|Sergei Varshavsky, senior VP of global strategy, Synergy Research Group|
The cost of new drug discovery has skyrocketed in recent years, and is something that should have everyone in the drug discovery industry concerned. Sergei Varshavsky, M.D., Ph.D., and senior VP of global strategy for contract research firm Synergy Research Group (SynRG), notes it was not always this way. Some of the greatest medicinal discoveries in the history of mankind were inexpensive to develop and test. “There was the discovery of the smallpox vaccine in 1796, ether anesthesia in 1846, and insulin and penicillin in the early 20th century,” he says. “None of them cost much. In fact, the patent for insulin was sold to the University of Toronto for a half-dollar. Despite the low cost, these drugs have saved billions of lives.” Unfortunately today’s medical community is no longer able to accomplish similar feats for such a low cost.
There are many reasons for the rising costs in drug discovery, with several different groups playing a role. According to Varshavsky, The FDA, pharma companies, and research/clinical investigators must all shoulder some of the blame. He places a lessor amount of blame on CROs, although he does place more blame with larger CROs that squeeze smaller firms out of the market, limit competition, and thereby raise prices.
To better understand one of the reasons why drug discovery costs have skyrocketed, Varshavsky believes we need to look at how the regulation of medical products has evolved over the years. He feels the issue of higher costs is rooted, in part, in both the intended and unintended consequences of those regulations.
From Poison Prevention To Adequate And Well Controlled
In 1906 the Pure Food And Drug Act was passed to essentially prevent the manufacture, sale, or transportation of poisonous foods, drugs, medicines, and liquors. It also required that active ingredients be placed on the label of a drug’s packaging and that drug purity levels not fall below established levels. “It was done to protect people from uninformed consumption of potentially harmful compounds such as cocaine, cannabis and alcohol,” says Varshavsky. “The U.S. government introduced certain labeling requirements as well as the demand for compliance with pharmacopeia.”
Thirty years later, after more than 100 people died from taking Elixir Sulfanilamide, manufacturer Massengill paid the minimum fine under the 1906 Act. In response, the government passed the United States Federal Food, Drug, and Cosmetic Act of 1938. This established the FDA to oversee the safety of food, drugs, and cosmetics, and required companies to perform animal safety tests and submit the data to the FDA before going to market. It was a more stringent requirement, and Varshavsky believes many great drugs, including aspirin, would not have passed the animal tests and been subsequently approved had they appeared after 1938.
In 1954 Thalidomide was developed as a sedative, tranquilizer, and antiemetic for morning sickness. When launched, it was proclaimed a wonder drug for the treatment of insomnia, coughs, colds, and headaches. Although the FDA never approved the drug, 10,000 to 20,000 children in 46 countries were born with deformities caused by use of the drug.
“Before the Thalidomide scandal, drug companies only had to show their new products were safe,” says Varshavsky. “But in 1962 the government passed the Kefauver-Harris Amendment, which required a new drug application to show the drug was both safe and effective. I believe this is where the problem of economics in clinical research has its roots. To this day, the FDA determines whether or not a drug is effective. But the FDA also wrote the rules and definition of effectiveness. In addition, informed consent was required from patients participating in clinical trials, and adverse drug reactions were required to be reported to the FDA.” A similar regulation in Europe was adopted in 1965.
If Kefauver-Harris was the beginning of the economic problem, CFR 21 continues the problem. Varshavsky notes U.S. drug development and research is regulated in every possible detail by the regulation. Investigational new drug applications, new drug approval, orphan drugs, protection of human subjects, institutional review boards, drug labeling, and financial disclosure by clinical investigators are all regulated in some part by the regulation. Similar regulations are also in place in Europe.
In regard to new drug effectiveness, 21CFR314.126 allows the FDA to determine whether an investigation is adequate and well-controlled. The FDA then determines whether there is substantial evidence to support the claims of effectiveness for new drugs, meaning adequate and well-controlled investigations by qualified experts, with at least two studies.
Beware The Sample-Size Trap
According to Varshavsky, the number of patients recruited for a study depends on effect size (the clinically important difference between the new drug group and the control group), the level of significance, the statistical power, and the type of test. Holding everything else equal, the smaller the effect size, the larger will be the sample size. Regulators require proof of effectiveness. If the effectiveness cannot be demonstrated in the official settings of the clinical trial, then the effectiveness is substituted by the demonstration of efficacy.
“But here is where we have a paradox,” says Varshavsky. “If you have a highly efficient drug, then you may only need 100 or 200 patients to find statistically significant improvement. But if you need to test one drug against another, you may need 20,000 or more patients. Therefore, the less beneficial the new drug, the more the sponsor will have to spend on it to receive marketing approval.”
Regardless of the reason, there is no question there has been a dramatic increase in spending. The cost of drug development, as measured by the average cost to develop one drug, has increased from $100 million in 1975, to $800 million in 2000, to $1 billion by 2012. Varshavsky notes the $1 billion figure is quoted by many in the industry, but he personally believes the real cost to be closer to $4 billion. To back up that assertion he points to an article from Forbes (“The Truly Staggering Cost Of Inventing New Drugs”) from February 2012 which estimates the true cost to be between $4 billion and $11 billion. Another report, from the Manhattan Institute for Policy Research, puts the cost at $5.8 billion per drug.
If the $4 billion figure is correct, that would represent an almost 4-fold increase just between the years 2005 and 2012. The numbers are equally frightening when looking at the new drug cost by manufacturer, which ranges from $11.79 billion for AstraZeneca to $3.61 billion for Amgen. Among the top 12 drug makers, the average is $6.19 billion. (Sources: InnoThink Center For Research In Biomedical Innovation; Thomson Reuters Fundamentals via FactSet Research Systems)
Varshavsky notes per-patient costs of trials are also on the rise. Between the years 2008 and 2011, the cost for a patient in a Phase 1 trial went from $15,000 to over $20,000. For Phase 2 that cost rose from $20,000 to $35,000, and for Phase 3 it rose from $25,000 to $47,000. The smallest increase occurred in Phase 4, where costs rose from $13,000 to $17,000.
“There are numerous budget line items, any of which could include waste” he adds. “Investigator grants are the biggest line item, but you also have institutional review board and regulatory submissions, investigator site fees (which are now $1,000 to $20,000 per patient), site selection, clinical monitoring, quality assurance and control, and data management and statistics. The wrong choice of primary endpoint or the wrong combination of multiple individual endpoints into a composite endpoint, may cost a firm an entire study.” One recent study, performed by researchers at the Center for the Study of Drug Development at Tufts University School of Medicine, found that unnecessary procedures may add up to $5 billion to overall clinical trial costs annually.
$21 Billion To CROs – But What Are You Getting For It?
The outsourcing of clinical trials continues to increase. For example, between 2008 and 2011, the outsourcing of Phase 1 and Phase 2 trials increased from 35% to 60%, while outsourcing of Phase 3 and Phase 4 trials increased by about 10%.
“In 2010 alone, industry revenue for CROs was around $21 billion,” says Varshavsky. “That figure represents between 25% and 30% of total pharma and biotech R&D spending. The figure is estimated to grow 5% annually, reaching 37% of R&D spending by 2018. GBI Research, an independent publisher of strategic intelligence reports, thinks it will grow even faster, 12.8% annually — potentially reaching $56 billion by 2018.”
According to Varshavsky, one of the issues with CROs is that Big Pharma likes one-stop-shops, preferring to go to big CROs. While he understands that many companies do not have the time and resources to find a new provider for each study, he also believes this approach is risky and not a smart thing to do. While it is generally a bad idea to put all your “eggs in one basket,” Varshavsky believes the bigger risk lies in the fact that niche service providers are usually better than “chain stores.” “The major difference is that Walmart is cheaper than a specialty shoe store, whereas a global CRO is generally not cheaper than a smaller one,” he says.
Who Should Accept The Blame?
The picture Varshavsky paints about the future of new drug costs is not pleasant. He sees regulators introducing laws that make inexpensive research impossible. He sees investigators demanding ever-rising grants. And he sees CROs inflating their overhead bubble while the pharmaceutical industry pays for “redundant, excessive, and useless activities.” In the midst of all this, is there one place we can point the finger of blame? Varshavsky answers the question with one of his own: “Who would want to keep the status quo?”
“Who may benefit from over-regulation that wipes out smaller competitors?” he asks. “Who may benefit from over-payments to the physicians, who are ultimately the future prescribers? And who may wish to sign away most of their responsibilities at any cost?” You don’t need a fortune teller to ascertain the direction in which Varshavsky’s finger is pointing.
Regardless of where blame is assigned, the public still needs access to drugs that address the pressing medical issues of the day. To meet those needs the industry needs more trials at a lower cost, faster completion, and enhanced quality.
During our interview, Varshavsky didn’t just point out problems, he also focused on solutions. When asked what needs to be done to lower the cost of drug development, he offers several ideas. “Economics teaches us that to drive down costs in any market, simply increase the amount of competition,” he says. “This is as true in pharma as it is in any other market. If all of the production in any market is concentrated in a few large firms, you will generally see higher prices.”
In addition to competition, more emphasis needs to be placed on technology. Varshavsky believes electronic data capture, electronic health records, and health information exchanges all have the potential to lead to significantly lower costs. He sees mobile applications, virtual clinical trials, and patient communities as also showing potential.
Smarter Regulations, Not More Regulations
“The goal of the government, particularly the FDA and EMA, is not just to keep bad drugs off the market,” says Varshavsky. “It should also encourage and support the development of new cures, bringing as many good treatments to the population as possible. Today, we have a catch-22. The FDA’s incentives would impel it to avoid the ‘seen’ error of approving new medicines that later cause harm, while at the same time giving little incentive to avoid the ‘unseen’ error of blocking new medicines that could ease the suffering of millions of people. They see their job as blocking rather than promoting.” Taking this a step further, if the FDA approves a new drug that turns out to be a hit, the drug company, not the FDA, gets the credit. But if the FDA approves a drug that ends up harming patients, the FDA often shoulders some of the blame.
Varshavsky believes the solution has to involve smarter FDA regulations and include, but not be limited to, the following:
In addition, progressive authorization, or conditional approval, would broaden the treatment-eligible population, reduce uncertainty around endpoints, study designs, and statistical analysis, ensure effectiveness not just efficacy, and address rare adverse effects.
Achieving more competition, better technology, and smarter regulations will not be easy. There will continue to be those in the industry who will oppose new ideas simply because resistance to change is a common human trait. But Varshavsky believes that only by having greater collaboration among regulators, industry, researchers, academicians, and patients will we begin to bring down costs, and make good medicines affordable for all.