Who’s Going to Pay for Future Drug Development? (Part 1)


In case you haven’t noticed, heart disease remains a debilitating illness for millions. Cancer, despite some recent advances, has not been cured. Drug resistant strains of bacteria are spreading across the globe. There are still no effective treatments for Parkinson’s disease, amyotrophic lateral sclerosis, muscular dystrophy, and a huge number of other illnesses.

The number of new medicines being brought to market has been declining in recent years at a time when we desperately need new treatments. A recent analysis of drugs moving through FDA trials in 2003-2010 found that the overall success rate was only about 14 percent for primary indications, and a dismal 3 percent success rate for secondary indications. The number of new drugs launched annually has fallen 44 percent since 1997, according to CMR International.

A variety of reasons have been put forth to explain this deterioration, as described below. As a nation, we should be doing all that we can to encourage innovators to find effective treatments for these diseases. Developing medications to successfully treat human diseases is an expensive enterprise, so it makes sense to ask the question: where will the new medicines come from? What financial resources are available now to biomedical researchers to fund their work, and who’s going to pay for future drug development?

A good place to start to answer these questions is to have an understanding of where our present drugs have come from. Two recent studies illustrate nicely that modern medicines originate from a variety of sources, and help explain the expanding number of partnerships between industry and academia. Robert Kneller examined every drug approved by the FDA over the past 10 years, and determined for each one whether it originated with pharmaceutical companies, from biotechs, or sprang forth from the labs of academic investigators. His analysis showed that about half of all new drugs arise from pharmaceutical companies, while the other half arise from the efforts of biotech firms and academic investigators. In a separate study, other researchers identified which medicines resulted from public sector research over the past 40 years. Their analysis identified some 153 products that were discovered or co-discovered by 75 different academic institutions. These drugs accounted for some 13 percent of all FDA approvals over that period. Having roughly quantified where our drugs come from, let’s shift our focus to how this drug discovery work gets funded. What monetary sources are available to biomedical researchers in the public and private sectors? Here’s what my informal survey found:

Pharma and Biotechs Still Lead the Charge (Funding Level: $65.3 billion in 2009)

There is no doubt that pharma and biotech companies are the major source of new drug discoveries. However, both groups find themselves under significant fiscal pressures as a result of troubles in the financial markets, recent patent expirations, and their diminishing number of drug approvals in the past decade. Why have these numbers been declining? The primary problem faced by industry is the challenge of translating basic biological discoveries (e.g. genomic sequences; RNA interference; mutated genes) into functional drugs. Although scientists have determined the causes of many diseases over the past quarter century, they haven’t figured out yet how to fix many of them. Other urgent industry concerns include pricing pressures, reimbursement issues, regulatory hurdles, generic competition, and investor expectations. Big Pharma’s response to these challenges have varied: some companies responded by either maintaining or increasing their research and development commitments (e.g. Merck), while others took the opposite approach and slashed their research dollars (e.g. Pfizer, Glaxo).

Many Big Pharma companies have been slowly transforming themselves over the past few years to be more like biotechs. They have taken note of the fact that the success rate for getting biologics (e.g. recombinant growth factors, monoclonal antibodies) approved is twice that seen with their small molecule drugs. Generic competitors of their blockbuster small molecule drugs are continuing to poke enormous holes in their revenue streams, whereas biologics (i.e. protein-based drugs) have faced (at least in the U.S.) virtually no generic challengers. The development of biosimilars and biobetters, which are essentially generic or improved versions, respectively, of biologics, is an emerging trend within both Big Pharma and Big Biotech companies. These types of generic medicines have been available in Europe and other places for years, but the lack of a defined regulatory pathway has kept these drugs out of the U.S. market. The FDA is expected to release guidelines clarifying such a pathway in the near future, and many companies have already announced publicly that they are planning on producing these drugs in the future.

The biosimilar movement is somewhat worrisome from the perspective of those patients who are anxiously awaiting the development of new drugs for their illnesses. Why? While the development of biosimilars should eventually result in significant financial savings for individual consumers as well as the federal government (exactly how much is muddy), it will clearly divert money from the research and production of novel drugs. The development program for a biosimilar should be much cheaper than for a new drug (though still likely to run several hundred million dollars), but can be readily justified on a corporate level because the likelihood of marketplace success is very high.

The Government and Academia: Pharma’s Hope to Fill the Pipelines. (Funding Level: $30.5 billion at the NIH, $250 million from the Pentagon, $54 million from DARPA, and $608 million in SBIR and STTR grants, plus individual State funding (hundreds of millions per year)

The numbers above clearly illustrate that the federal government is the major financier of U.S. biomedical research, which has been channeled primarily through the National Institutes of Health. Pharma and biotech companies have taken advantage of this funding by establishing collaborations with academic investigators who are recipients of federal research grants. In the past, these collaborations generally took the form of engaging with individual investigators at specific institutions. More recently, however, this process has metamorphosized into agreements in which pharma has aligned itself with entire departments or institutions. As mentioned above, academia has been a fruitful source of new drugs for both pharma and biotech companies. The exact terms of these agreements are seldom publicized, raising questions about the degree of control and influence the companies have over the research and, more specifically, over the investigators themselves. Can they delay publications? Do they get to review (and approve) presentations before they are given? It’s certainly not clear to me if or how these agreements effect traditional academic freedoms.

Pharma’s recent lack of productivity in producing new drugs stimulated the Obama administration to propose forming a billion-dollar government drug development center within the NIH. The National Center for Advancing Translational Sciences’ goal will be to advance molecules from discovery all the way into the clinic. PhRMA, the drug company’s trade organization, has come out in support of the new initiative, whereas BIO, the biotech trade organization, has not yet weighed in with an opinion. The preliminary plan is to move about $700 million of research projects that have already been started at other government labs, such as the NIH, under the umbrella of the new institute. Plans for the new Center are still in flux, but the concept is a bold one, especially coming at a time of tremendous pressure on government spending. It has also elicited concerns in the academic community that this will cannibalize funds available for basic research. This new expenditure is in addition to the government’s pre-existing commitment of funds to the various centers and institutions of the NIH, which support a large number of basic and applied intramural and extramural research projects through various types of grants.

Other government agencies, such as DARPA, also invest in basic research projects in both academia and industry. Over the past 20 years the Pentagon has been the recipient of $3.6 billion in federal spending that it has directed towards breast cancer research. Though a worthwhile undertaking, many question how this relates to the basic mission of national defense. Some $250 million have been budgeted for this in 2011, although financial pressures on the defense budget may result in some or all of this money being cut.

State governments have also joined in to provide financial support for biotechs. This assistance goes beyond incentives that states have traditionally used to attract new companies and/or manufacturing plants. For example, numerous states have invested considerable sums for stem cell research, including California ($300 million/year for 10 years), Massachusetts ($100 million year/10 years), and Connecticut ($10 million/year over 10 years). In Washington state, where I live, $350 million in tobacco settlement money has been pledged towards investments in biomedical research through the Life Sciences Discovery Fund. This investment includes funds directed towards applied academic research as well as a grant to a biotech company that will yield a return on the investment if successful. Due to the fact that a majority of states are dealing with large budgetary gaps due to the economic downturn, funds previously promised by state governments may not actually materialize.

Drug companies and federal and state governments are not the only groups supplying the capital that fuels our country’s biomedical research engine. In the second half of my survey, I will review other organizations that fund the research and development of new drugs. These include venture capital firms, open source initiatives, private companies, disease-focused charities, and even patients themselves. These groups, whether for-profit or non-profit, all perform a valuable service by plugging numerous holes in the drug development-funding dike.

Stewart Lyman is Owner and Manager of Lyman BioPharma Consulting LLC in Seattle. He provides strategic advice to clients on their research programs, collaboration management issues, as well as preclinical data reviews. Follow @

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