Pharmaceutical Facts Investors Should Know

Time to develop and market a new drug: 10-15 years

Average Cost to develop a new drug (2006): $1.318 billion

Total R&D spending on drugs in 2007: $58.8 billion

Generic share of market in 2007: 67%

Percent of marketed drugs that cover R&D costs: Only 20%

Total number of drugs approved in 2007: 23

R&D as a percent of U.S. sales: 18.7%

Average effective patent life for major drugs: 11 years

Medicines currently in development: 2,700 compounds

For every 5,000-10,000 compounds tested, the number that make it to clinical trials: 5

For every 5 compounds that make it to clinical trials, the number that get FDA approval: 1

Probability that a compound tested eventually gets FDA approval: .01% (1/100th of 1%) to .02% (1/50th of 1%)

Source: Pharmaceutical Industry Profile 2008

Comments

[Neers87]

Pharma has long operated profitably under these premise. The trick these days is to reduce time from discovery to market, extending time on the market with exclusive patent protection. Eliminate candidates as earily in the process as possible for a reduction in cost. New technologies make this possible, drug modeling software is a much larger aspect of R & D. Your article looks at the situation as if it were static. Dynamic changes are in the industry beyound what is mentioned here.

[Mark Wheeler]

These numbers are for historic interest only, and represent the absurd 'try a million combinations of everything' approach to drug development traditionally followed by big pharma. It is the root cause behind why big pharma has so little to offer now, as it simply makes developing anything other than a mega blockbuster economically unwise.

Enter biotech, and rational drug design. Layer on top a thick portion of biopharmaceuticals, ie 'natural' products such as insulin, interferon, and various antibodies that represent the harnessing the power of human biology to solve therapeutic riddles. Young, limber, unencumbered companies are afoot now and smell the big game waiting to be taken. The cash rich but pipeline poor big pharma companies are slowly waking up to the fact that they need to either jettison their job secure research divisions or go on a buying spree, or both.

In any event, forget the numbers mentioned in the article. If they are at all relevant now, it is only to show how bankrupt of ideas and how pitiful in conception big pharma's approach is.

[Frankie62]

Big Pharma always says they need to charge high prices on new drugs (including life saving cancer drugs) to recoup their development expenses. My only comment is that, like the oil and gas sector, financial advisers always recommend some pharma stocks. They would not recommend investing in pharma if those companies were barely making a profit.

[Frankie62]

Pharma companies claim they must sell new drugs for high prices, even when they are life-saving cancer treatments, to recoup their development costs. My only comment is a reminder that investment counselors usually advise owning some big pharma. They would not be advising that if pharmas were barely making a profit. Wake up and smell the coffee.

[ponchovilla]

Don't worry about big pharma. They own the FDA. Over the next ten years at least 100 new syndromes will be created to maintain a healthy profit as millions of American's will be convinced that they have "restless brain syndrome" among other things.

[Marusa]

I notice they didn't mention marketing expenses. I wonder how the marketing number would compare to R&D?

[impeder]

The root of this problem is the FDA. Like OSHA, they are a federal agency completely out of touch with reality. If someone has a terminal illness, they don't need the same level of protection from harmful side effects as a person being treated for Erectile Disfunction which, if we we believe the drug industry, affects half the population (presumably the male half!)

[home]

DeCode Genetics makes more genetic discoveries than the rest of the world combined. Gene discoveries lead to better transgenic animals that exhibit human diseases. These better transgenic mice lead to the root causes of many diseases.
These genetic discoveries have led to DeCode develop a new drug that's better than Plavix. More exciting genetic discoveries by others include Genentech and Amgen.
This has changed the way pharmaceuticals develop compounds and will lead to better drugs for all mankind.

[CLH]

Thanks for showing people how difficult finding new drugs is. I guess thats why the gov is unable to do anything but steal from industry.

[DB, MD]

As a physician I can safely reply to CLH, that the theft is more often the other way around. Typically, the researchers at NIH will develop a compound, prove it works and then license it to a pharma company. Case in point look at the treatment of Gaucher's disease, yearly treatment cost over $100K, for a treatment developed by public research.

[JW, PhD]

As a researcher I can safely reply to DB, that the cost of drugs like the one mentioned for Gaucher's disease (a niche illness) must be passed on to consumers due to the great expense incurred by big pharma during clinical trials. I don't doubt that NIH and other taxpayer-funded R&D contribute greatly to the discovery process, but they don't typically have the financial resources to "prove" that a new compound is efficacious and safe enough to be used in the population at large.

[Neers87]

"'try a million combinations of everything' approach to drug development traditionally followed by big pharma."

Exactly my point! Drug modeling allows this approach to be teased out with significant reductions in time and obviously expense.

As for "Enter Biotech and rational drug design", Agreed!!! And big pharma is well positioned financially as the young limber unencumbered companies will need partners to bring these entities to market. Much like the NIH as mentioned above. Think AZ-MedImmune.


Disclosure: Long AZ

[Sh]

All the numbers listed above are known facts. Pharmaceutical industry is facing tremendous challenge never seen before. High risk along with low return is keeping investors from putting more money into pharmaceuticl section. To develop a drug could take 10 years. Not so many people have these kinds of patience. After entering into market, generic competition is anothe serious issue. There is a limited time period that the exclusivity can be granted. After the patent is experied, generic drug could compete with much more advantages especially lower prices. No single drug could dominate forever. For example, Zantac used to be the no. 1 selling drug in the world until 1993. Now Lipitor from Pfizer the best selling drug with an annual sales of $13 billions. After 2011, the revenue could be plumpted since the generic will be available. Which drug will be the biggest blockbuster? A CNS drug or a metabolic drug? It's not clear yet. To get a new dug is more difficult that ever. First, the bar for innovation is higher than before. To meet unmet medical needs, a truely innovative medicine is required. There are only limited chances left including cancer therapy, diabetic disease and neurologic illness. Almost all the major biotech and pharme companies are focusing on these areas. Any breakthrough could result in a money making blockbuster. But this has never been an easy case. The recent withdrawal of several medicines indicates we can't just focus on the therapeutic efficacy anymore. The toxicity is more important than anything else. The bar is much higher. To get a nice drug is going to be more and more challenging. As a scientist focusing on finding new drugs, I feel I am obligated to devote myself to this research just like many other scientists. It can be highly rewarding if someday I can find a drug to help many people who need the help most. All I can say as a human being, we all want to contribute a little to the whole human being. We might nor succeed to generate a good medicine in our lifetime, but the knowledge could be useful for the next generation. We can pass on there useful technology and knowledge to the next generation though we might not benefit ourselves. We might need take a step back in order to move one step forward. Just don't give up during the time of hardship. Also finding truely innovative medicine depends on serendipity. One guy said luck is more important than smart to find a drug. I fully agree. With all the technology available, we still couldn't be very successful. It's not we are not smart. Probably it's because we are not lucky. But please lose your faith in pharmaceutical industry since it's not just making profits. Serving is equally important. I make a few suggestions to everyone who cares the pharm industry:
Work smart, keep good faith in yourself, admire what we are doing.
My final word is we are doing good.

[DB, MD]

I find it humorous how many of the posts above consider big pharma to be the low profit, risky businesses. This is an industry that spends collectively 12% on R&D and 30% on marketing. It is an industry that pushes out drug after drug for hypertension when there are already over 50 drugs that accomplish the task well, because even capturing 1% of the market will pay off on the low R&D required for a "me-too" drug.

You have drug reps flooding physician offices pushing one "me-too" after another. This is a recipe for disaster when the industry chooses to reinvest into marketing crap and into being the largest lobby in Washington rather than on truly innovating. More money is likely spent on lawyers fighting expiration of patents than on problem-solving, as this adds more to the bottom line.

[AJ30]

I cannot understand why "Big Pharma" doesn't just start making a generic of their own, at the normally knocked-down price for generics. This would quickly flatten their generic compettitors. They could still market the original for as long as it lasts.

[AJ30]

I am also told that sometimes generics do not exactly parallel the original in aspects such as absorbtion by the body. Is this true?

[BioInvestor]

Here are a few observations on the discussion. Reduction of the time to market is certainly a concern for pharma and elimination of candidates earlier is an inviting goal. The problem here is that, for all the discussion on the topic, not a lot seems to been done to accomplish this goal. Put another way, productivity in the field has dropped over the past few years. Productivity can be measured by a return on the investment as measured by marketed drugs.

Drug discovery is essentially a multi-variant problem that has to be approached in a linear fashion. The real value would be to work on technologies that extract much more information earlier. While rational drug design sounds inviting—and I am a fan—there are precious few examples of drugs brought to market that have really followed this approach.

The comment on DeCode Genetics is, at best, confusing. On a related topic, I had great hope for the knock-out mice companies. To date, at least, this area has been disappointing, but I remain hopeful. Identifying a gene is important, but that’s only a starting point: there are a few more steps involved—pretty complicated steps—before a drug can be produced. I don’t understand the reference to both Genentech and Amgen. For what it’s worth, both companies follow a similar drug discovery/development paradigm as the legacy pharmaceutical companies, albeit with macro instead of small molecules. However, interestingly, both companies have, in the past few years, introduced small molecules into the pipeline.

There’s no question that many drug candidates come from both government labs and academe. In fact, if you go back and look at the pipeline of BMS for the past fifteen or more years, the company has pretty much discovered nothing: academe and federal labs has been the friend of the company. It is, however, important not to overemphasize the role of government labs. They often get candidates off the blocks; the main expense in development, scale-up, etc. is carried out by the company which licensed the drug.

With regard to the comment on generics, I guess the poster is asking why big pharma just doesn’t lower the price to compete with generic competition. It is an appropriate marketing response; however, it seems that pharma companies what to compete on some form of differentiation—brandi... than on price. Legacy pharma sometimes enters into manufacturing agreements with companies that produce a generic version of a branded drug.

Regarding the equivalence of a generic to the original drug, it is true that they are not the “same.” They are similar. There are a few requirements, but the big issue is bioavailability, which has to be +/-20%. The drug—the active ingredient—has to match the impurity profile of the original. However, the synthetic route can be different, which isn’t a huge issue. The big problem for me is how the FDA handles the manufacture of generic versions of drugs, specifically, if these active ingredients are manufactured overseas. A lot of people are picking on China right now—sometimes unfairly. In the drug industry, the average time between FDA inspections of a US production facility is just over two years; it’s over thirty years in China. There’s an interesting presentation on the issue on the GAO website. I seldom need to take drugs, but, having read company inspection reports from overseas facilities, I insist on branded drugs—not only for me, but for my dogs!

[d_teller]

To BioInvestor...the pet food and heparin that caused so many deaths were "branded"... and so was the "fake" Colgate that contained a diethylene glycol as a sweetener. Neither the FDA or the USDA is up to the moral challenge of their charters, so it behooves the intermediate importer to spec. and test, beyond what AAOAC requires, because "smart & greedy" chemists overseas can pull a fast one, when the test is indirect. I would require GC-MassSpec for any intermediate, to prevent doping.

With regard to the Rx companies' spending on R&D vs Marketing & Lobbying, there are many natural treatments that don't have a systematic standards base...and a lot were sequestered by Big Pharma, because they couldn't isolate and rebrand the "active" intermediate. In other cases, they bought the company - or researcher - and shut them up...which might be "good business", but like hiring the guy who torpedoed the Medicare Rx plan and then retired from the Senate, and is now head of the PMA lobbying group...it's not very ethical.

[BioInvestor]

d_teller, there's so much to address in your post--a lot of isn't accurate!

First off, I am not talking about food or pet products; I am talking about branded drugs. For the most part, these are manufactured in the US or Canada. About 80% of active ingredients for drugs come from overseas; closer to 90% of intermediates or the chemical building blocks for those drugs are imported. A large percentage of "generic drugs," with the exception of those regulated by DEA, are imported. Pet food, toothpaste and macromolecules are a different issue.

Interestingly, major pharma has started to shut down manufacturing capacity. So, it's likely that, in the future, a greater percentage of active ingredients will be imported.

My guess is that when you state that the FDA and USDA aren't up to the moral challenge of their charters, you're just expressing a personal opinion without supporting evidence for the claim.

I don't understand the reference to AAOAC. Pharmaceutical companies or contract manufacturers create the quality requirements for intermediates or active ingredients, assuming there is nothing in the USP. If you meant to say AOAC, that professional body doesn't have any statutory authority. Analytical chemists in pharma tend to be members of the ACS rather than the AOAC. AOAC doesn’t set mandatory standards.

A blanket statement about carrying out GC-MS doesn't make sense. GC-MS isn't able to address all problems. There needs to be a scientific rational for testing; it doesn’t make sense to talk about GC-MS as a blanket approach to guard against “doping.”

I assume that you don't have evidence to support the claim of pharma companies "sequestered"... natural treatments. If it’s a rant, that’s fine. If it’s meant to be serious, then the statement sounds like nonsense. I'd be interested in hearing any evidence to support some of the claims that were made. What exactly is a "systematic standards base"?

You have some (actually perhaps all!) of your facts wrong on the topic PMA lobbying group. You might have meant the PhRMA. The person who heads that association actually retired from the House and not the Senate. Rather than "torpedo" the Medicare Prescription Drug Bill, he actually worked to move the legislation through the House. He was a very strong supporter of the Bill.

[User 199851]

RE:All the comments on "Pharm. Facts Investors..."
*The patent time for Pharma discoveries STARTS ticking the
moment the active molecular discovery has demonstrated a
possibility for further investigation (and only a # is listed.)
By the time all 3 Phases of clinical investigation are completed (years--try finding 'virgin' pts these days--no chronic meds on board for other conditions that would confound testing results);the private and institutional docs,patients,data and study supervisors must all be paid and free meds given; THEN the FDA (NOT 'OWNED' BY PHARMA!) and specialty panels (MDs) review all info.
*The number of years in the approval process varies, but it's years. If drug is approved, the package insert/dosing,indicati... effects,etc. has to be written, submitted to the FDA, which can ask for more studies (back to phase 3), more data, changes in indications,etc,etc (and the patent time-to-expiration is ticking).
*By the time a new drug is approved, there may be 10-12 years for the Co. to earn a profit.Meanwhile, lawyers/patients look at the side effect section and start claiming product injury or blaming the drug for anything. Also, the thieves of intellectual property start churning out imitations. In the case of generic manufacturers, YEARS before a patent expires, are attempting to get their versions on the market. (Without having to do any testing other than prove that in 20-50 young,healthy volunteers had a blood level--not even in therapeutic range--and generics don't have to be tested in people who actually have the disease). *In the case of Pfizer, the novel drugs
approved in the 1990's caused paradigm shifts in disease treatment...and took several years to educate doctors in the new pharmacokinetics!!!
*Viagra changed Pfizer's fortunes and, this was the beginning of
future performance across Pharma (and other sectors) where sucess is governed by investors/analysts/the market. Expectations of investors became unrealistic and every drug was expected to be a blockbuster.
Sorry to be so wordy, but once again, the ignorance of some people brings out the educator in me. I'm also passionate about Public Health Policy! From, 'bigpicture'


On May 29 06:39 AM Neers87 wrote:

> Pharma has long operated profitably under these premise. The trick
> these days is to reduce time from discovery to market, extending
> time on the market with exclusive patent protection. Eliminate candidates
> as earily in the process as possible for a reduction in cost. New
> technologies make this possible, drug modeling software is a much
> larger aspect of R & D. Your article looks at the situation as if
> it were static. Dynamic changes are in the industry beyound what
> is mentioned here.

[User 199851]

Sounds like you had a bad day,Doc. As with every element in society, there are good and bad guys in every business and industry. If you lived where I'm living (Central OR) where MDs have zero CME requirements, own (along with developers) ALL of the hospitals and clinics East of the Cascades. Commit insurance fraud with impunity and continue to harm patients (the highest orthopedic surgery rates in Western Region )& the citizens of OR having to pay for malpractice suits because of their lack of supervision.
I'd take a few of those reps (with free meds that help your pts and donations worldwide, even starting up long-closed manufacturing plants to make and donate meds to treat plague,and other 3rd world diseases.The lawyers representing Pharma are more likely fording off imitation drugs by 2nd/3rd world intellectual property thieves OR fighting endless trial-lawyer generated lawsuits (seen the TV ads? "Did you take xyz and suffer efg? Have you ever had a hangnail as a result of taking aspirin? etc.


On May 30 08:16 AM DB, MD wrote:

> I find it humorous how many of the posts above consider big pharma
> to be the low profit, risky businesses. This is an industry that
> spends collectively 12% on R&D and 30% on marketing. It is an industry
> that pushes out drug after drug for hypertension when there are already
> over 50 drugs that accomplish the task well, because even capturing
> 1% of the market will pay off on the low R&D required for a "me-too"
> drug.
>
> You have drug reps flooding physician offices pushing one "me-too"
> after another. This is a recipe for disaster when the industry chooses
> to reinvest into marketing crap and into being the largest lobby
> in Washington rather than on truly innovating. More money is likely
> spent on lawyers fighting expiration of patents than on problem-solving,
> as this adds more to the bottom line.