24 Nov The Complexities, Cost of Midwest Biotech Drug Development
CHICAGO – In trying to explain the complexities of the biotech industry to investors, academics and start-up biotech companies, most people now understand that it is a long, painstaking and expensive process. What they don’t understand is why.
A brief primer in the drug discovery and development process shows us the following pathway:
Logical questions to the above include the following:
If the patent life of a drug is 20 years and it takes up to 21.5 years to develop a drug, why bother?
This is a very good question that all biotech companies (and Big Pharma) need to continuously ask themselves. The answer is that most patents begin to get filed after there has been some initial pre-clinical efficacy (whether in the test tube or animal testing phase) so that adds back about two to three years.
Additionally, the FDA gives you back (in the form of patent restoration or patent extension time) the time spent in an FDA review process, which can be one to two years. This being said, you could end up with only two to three years of useful patent life. Big Pharma on average wants seven to 10 years of useful patent life whereas biotech companies might live with a little less.
Doesn’t the FDA provide for a “fast-track process” that cuts down the development time?
The FDA does have a fast-track process that basically refers to the actual FDA review time. This designation allows for the drug to get to the top of the review queue and hence the review time is given a much higher priority. This can cut the average review time in half.
Moreover, these designations are reserved for drugs with an impact on “life-threatening diseases” such as cancer and AIDS. Another group of drugs, called orphan drugs, are for diseases where the patient population in the U.S. is below 250,000.
The FDA has provided an incentive for companies to work on these type of diseases by granting orphan drug designation. This designation provides a company with both fast-track review as well as seven years market exclusivity from the time the drug is actually approved by the FDA (independent of the drug’s patent status).
Another situation with the FDA exists for drugs for life-threatening diseases particularly if they are drugs with fast-track designation. Often these are drugs for diseases where there is little or no good existing therapy so there is little hope.
In special cases with these drugs, the FDA has actually approved drugs on only phase II data. In the last five to seven years, there has been at least one cancer or AIDS drug per year approved on this basis. Some examples are:
Such approval can save companies years of development time and millions of dollars. It is critical to survey existing therapy before starting phase II clinicals and meet with the FDA to review data and disease targets well in advance.
Given the long development time and expensive development cost, isn’t this a very risky business?
Yes! That’s why biotech is not for the faint of heart or for those looking at a quick return on their investment.
On the flip side, there is a significant need for improved therapies for many diseases (hence why there are so many biotech companies). Additionally, our aging population in the U.S. (and Europe and Japan) is creating a need for increased expenditure on chronic disease management.
Still, given the long lead times and heavy investment, a good question that each biotech company needs to pose before taking a drug into clinical trials is what is the expected “labeling” the company is looking for with the FDA in the approval process.
In this case, labeling means the expected indications for which the drug will be approved. Why is this important? As about 75 percent to 80 percent of the cost and about 60 percent of the time to develop a drug is in the clinical phase of development (testing in humans), it is critical to ask this question up front before even starting clinical trials.
It has been said that it costs up to $800 to $900 million for Big Pharma to develop a successful drug. That is a higher amount than you are citing. Why?
This statistic takes into account all the money Big Pharma spends on a related drug class and factors in the cost of the drug failures that have been dropped along the way. Nevertheless, a rule of thumb on development costs and times is that the larger the potential patient population under the proposed labeling, the more extensive clinical trials will be needed.
This is particularly true for antibiotics and cardiovascular drugs, which are usually for very large patient populations.
The Nasdaq’s New Biotech Index
In Monday’s Wall Street Journal, an article cited the shift of the Nasdaq to add 55 stocks to its current index, which was started 10 years ago.
The current index includes 74 company stocks and will be broadened now to 129 companies (there are about 350 publicly traded biotech companies in the U.S.). According to Journal, the Nasdaq Biotech Index is up 35 percent in 2003. The key requirements for companies being included in this index are to have a market cap of at least $200 million (I seem to recall that the previous hurdle was about $250 million) and to have a minimum stock trading of 100,000 shares daily.
This move by Nasdaq will clearly provide a more accurate barometer of the public-traded biotech sector. However, most of the companies (public and private) are worth far less than $200 million. In fact, of the estimated 1,500 or so biotech companies in the U.S., more than 1,300 companies will not be measured by this index. Still, this improved index will certainly help measure the vicissitudes of our industry.
Happy Thanksgiving! See you next week!
Michael S. Rosen is the vice chairman of human health at the Illinois Biotechnology Industry Organization (IBIO). He can be reached at email@example.com. This article has been syndicated on the Wisconsin Technology Network courtesy of ePrairie, a user-driven business and technology news community distributed via the Web, the wireless Web and free daily e-mail newsletters. They can be found at www.eprairie.com.
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