Challenges of Developing and Commercializing New Pharmaceutical Drugs

The pharmaceutical industry is grappeling with a very serious problem - how to get the payers to pay for the drugs they develop. Increasingly, governments and other healthcare payers are refusing to pay for new drugs that took years to develop but add relatively "small" real value to the patients. An example of this is the recent rejection by NICE (the UK body that advices the Government on whether or not to reimburse a medicine) of Tyverb, a GSK developed HER2 inhibitor, on the basis that the drug did not meet their threshold of cost and effectiveness.

GSK is clearly concerned about this. In an interview to the Wall Street Journal Andrew Witty, the Chief Executive of GlaxoSmithKline PLC said that GSK recently invited a group of health care officials from UK, France, Italy and Spain to comment on the drugs being developed in the GSK labs. While it is not uncommon for pharmaceutical companies to interact with regulatory authorities about a particular drug, it is quite unusual for a company to invite government officials to comment on their entire drug development program.

I don't have a crystal ball to know what transpired, but we can imagine what the government will want to see - greatest benefit in a drug at the lowest possible price. The question is, can the industry deliver against such a tough goal?

Answer is not easy mainly for two reasons. First, today, most of the diseases being tackled by the industry are chronic and difficult to treat diseases like cancer and alzhiemers. The pharmaceutical and biotechnology industry is employing cutting edge technology to crack these "difficult" diseases, but even with these advanced tools its extremely difficult to develop drugs against these diseases. So, while its easy to "ask" for a large benefit, the fact is, the companies are delivering what is "scientifically possible" today. No company wants to limit the benefit its drugs provide, so its silly to think that the companies are holding themselves back from delivering "greater" benefit.

The second reason is, cost - cost of drug development is extremely high and the rate of success is extremely low. Genentech recently disclosed that Roche, Genentec's partner in development of Avastin, spent close to $2.1 Billion in bringing Avastin to the market. Roche is likely to spend millions more to develop Avastin for other tumors. Yet for every Avastin, there are hundreds of other compounds that get developed but never reach the market. In the end for most of these opportunities there is no guarantee that the effort will pay off.

The only reason investors are willing to fund high risk research at these companies is because they believe that the payoff for "success" will be high. If the investors start to believe that the opportunity to recoup investment is diminishing, there is a likelihood of a pull back on investment in research.

The US and European markets have so far provided a fairly "free" market environment for pharmaceutical industry. However as the cost of drugs keeps rising, it is likely that there will be increasingly larger pressure on the governement to limit the "reimbursement" for these drugs.

Unfortunatly, this can have a chilling effect on science. Science progresses in incremental steps and great leaps happen only over long periods. If pharmaceutical and biotechnology investors percives a lack of "reward" for their investments, they are likely to take their investments elsewhere, which would be bad for not only the industry but also the patients it serves.

Clearly, there is a need to rethink the way drugs are developed and marketed around the world. There are several ways in which this problem can be approached - from "cost sharing" model (where government shares in the cost of developing drugs) to expansion of "patent life" giving companies a larger period within which to recoup the investment, to "open reimbursement" for technological leaps and "limited reimbursement" for smaller incremental improvements. Completely denying reimbursement is no way to encourage drug development.

Currently, the governments around the world and the pharma/biotech industry have a semi-adversorial relationship. The industry tries to develop new drugs on its own and then has to expend even larger amount of resources to "convince" the government authorities to approve and reimburse these drugs. This approach may have worked well in the past, but as cost of drug development continues to rise this sort of relationship will limit the innovation to a handful of drugs that have a lower risk of failure and high likelihood of commercial success.

The problem of cracking difficult diseases require a rethink of the way this relationship works. Perhaps, there is a need for a much greater partnership between government and the industry. In this sense, the GSK invitation to the Government healthcare representatives is a good first step.
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