Molecular Medicine: The Molecule Biz (2 of 3)

In the previous installment about the molecular medicine conference, I emphasized that the science of so-called complex, polygenic diseases like cancer is, well, complex. But there are other complications as well in the life science business. Biotechnology and pharmaceuticals are also risky, complicated enterprises from a financial standpoint. In a way it’s kind of a layering of complexities, one atop the other.


When you attend a biotech meeting these days you almost feel sorry for multi-billion dollar corporations. I said almost. The figures about the industry’s financial situation don’t look good. According to a keynote speaker from “the industry,” the average time to bring a new drug to market is 12 years and 9 months. Just three out of ten products recover the investment made to develop them. Eighty-nine percent of compounds that start development for drugs die in the process. Just 5% of compounds become registered drugs, i.e., approved for sale by the FDA. The number the industry puts forth for the average cost of bringing a new drug to market is $890 million. (They seem to be inflating this number. A couple of years ago it was a mere $500 million.) The reason this figure is so high is because it includes in the cost of all those failed drugs. And, to top it all off, despite the advances in science in recent years—perhaps even because of it—the rate of producing marketable drugs has declined. Productivity is declining, not rising. The fabled “pipeline” of new drugs is drying up. This is the greatest lament in pharmacology.

Nevertheless, the industry soldiers on, not out of altruism, but because of the lure of multi-billion dollar returns that come with a truly successful drug. One thing was clear to me listening to discussions, even the scientific ones: biotech is driven by bottom-line business issues. Doing good while doing well is fine, but the parameters of decision making are all about return on investment.

For those of us nurtured in the nonprofit world, this may seem crass and less than ideal, but it makes sense in the marketplace. Like it or not, things that we use to treat disease in our health care system come about via competitive market processes. And when the stakes are in the hundreds of million of dollars, the profit orientation is mighty. While a nonprofit like the Society struggles all year to raise $100+ million dollars for cancer research, investors pour billions of dollars annually into companies that spend it to develop drugs and devices, much of it cancer-targeted. If they weren’t concerned about returns, people could give their money to us. Instead people invest in biotech because they expect, at the end of the day, to get more out than they put in, and, incidentally, they might improve cancer treatment. The net result is that investment raises billions for research each year rather than millions.

Investment is also subject to almost whimsical trends. One speaker, an investment banker who was originally a molecular biologist, explained that biotechnology investment comes as “windows” when the investment community is willing to open its vaults for this area. Investment professionals follow the herd. They won’t invest when nobody else is doing it or when some adverse event like a company failure or a problematic court ruling spooks them. On the other hand, they will invest when biotech has not “turned over” in quite awhile, or when an IPO is very successful, or even when rumors on Wall Street tout biotech as “hot” again. The speaker confessed it is not a particularly rational process. The window has been opening and closing cyclically for a couple of decades now, and not much is likely to change it. But, make no mistake, what drives the money flow in the life science industry is what’s happening in financial markets, not what’s happening epidemiologically.

Let me reconsider that last remark. The life science industry does use epi to determine the potential market for products. Cancer gets a lot of R&D because it’s a big, big market. Frankly, the priorities for cancer research by pharmaceutical companies probably don’ differ too much from the ACS. They put resources into the cancers that affect the most people and for which they think they have something that will work. But many other factors enter into investment decision-making. Wall Street’s willingness (mentioned above), likely time to market, availability of new technology, deals with other companies, availability of intellectual property at a reasonable price, in-house expertise, and health care payer predispositions to pay are a few of the parameters. I guess life science business managers expect that, in the end, human needs will get taken care of, but a Viagra may get in ahead of a new prostate cancer drug.

Next: IP

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