped 52% and garnered only $98 M dollars for 20 companies, the worst performance since Qtr 3 1996 and Qtr 2 1995 respectively. See Fierce Biotech.

If there is a silver lining (and maybe there is), some speculation exists as to whether more companies are preparing for IPOs, as 175 IPO filings have been submitted to the SEC for review. This is discussed extensively in Xconomy. 

Posted by Bruce Lehr Apr 19th 2013.

Obama Budget May Cause Big Pharma to Take Its Own Pain Meds

PharmaTech Talk reports what's in the new FY 2014 budget proposal that's in favor of Big Pharma?  Not much apparently.  First off, it appears FDA will be losing more money for drug oversight.  Any added resources they will get will have to come from pharma user fees, i.e. they will pay as they go.

Pharma will also be asked to pay for more of the Medicare drug benefits, especially to help the government close the Medicare Part D "donut hole".  The proposal is for pharma to increase discounts from 50% to 75% in this category -- which should cost them about $11 B over 10 years.

What else is in the grab bag?  Well, under Medicare Part B pharma will be asked to to accept a reimbursement rate of ASP plus 3% instead of the current 6%.  This will cost them another $9 B over 10 years.

Obama also proposes to extend Medicaid drug rebates to Medicare dual eligibles.  This should cost pharma $3 B more next year and a tidy $142 B over 10 years.  Couple this to a ban on pay-for-delay and ring the cash register to the tune of another $740 M next year and $11 B over 10 years. This is suppposed to increase generic drug use.

Further, there is a proposal to cut the exclusivity period for biosimilars from 12 years to 7 years.  That's expected to be worth $3 B in savings.

Add it all up.  Looks like potentially $176 B over 10 years.  Put that in your patent cliff and smoke it! Then take 2 aspirin and call me in the morning.

Posted by Bruce Lehr Apr 17th 2013.

Surprise! Surprise! Big Biotech's Outdo Big Pharma on Several Measures

As reported in Fierce Biotech, Burrill & Co did an analysis comparing biotechs to pharma over the past 3 years.  Biotechs emerged as the winner on several key measures.  Companies in the Big Pharma camp included J&J, Pfizer, Novartis, Merck, Roche, Sanofi, Novo Nordisk, GSK, Bayer, Lilly, AZ, and BMS.  Under the biotech tent, we had Amgen, Biogen, Gilead, Celgene, Alexion, Regeneron. Shire, BioMarin, Elan and Onyx. 

Key findings as reported by Fierce for the past 3 years, included:

• Value of biotech group up 57% to 17.4% by pharma
• Net income for biotech's were up 23.8% compared to 1.1% for pharma (OUCH!)
• Revenue was up 40.6% in biotech versus 17% for big pharma.  Actual revenue was $48.6 B total vs $526.8 total. So pharma is still more than 10x larger in aggregate
• R&D spending went up 38.8% for biotech ($10.3 B) as compared to 11.7% for pharma ($76.3 B). Here pharma is only 7x in size.  Is that a good thing given their returns on R&D of late?

Biotech's are clearly offering better results for their investors at the moment but are they just smaller and at an earlier stage of hitting the "pharma wall".  Don't know. We'll find out.

Posted by Bruce Lehr Apr 17th 2013

Biotech Top 10 Revenue Stragglers

Fierce Biotech today published the top 10 new drugs with sales that lag the analysts' bullish pre-launch estimates. This ranking was based on drugs launched in the past 5 years that had been projected to earn blockbuster status.  Unfortunately, thus far they have not and have not likely prospects for doing so:

• Pfizer's Relistor - Projected $865 M and Actual $37 M
• Intermune's Esbrist - Projected $917 M and Actual $132 M
• Vertex's Incivek - Projected $4.05 B peak and new peak $669 M
• Amarin's Vascepa - Projected peak $2 B and new $505 M
• GSK's Benlysta - Projected peak $2.8 B and new $696 M
• Takeda's Nesina - Projected $2.53 B peak and new $788 M
• AZ's Brilinta - Projected $2.52 B and new $865 M
• Amylin's Bydureon - Projected $1.66 B and new $615 M
• Vivus's Qysmia - Projected $1.13 B and new $437 M
• Genentech's Actemra - Projected $2.25 B and Actual $896 M

This proves that analysts are too bullish, and tend to overestimate the mark (a lot like marketing research).  It may also be reflective of a changing healthcare environment that wants to see actual value for its expenditures.  If you can't be what's already on the market cost effectively, then we don't want to buy it.

Posted by Bruce Lehr Apr 10th 2013.

Biosimilars to Cost More to Get to Market in US

This comes to us from Fierce Biotech this morning.  Apparently, leading biosimilars (to be) producers have chosen to suspend their initial programs for drugs like Rituxan as their economic analysis shows that it will be much more expensive than once suspected to introduce products on the US market. Thus, company partners like Lonza/Teva and Merck/Samsung/BiogenIdec have recently cancelled or slowed their programs down.

This appears to be due almost solely to economic uncertainty created by US FDA.  If more extensive clinical trial data is required, costs will sky rocket as this is the most expensive phase of drug development. 

If this is the case, that clearly is NOT what the lawmakers intended when it put biosimilar legislation into law. I think they clearly wantd to creat more price competition (and price benefits for government payers) into play.  But so far, it appears that Big Pharma has been largely successful in geting the FDA to require fairly extensive phase III data.  They are even getting States to pass anti-interchangeability laws well in advance of any FDA drug approvals.  Plus, companies like AbbVie, have made it abundantly clear that they will aggressively defend their patent and legal position around these drugs.

With billions at stake this is to be expected.

Posted by Bruce Lehr Apr 1st 2013

Quote Of The… Year? $1B Drug Cost Is ‘A Myth’

Andrew Witty, CEO of GSK has let the Cat out of the Bag.  He says oft-cited $1B figure is inflated as it includes costs of all failed drugs. 

Quote Of The… Year? $1B Drug Cost Is ‘A Myth’ // Pharmalot.

He reasons if Big Pharma (and others) didn't fail so often and weren't so inefficient, then costs would drop.  And that coul dbe passed on to the consumer. That's the first time I've seen that kind of statement out of a leading Big Pharma Exec's mouth.  He should know better than I.

It might appear Witty is trying to appeal to EU government cost cutters by holding out strong hope that drug costs can be contained, in part, through more efficient development leading to lower prices to consumers and payers.  Not likely to win many friends in rest of Big Pharma or at Tufts.

See also In the Pipeline.

Posted by Bruce Lehr Mar 18th 2013.

Build Blockbusters One Block at a Time

Fierce Biotech reports that Novartis CEO, Joe Jimenez, says that the company will switch away from expecting single indication drugs to result in blockbuster status (i.e. > $1 B in annual sales).  Instead, Novartis will introduce drugs, gain approval as quickly as possible, and then extend the drug's indications -- perhaps in niche markets -- to cobble together its $1 B in annaul sales across all the indications.

In other words, they will continue to do what they have been doing in cancer fields for a long time. Just build em one block at a time.

Posted by Bruce Lehr Mar 4th 2013.

India May Drop Compulsory Licenses Based On Price

Does it really matter?  It appears that India will no longer issue compulsory licenses to generic or biosimilar manufacturers to make a patented drug based solely on whether that patented drug's price is perceived to be too high.  Good news for the multi-nationals right?  They seem to think so.

India May Drop Compulsory Licenses Based On Price // Pharmalot.

Instead India has set up a new Committee to set pricing for patented drugs by comparing to prices negotiated between manufacturers and governments in US, Canada, France, Australia and New Zealand.  The thought seems to be this comparison will lead to higher prices than what consumer advocates in India would like to see but less than what pharma companies would charge on their own, but woud still be acceptable to these same companies.

But....the Committee would take per capita gross national income (GNI) and purchasing power parity in these countries into account.  The ratio of GNI in comparison country/GNI in Indiawould be calculated and used to adjust the price of the medicine for India from that of the comparison country.  This adjusted price would also serve potentially as the starting point for future reductions.

Ok. No compulsory licensing. Yes to a Pricing Committee.  What if they price products lower that what pharma is expecting?  Are we back where we were?

Posted by Bruce Lehr Mar 1st 2013.

High Drug Pricing Next Industry Challenge?

The good news from 2012 might be that more drugs were actually approved (39) than in the very recent past -- but the bad news is that many were VERY expensive.  Xconomy's Luke Timmerman did a nice piece summarizing this a couple of days ago.  It seems that many of the very high priced drugs are coming into the oncology and "rare disease" or orphan arenas.  Many of these drugs carry price tags into the serious 6 digits and are $300K or more annually.  Is this sustainable?  Are any of these products worth it?

Those are questions that the industry must face as healthcare systems around the world struggle with costs.  Individual patients oft times may have to struggle as well depending on what type of insurance coverage they carry.  And even in the industry, some players must worry that the action of their peers might be in danger of killing a golden goose if these prices are perceived publicly -- even by physicians -- as being out of line with reality. 

What's a drug worth?  One answer might be what the market is willing to pay.  But will that number change as government and other third party payers become budget constricted. Yes, is the obvious answer.  From a payers perspective, they want a price that they feel is commeasurate with the benefits that are received.  Same from a patient's perspective, I hope.  Do I feel I got my money's worth in terms of improved health or quality of life? 

There is no doubt that this issue will not go away. 

Posted by Bruce Lehr Feb 13th 2013.

Samsung Sinks Another $2B into CMO

I guess making TVs is not exciting enough. 

Samsung announced at this week's JP Morgan Conference that it would be spending another $2 B to add to its CMO facility in the Songdo Free Economic Zone in Seoul, Korea.  The multi-national giant has already built a 30,000 sq ft facility with 6 x 5000 L reactors by the end of Dec 2012.  It plans to add a further 150,000L of mammalian cell culture manufacturing capacity and 40,000L of microbial fermentation.  This would make it among the top 4 or 5 CMOs in capacity in the world.  It would be similar in capacity to Celltrion also located in the Korean enterprise zone. See Fine.

TH Kim, Samsung BioLogics CEO, says the company can exploit its construction and manufacturing expertise in this business. They have also hired experts and professionals from other CMOs in the industry to staff their new facility.  Samsung believes that it will be able to manufacture biologics (and biosimilars) at lowered costs over the competition and therefore deliver value to clients and patients.

There is no doubt that they have the financial muscle to make an impact -- assuming they can get the right staff in place to run the business.

Posted by Bruce Lehr Jan 9th 2013.

More Big Pharma Woes Decried

Big Pharma performance continues to receive muted reviews from various analysts and industry commentators.  Pharma Reform starts with an analysis of drug approvals in 2012 by FDA.  It is TRUE that 35 drugs were approved last year.  It is also TRUE that this represents the fruit of only 31 sponsoring companies and only 13 of these 35 could be classified (somewhat generously) as Big Pharma. Of 12 priority approvals, only 4 came from Big Pharma. How about discovery?  Of the 35 new approvals, only 7 (20%) came from Big Pharma. So while the total number of approvals in 2012 is slightly up from previous years -- is Big Pharma actually doing any better? 

PharmaTech Talk chimes in with a piece describing how Big Pharma's "firepower" -- i.e. ability to compete and conduct M&As -- has been reduced.  Partly this is caused by Big Pharma's lack of growth. In 2011, the overall drug market saw growth that exceeded Big Pharma's by $20 B.  In 2012, this is expected to have widened to $50 B and predictions are that it will reach $100 B by 2015.  This is largely due to the much discussed patent cliff and lack of replacment product revenues in Big Pharma pipelines. So of course, Big Pharma should bail itself out with M&As right?  Wrong according to Ernst & Young. Big Pharma's firepower according to their calculations has decreased by 23% between 2006 and 2012. Specialty pharma and biotechs have become much more hardy competition and have increased their firepower. So now, Big Pharma might get bumped from M&A deals they heretofor would have taken if they wished. Uh-oh.

That means more bolt-on deals, more divesititures, and more offshore deals in emerging markets. Big Pharma will need to pursue actions that boost and conserve firepower if it wishes to pursue transactions that require it to bail themselves out of revenue holes.

Posted by Bruce Lehr Jan 9th 2013.

Can a Young Biotech Go Long?

YES! That's the answer given by Katrine Bosley, former CEO of Avila Therapeutics, in a piece in today's Xconomy.

I liked her whole perspective in the piece.  She argues that if a company's management focuses on creating value -- then they will have the chance to grow into a fully integrated pharmaceutical company (FIPCO) or they may also be offered opportunities for other types of deals including being acquired.  The key is to focus on the value creation first -- so you will have something tangible to consider in making a 'go long" or M&A decision. 

If you do create value, you could have the chance to become an Ironwood, Aveo, Regeneron, or Onyx Pharmaceuticals. Or you coudl get a good purchase offer from a big pharma partner that is a good fit like those realized by Plexxikon, Adnexus, Avila, Intellikine, or Calistoga. 

Either way you can be successful in bringing new medicines to market and pleasing your investors.

Posted by Bruce Lehr Dec 20th

 

Report Card on Late Stage Drug Development in Big Pharma

Deloitte and Thomson Reuters generated data on the late stage drug programs of the top 12 Big Pharma companies. The good news - more drugs were approved in 2011-12 (41) versus 2010-11 (32).  The bad news - forecasted revenues 2011-12 cohort ($211 B) versus 2010-11 ($309 B) -- an almost 32% drop. The latter translated into a 7.2% R&D return. The average cost of development was pegged at $1.1 B (see previous post where that figure was reported as $1.9 B). The D-TR Report further notes that 22 late stage drugs died in 2011-12 as compared to 19 the prior year.  This wiped away $73 B and $77 B of potential value respectively in those two years.

Deloitte's head analyst, Julian Remnant, noted that half of the top 12 companies experienced a decline in net value realized from product commercialization last year. This is exacerbated as goverments and third party payers exert downward pressure on prices -- or make it more difficult to get reimbursement without clear product benefits over existing competition. They suggest companies battle this challenge through better clinical trial design aimed at targeted patient populations to establish the clear comparative benefit.

In other words, companies need to show payers why they should buy the new drug by demonstrating enhanced clinical benefit to patients and or superior cost effectiveness in use.  As Mona Lisa Vito might say, "Oh my God.  What a f**king nightmare!"  See Fierce Biotech.

Posted by Bruce Lehr Dec 5th 2012.

 

 

 

 

 

Economists Agree - Drug Development Costs a Sh*tl**d!

Fierce Biotech reports this morning that the Office of Health Economics (UK think tank) says that the average cost of developing an approved drug has risen from $199 M in 1970 to more than $1.9 B today.  They cited four factors for this:

• Soaring out of pocket R&D costs
• A success rate that has been halved from 1:5 to 1:10
• A vast increase spent in clinical trials up from 6 years to 13.5 years
• Significant increase in cost of capital due to increasing regulatory complexity

Not everyone agrees with this of course, but if taken at face value the results are sobering.  The Financial Times after looking the report over said that the increase to 13.5 years alone was enough to scare off venture capitalists for good. 

Posted by Bruce Lehr Dec 2nd 2012.

Scope Creep Runs Up Clinical Trial Costs

Should we blame all the higher costs of clinical trials on the regulatory bodies, like FDA? No, suggests a new study from Tuft's Center for the Study of Drug Discovery. The study claims that one 1 in 5 procedures performed in late stage drug development is done to pursue  "supplementary secondary, tertiary, and exploratory endpoints."  This adds on average $1.1 M per trial. Across the industry that accounts for $4B to $6B per year for non-core endpoints -- enough to fund 2 x 2 Presidential campaigns!

Tuft's says that biopharm and pharm companies should take heed of this study result and can act on it to reduce development costs. Maybe that would save a few jobs in this industry. It certainly would likely make shareholders happier. See Fierce Biotech.

Posted by Bruce Lehr Nov 7th 2012.

 

 

Lechleiter Touts the Value of Biopharm Innovation on the Economy

Lilly's CEO John Lechleiter takes to the bully pulput again to inform the Presidential candidates to not forget the importance of the biopharm industry to a healthy US economy.  He wants data exclusivity provisions (similar to US Affordable Care Act) included in the new Trans-Pacific Partnership agreement.

PharmTech Talk » Eli Lilly Chairman Stresses the Importance of Biopharmaceutical Innovation on the Economy.

Lechleiter believes TPP is a vital channel to allow US pharma to shine across Asia and its expected large and fast-growing markets.  But, investors will only play in supporting this if US IP is protected.  With this protection, investors will invest to fuel job growth,help maintain US global leadership and to extend life-saving medicines to the rest of the world. The TPP participants will also be setting the standard that non-participants like China must meet.

If we want to build on the 4 million plus jobs of the US biopharm industry, we need to support it through reasonable IP protection in balance with free trade.

Posted by Bruce Lehr Oct 19th 2012.

 

Latest Shot in Comparative Effectiveness Battle

Memorial Sloan Kettering has announced that it will choose NOT to use one of the latest cancer treatments for colorectal cancer.  The drug?  Zaltrap.  Rejected because of the funky name? No.  Eschewed due to its cost? Yes, wholeheartedy says center representatives.

Rational Or Rationing? Saying No To A Cancer Med // Pharmalot.

Zaltrap costs on average $11,063 per month of treatment or about twice as much as the older drug, Avastin.  And, it has not proven to be any better than Avastin either. Doctors at Sloan argue that drugs need to prove themselves and they feel responsible for taking the financial consequences into account as well. Neither drug really knocks your socks off as they extend median life expectancy by a mere 1.4 months over standard chemotherapy.

So you can have Avastin for half the cost, with slightly fewer side effects and the clinical effect is very similar in terms of life extension.  Sounds rational to skip its use then, eh? 

No doubt this is the latest salvo in a battle that will rage on for some time -- especially if the Presidential race latches on to this issue.

Posted by Bruce Lehr Oct 15th 2012.

And The Outlook For Pharma Is… Improving?

Let me translate that headline for you.  It's based on Moody's Investor Services revising its outlook for the global pharma industry as "stable".  Since 2007, Moody's had given the industry a negative credit rating.

And The Outlook For Pharma Is… Improving? // Pharmalot.

Why the change?  Moody's believes the Industry is stable as it has hit rock bottom and will reach an earnings trough (caused by its latest patent cliff) in late 2012.  Then there's no where to go but up from here.  So after the industry has lost Lipitor and Plavix to generic competition -- what else can match that rapid free fall? 

Nothing. To paraphrase the Doors, "Pharma's been down so god damned long, that it looks like up to we."  Maybe its not time to crack out the bubbly though.

Posted by Bruce Lehr Sep 25th 2012

Oh, Woe! Pharmerging Markets Won't Save Big Pharma Revenue

This just in from Forbes via PharmaGossip.  Big pharma has been counting on emerging markets to help it fill in revenue gaps from big selling products that have been steadily coming off patent.  Guess what?

The $47 Billion Hole in Pharma's Near-Term Future - Forbes .

According to the Forbes piece, citing Ernst & Young, big pharma's revenue estimates have been a tad overstated -- by a mere $47 B.  It seems emerging markets are competitive too and local competitors can sell generics at 50% or less the price.  Not to mention local governments are looking to save money and actually support sales fo generics.  Who'd thunk?

Oh well. Stuff happens.

Posted by Bruce Lehr Sep 4th 2012.

Emerging Markets Are No Panacea

This from Pharmalot.  Former Pfizer executive, Amal Naj, explains that multi-nationals likely can't rely on going to pharmerging markets to bail them out from their current revenue gaps. MNC's, he says, "have overestimated their ability to sell branded products in these markets" -- particularly at a price/profit premium.  

Emerging Markets Are No Panacea: Naj Explains // Pharmalot.

Factors cited by Naj that mitigate against MNCs making good profits include:

• Local generics producers selling at less than 50% of MNC prices in these markets
• MNCs and generics often use the exact same manufacturers in emerging markets which blunts any "increased quality" claims that MNCs can make
• MNCs competing with each other in these markets with generics
• Brand power is dissipating from factors cited above. Products are becoming commodities
• Government controls to force lower prices (and margins)
• Greater difficulty than expected in getting products registered in these markets
• Quality from local companies is gettig better and they are getting more efficient

The upshot?  Expect more and more competition from local competitors.  Even some big MNCs to withdraw from some markets due to depresssed prices and profit potentials.

I think that once competition for generics begins to be widespread -- there is a greater drive toward commoditization (which payers and consumers want).  That means not everyone will be able to compete profitably in every market and there will be withdrawal and consolidation.  It may also mean that a generic producer business model won't favor everyone.  Clearly, low cost producers are favored in such environments -- and not everyone can be THE low cost producer.

Posted by Bruce Lehr Aug 14th 2012

 

Biotech IPOs Beating Tech's Big Names

From Luke Timmerman, a tale that the 9 biotech IPOs so far in 2012 are not only doing better than expected but are actually leading more prominent Tech company IPOs from this year. From his post this morning:

Regular readers of this column [Xconomy's BioBeat] know that I’ve long been skeptical about how much appetite investors have for biotech IPOs. But I did notice some “modest signs of life” in the IPO market a few months ago, and was curious to follow up and see what has happened. By my count, there have been nine biotech IPOs so far this year, compared with 12 in all of 2011. That still says to me there’s limited demand from investors for new drugs, devices, and diagnostics. But of those nine companies that made it through the IPO gauntlet, six are trading above their IPO price and none have crashed.

So all is not lost in the Land of the Biotech IPO.

Posted by Bruce Lehr Aug 13th 2012.

More Opinions on Drug Development Costs and Innovation

The article on "innovation crisis myth", replete with its low estimates for drug development costs, that appeared in last weeks British Journal of Medicine sparked more than a little commentary from various quarters.  As an emotional issue, this one resonates well. 

Here is Derek Lowe's post on this In the Pipeline as well as today's response from the BMJ articles co-author Donald Light. Derek is a vocal critic of the low ball drug development cost estimates.  Dr. Light, as is his wont, sticks to his guns and repeats his claimed cost of $43 M for the "net, median corporate cost of Development". 

You can read both their points and decide who you think is closer to correct.  Despite the heavy qualification of what Dr. Light's figure purportedly represents, I still think he is way low (by a factor of 10). Though he likely is also correct about the $1.3 B industry figure as being grandly inflated -- which of course leads to a ripe ground for controversy. 

PhRMA also has a dog in this fight so I will link to their statement on the debate as well as comments from PharmTech Talk.

Posted by Bruce Lehr Aug 13th 2012.

Towards Pharmageddon?

More salvo's in the battle over whether the "innovation crisis" in pharma is due to inherent difficulties and costs in bringing new drugs to market or whether it is caused by pharma companies choosing to pursue more "sure thing" me-too products. 

The pharma shoots-too-low crowd, Donald Light from the University of Medicine of New Jersey and Joel Lexchin from York University in Toronto, opines in the most recent British Medical Journal that the situation has remained the same for 50 years. The incentives for drug development are wrong and have skewed the behaviour of the industry.

They claim more is spent on marketing (25 per cent of revenues) than on discovering new molecules (1.3 per cent). Drug industry claims that the cost of bringing a new drug to market is £1bn and is unsustainable are exaggerated, they claim. Research and development costs did rise substantially between 1995 and 2010 by $34.2bn (£21.9bn), they concluded, but revenues increased six times faster – by $200.4bn.

Towards Pharmageddon? The last (lost) decade .

They add that up to 80 per cent of drug spending is used by the industry on promotion. The authors call for licensing authorities around the world to stop approving new drugs of little therapeutic value. They suggest large cash prizes should be awarded for genuinely new therapeutic agents in lieu of patent protection.

In a second paper, researchers from the London School of Economics in the UK argue that drug manufacturers should be made to demonstrate that their products are superior to existing treatments before being granted a licence, rather than, as now, superior only to a placebo.  In other words, comparative effectiveness should be used to justify adding new drugs to the approved menu. 

With regard to magnitude of costs/profits, I believe the truth lies somewhere in between.  Drugs do cost a lot to discover and bring to market.  But drugmakers do spend on lot on marketing to justify me-too drugs -- and could channel some of this toward developing more novel therapies with better patient benefits. 

I suspect we will see a coorection as more regulatory and 3rd party payer incentives are put in place toward getting novel drugs to treat unserved diseases.  Economics is going to prevent us from continuing down the me-too route as these drugs increasingly will find it toughter to gain approval and to get reimbursement consideration. 

Do we really need 17 beta blockers or just one new Alzheimer's drug that actually works?

Posted by Bruce Lehr Aug 8th 2012.