The Price of Progress or the Waste of Regulation?

The average cost of delivering a new therapy from laboratory to clinic is increasing at a fast pace, more than doubling since the turn of the century according to some studies, to stand at $2.5 billion or more. This is not driven by the work of research and development becoming more expensive: if anything, the price of the tools of biotechnology is in free fall, even as capacity increases by orders of magnitude. Biotechnology has gone through, and is still going through, its own echoed version of the computing revolution of recent decades. A mix of advances in computational power and materials science means that a graduate student of today requires six months of lab time and a few tens of thousands of dollars to accomplish what would have taken a full biotech company, five years, and tens of millions of dollars back in the 1990s.

So what is going on here? Why, in the midst of a transformative revolution in life science technological capabilities, is the price of building new therapies spiraling ever upwards? Government is the answer, bureaucrats and their incentives, regulation that demands an impossible degree of removal of risk from what is an inherently risky activity. The regulators of the FDA and other, similar organizations only suffer censure when patient issues occur that are related to approved medicines. No such censure happens when they reject medicines that would have helped greatly, or when they raise the cost of development high enough for beneficial programs to be abandoned as economically infeasible.

Given these incentives, and the point that no medicine is without risk, especially when used by people who are old and frail, the natural result is that regulators demand ever greater proof, ever greater cost, so as to able to claim that they did all they could. They reject perfectly feasible therapies because the treatments can never be made sufficiently risk free to remove the threat of bad press for regulators. Appearance of effectiveness is the driver, not actual benefits to society, as is the case in any well-established bureaucracy. The cost of billions of dollars presently required to bring a therapy to the clinic is not the price of progress. It is the waste produced by regulation and regulatory capture.

It is possible to run a useful program to evaluate the safety of a therapy for a small fraction of the cost and effort demanded by the FDA. The outcome would be little different in risk profile than the present excessive FDA process; people focus on the issues of the past as a justification for the vastly increased regulatory burden of the present, but issues are still occurring even today! We can make this comparison between levels of regulation by looking at what happens elsewhere in the world, and what happened in the past. There is no sense in the present regulatory burden; it is a monster run out of control, a cancer of perverse incentives.

Regulators prevent patients from choosing whether or not to take educated risks. There is every reason to have multiple layers of regulation and cost for medical development. Patients could choose the therapies they wished to use based on the history of safety testing. But we are not permitted that freedom. Everyone must conform to a program of regulation that dramatically slows the pace of progress. In an age in which rejuvenation biotechnologies are possible, plausible, and on the horizon, this suppression of technological progress is particularly unacceptable. It will kill all of us if allowed to continue, forcing us to join the countless lives already lost as a consequence of the regulatory slowdown in medical progress.

The open access paper here breaks down the costs and players in the development of new medical biotechnologies in much the same way as past studies, but with a focus on Alzheimer's disease. It is a useful primer to the environment in which development takes place, though one should always recall that this sort of work is inevitably affected by the relative detail and accessibility of sources of academic and governmental data versus the equivalent databases for private funding of research and development. That private funding is something like twice as large as public funding, very different in character and motivation, but far harder to break down and analyze.

The price of progress: Funding and financing Alzheimer's disease drug development

Prevention and treatment of Alzheimer's disease (AD) by 2025 has been articulated as a goal of the US government and has been endorsed by other countries. The failure rate of AD drug development is 99%; the failure rate of the development of disease-modifying therapies for AD is 100%. Despite these discouraging outcomes in drug development programs, the urgent need to address the socioeconomic crisis posed by AD requires that we continue to advance understanding of AD drug development.

To advance the research agenda in AD, financial resources are required including funding from government, industry, venture capital, foundations, and philanthropy. Federal research funding programs include the National Institutes of Health (NIH), National Science Foundation (NSF), Food and Drug Administration (FDA), Department of Defense, and Veterans Administration (VA). Private sector funding includes sources in the biopharma industry, venture capital, foundations, advocacy organizations, and support from philanthropists. Funding and financing resources form a complex financial ecosystem.

Total costs of an AD drug development program are estimated at $5.6 billion, and the process takes 13 years from preclinical studies to approval by the FDA. This compares to an estimated cost of cancer treatment development of $793.6 million per agent (assuming 9% cost of capital). Considering the pharmaceutical industry as a whole bringing a new agent to approval has an estimated cost of $2.8 billion. AD drug development costs substantially exceed most estimates for drugs in other therapeutic areas. Phase III trials are the most costly part of AD drug development, and pharmaceutical companies are among the few enterprises that can sustain such costs.

The principle public funder of research is the US NIH, investing more in health research than any other public enterprise in the world with an annual budget of approximately $34 billion U.S. dollars. Non-NIH federal agencies have smaller research budgets and grant portfolios related to AD. There is a mismatch between the cost of disease to society and the amount of research devoted to it. AD, for example, costs the US society more than $216 billion annually, and it has an NIH budget of $1.8 billion; for every $1 spent on AD, less than 1% of that amount is devoted to research.

Biotechnology companies can be defined as venture-backed drug development firms using technological applications centered on biological systems, living organisms, or their derivatives. Success in AD drug development will produce a very high return on investment. This possibility attracts venture capital to AD research, but the high rate of failure has kept this funding stream small. Venture capital funding in Central Nervous System disease declined 40% in the 2009-2013 period compared with the 2004-2008 period.

Angel investors or seed capital providers have high risk tolerance and supply small amounts of money to encourage novel ideas. If the concepts begin to mature and promise to lead to a successful program, venture capital may be attracted to allow more advanced drug development. Candidate therapies may pass from smaller to larger biotech companies as biotechs seek to strengthen their pipelines, progress toward vertically integrated Central Nervous System companies, or attract investors interested in a broader portfolio. This can be a healthy process allowing drugs to progress in testing before major pharmaceutical companies invest; however, the process also may lead to abuse by passing flawed agents from company to company and attracting capital from enthusiastic but under-informed investors.

The Alzheimer Association is the largest private noncorporate funder of AD research. In 2016, the association invested $90 million in research, including $25 million in new project investments and the rest in support of on-going multi-year commitments. Philanthropists make contributions to advocacy organizations or directly to universities and scientists to support research projects. Philanthropy plays a critically important role in the AD research ecosystem. Philanthropy often provides seed money for small projects that do not yet have preliminary data that would support a federal grant application. Philanthropy can fund high-risk/high-reward projects that might be too risky to receive funding from other sources such as the NIH.

The pharmaceutical industry is the largest funder of drug discovery and development research in the world, exceeding that of NIH or any other funding organization. Biopharma funds approximately 60% of all annual US research and development activities. The total annual research and development budget for biopharma (biotechnology and pharmaceutical industry) in 2016 was $75 billion. Over 70% of all AD clinical trials are sponsored or co-sponsored by the pharmaceutical industry. Payments from biopharma support much of the AD drug development ecosystem. New agents may be accessed through academic medical center collaborations, in-house discovery teams, acquisitions of biotechnology companies, mergers with other pharmaceutical companies, in-licensing of promising compounds, and partnering and co-development arrangements. Each of these has corresponding financial support by the pharmaceutical company.

The extreme expense of current drug development for AD is not sustainable, discourages companies from working in the AD research arena, dissuades venture capital from investing in AD drug development, and diminishes the opportunity to advance new therapies for patients with AD. Innovation is needed to improve the financial underpinnings of AD drug development and translational research.


There is also the revenue side. By the time a drug company gets a drug through the regulatory process, and then after the years it takes to scale up sales, run more large scale trials, convince doctors, convince insurance and government payers, etc.. it is not many years left on patent.

The drug companies respond by raising drug prices, but that has its limits. Such as less use of the drugs as the prices get really high.

A contrarian idea I support is there needs to be longer drug patents. Like instead of maybe 14 years of on patent life by the time a drug is approved, say 30 years would give much more time. And thus more incentive to invest the large amounts of capital in research and development.

If we want more researchers working on finding new drugs, then we need to put more money into the industry.

Posted by: aa3 at September 8th, 2018 2:51 AM

I don't think patents need to be extended any longer. These companies generally are not hurting for money in any way, shape, or form. I know that a lot of the money that gets made on a companies big sellers (think viagra, testosterone, etc) does get reinvested into other research and development, I just feel like all extending patents does is hurt the consumer by not having a generic option sooner. Just look at what some brands of testosterone cost before generic, even if insurance decided they wanted to cover it. It's not that affordable for everyone.

Posted by: Ham at September 8th, 2018 11:56 AM

>... Regulators prevent patients from choosing whether or not to take educated risks.

Unfortunately it is hard to make an informed choice, especially, of you don't have the full and detailed information. And that is the case for the people in the know. Now imagine the average and median person, who would rather believe in Crystal Healing power than in reason (pun not intended). What wild they choose? The one that is better advertised. ... "Ask your physician for ...". Most people with chronic conditions know pretty well the symptoms, and what had to be prescribed. In a perfectly reasonable and rational world one would consult the doctor to get the recommendation and follow it while buying all the medicine over the counter without the need to have periodic subscription renewals.

The doctors themselves, are overworked and rarely have the time to do complete follow up, yet alone research the new fang medicine.
What happens even now is that pharmaceutical salespersons schmooze the doctors to promote treatments and medicine they sale...

Posted by: Cuberat at September 8th, 2018 7:36 PM

In the system right now with a short patent life, the corporations have to charge high amounts for the drugs to make it viable. But that creates all sorts of problems, like the insurance corporations restricting access, even to patients who would benefit from the drug.

An interesting aspect is that of the $3 trillion health care industry in America, ~$350 billion goes to pay manufacturers for on patent medications. So its ~12% of health spending.

So even if spending for on patent medications rose by say 20%, it wouldn't have as much impact on the cost of health care as most people think.

Posted by: aa3 at September 8th, 2018 9:04 PM
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