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Industry Spotlight – Pharma

Industry Spotlight – Pharma

The cost of bringing a new drug to market is over $2 billion, by some estimates. This covers the R&D, clinical trial testing and regulatory approval costs of the drug that makes it through the whole process, and also the same costs of the 9 drugs that don’t make it, for each drug that does. Nonetheless, despite the high-stakes gambling involved, it is a crowded space, and one that relies heavily on substantial entry-level capital, partnerships and licensing deals.

Focusing on the development of new drugs (and leaving aside generics and distributor deals), at the entry end, there are “startup” companies just coming into the market on the strength of a very specific technology. Akouos, for example, has licensed precision gene therapy for hearing loss from Massachusetts Eye and Ear Hospital and is commercializing it. Some of these startups may have no revenue prospects for years. Last year, Allogene purchased from Pfizer licenses to compounds to treat blood cancer, and is carrying the research forward. Formed in April 2018, Allogen went public in late 2018 and has just started its first Phase I trial.

At the top end are companies like Pfizer and Novartis, with annual drug sales in the range of $50 billion. For these companies, one challenge is meeting market expectations for growth when blockbuster drugs from the past go off patent, and stop producing revenue. Pfizer’s two big sellers, Lipitor and Viagra, produced a total of nearly $15 billion in revenue at their respective peaks, and dropped to less than $2 billion after going off patent.

Huge R&D costs, especially those associated with failed drugs, place enormous pressures on profits from the winners while they are under patent. The basic patent period for drugs is 20 years, though there are extensions to account for lengthy FDA approval periods. Since companies file for patents early in the development/approval process to protect their IP, time is of the essence in testing the drug and shepherding it through approval. Some of the approaches to taking full advantage of this time include:

  • Licensing patented technology to others who are better equipped to take rapid advantage of it

  • Use of contract research organizations (CRO’s) to conduct the trials

  • Using distribution partnerships for rapid rollouts once approval is granted

  • Careful use of statistical methods to optimize the required randomized trials

  • Judicious reliance on statistical expertise to avoid costly errors that can invalidate results