The cost of developing new drugs and cures is enormous. A delicate balance between encouraging innovation and controlling the cost of medicines has to be maintained.

BY Catherine Howe

Innovation: The Industry’s Backbone

May 24, 2017

When it comes to advancing medicine, the United States takes center stage, producing more than half of the world’s new molecules in the last decade. One of the most R&D-intensive industries in the United States, the pharmaceutical sector is accountable for a huge portion of global innovation and new medicine, investing over $50 billion into R&D annually. The U.S. biopharmaceutical industry comprises large companies overseeing diverse development pipelines and their commercialization, all the way down to biotechnology startups, some with only one product in development. With the number of biotechnology companies on the rise and academic institutions positioning themselves more strongly as industry partners, the source of innovation is also shifting.


From Volume to Value

There are more than 7,000 medicines in clinical development worldwide and, from 2000 to 2015, more than 550 new medicines were approved by the FDA. Through a deeper understanding of disease, coupled with novel technologies and approaches, the industry is moving towards more specialized treatments, stepping away from the blockbuster model that has long been the standard, and further towards the discovery of cures. Also notable is the greater focus on biologics rather than small molecule chemically synthesized drugs, since biologics have been proven to be more effective in treating the underlying cause of disease.

Oncology continues to be a key therapeutic area and treatments have come a long way, now becoming more targeted. Cancer death rates have declined 23% since peaking in the 1990s, with approximately 83% of survival gains attributable to new treatments, including medicines, according to PhRMA. Treatments for Hepatitis C have also advanced greatly, with cure rates upwards of 90% in as little as eight weeks with minimal side effects.

However, whilst science may be coming along in leaps and bounds, the financial framework is becoming harder to navigate and approval hurdles are becoming higher. The United States has one of the highest corporate tax rates in the world and reimbursement on the market is becoming increasingly difficult. This proves particularly problematic for the biotech startups from which a great deal of innovation is stemming.


Navigating the Framework 

Well reputed for its favorable intellectual property (IP) laws, the United States is the global epicenter for biopharmaceutical innovation and drug development. As the basis for innovation, and therefore the improvement and discovery of treatments and cures, IP protection is paramount as an incentive to innovate, protecting against competition.

The development and review process is long and can take over a decade, while reimbursement on the market is therefore becoming more of a challenge. Only 22 new molecular entities (NMEs) were approved by the FDA in 2016, compared to 45 in 2015. Moving from mass-market to more targeted patient populations also results in the shrinkage of the total addressable market for the respective drugs. This means higher value but lower volume.

With no revenue from the drug over this period and development costs often more than $2 billion, only two out of ten medicines generate returns exceeding average R&D costs, and more than 90% of U.S. biopharmaceutical companies do not earn a profit. For an industry relying on innovation and the required investment, the stakes are incredibly high. Fewer than 12% of drugs entering clinical trials result in an approved medicine.

These challenges could greatly influence product pipelines as companies are likely to pursue more niche fields in which they can expect less competition and higher return. Certain FDA designations may be applied in particular circumstances to fast-track the approval process. For example, orphan drug designation is applicable when addressing treatable patient populations of fewer than 200,000 people in the United States, or where the treatment drug is not expected to recover the costs of its development and marketing.

A number of other designations have also been introduced to streamline approval pathways and reduce high market-entry barriers to enable drugs to reach patients. One example is the Qualified Infectious Disease Product (QIDP) designation. Infectious diseases are an extremely important area to keep addressing, as pathogens develop resistance to new antibiotics after about eight to 10 years, after which point resistance grows exponentially. “There will never be an antibiotic that maintains complete efficacy forever,” commented Marco Taglietti, CEO of Scynexis, a New Jersey-based company focused on an antifungal compound, SCY-078. “As a doctor, I believe that one day we will find a treatment for cancer, Alzheimer’s disease, Parkinson’s disease and many other afflictions, but there is a group of diseases which we will continue to fight forever, and these are infectious diseases. No matter the antibiotic, at a certain time the pathogens will become resistant. The first antibiotic was introduced 80 years ago. Back then, there was no resistance, and now we have burnt out so many antibiotics that there are less and less effective antibiotics on the market.”

The last class of antifungals introduced was echinocandins in 2000, and about 3% to 5% of pathogens are resistant today.

Companies need access to external funding and, as the pool of start-ups increases, so will competition for investment. Grants and other forms of financial support will be essential in fostering innovation and further scientific progress.


Potential Impacts of Drug Price Pressure

At the core of the discussion around lowering drug prices is patient access, with a couple of specific cases recently highlighted in the mainstream media. Pressure on drug prices will likely lead to increased generic approvals, increasing competition for branded products, and meanwhile also make it more difficult for branded products to achieve reimbursement once in the market.

Beyond the immediate effect on companies’ profits, lowering drug prices would greatly reduce incentives to innovate. Concerns have already been raised following a drop in drug approval rates in 2016 as the bar is pushed increasingly higher for approval and evidence of safety and efficacy. Since a great deal of innovation today comes from small biotechs and projects spun out from universities, it is paramount that these ventures are supported. “The industry needs to do something about pricing, plain and simple,” asserted James Sapirstein, CEO at Contravir and chairman at BioNJ. “If the industry does not figure out a way to be more transparent, the government will. The system in the United States allows us to innovate, and reference pricing as seen in Europe and around the world would hinder our progress to helping people with hard-to-treat diseases. Patients might be in favor of reference pricing to lower drug costs, but removing the incentive for profit will kill invention. In countries such as Russia, prices might be low, but there is no innovation, and what is invented is not tested adequately enough to be safe.”

PhRMA’s recently launched GoBoldly campaign seeks to showcase the industry’s cutting-edge research and advances and goes some way to offsetting the recent somewhat negative portrayal in the media. Universities and research institutions continue to play an increasingly key role as larger companies outsource early-stage development, and the number of projects spun-out into commercial ventures is on the rise.

A certain degree of support is required for companies to enable continued development and research into new areas, and whilst this is recognized at a state level, the industry would benefit from wider nationwide support. First and foremost, companies need adequate incentives and minimal barriers for projects to make commercial sense to support the various stages of drug discovery and development. The drive to make drugs more affordable is commendable, but should not come at the expense of the innovation that enables these treatments and cures in the first place.



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