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Offshore Drug Development May be Necessary to Control Cost
March, 2004
STANFORD GRADUATE SCHOOL OF BUSINESS—Moving drug development outside the United States, at least in the preclinical phase, can reduce cost, now estimated at $800 million per product, speakers told the fifth annual Health Care and Biotech Symposium, held at the Stanford Graduate School of Business.
Developing drugs overseas, particularly in East Asia—the People's Republic of China (PRC), Taiwan, and Singapore—can bring that price down 21 to 40 percent, said Glenn Rice, vice president of pharmaceutical discovery and development, SRI International. "You get an educated workforce, remarkable infrastructure, a lot of government support. These governments have made life sciences a top priority-and they have a great venture capitalist community there."
Many pharmaceutical firms are conducting clinical trials abroad, saving as much as 20 cents on the dollar, agreed Fred Volinsky, managing director, RCT BioVentures. Between 1990 and 2000, the number of clinical trials abroad jumped from 271 to 4,458, and the number of countries involved more than tripled—from 22 to 79.
Countries in Asia and elsewhere have invested heavily in life sciences to compete in the global marketplace. The Japanese government has allocated $100 million a year for structural biology, about four times the U.S. investment. "The amount of science that needs to be done to make drug discovery a predictive process is extreme," said Gajus Worthington, president and CEO of Fluidigm.
"Laboratories all over the world are working on breakthroughs that could radically change this business," Washington said. "It's happening in Russia, all over Europe, in Korea and Japan. There's a huge opportunity for other countries and other scientists in other countries to unmake this industry and take it in a different way because the fundamental process of discovery is so poorly understood relative to other industries of a similar size—engineering or economics, for example. Globalization is here right now. We need to harness it—and not think that all the great stuff is going to happen here."
The day-long conference, held March 13 at the Graduate School of Business, was organized by the student Health Care and Biotechnology Club.
Rice, of SRI, urged companies to concentrate on "smaller niche markets, realizing that the large blockbuster markets are difficult to obtain. Drug development has a randomness that is unnerving and unsettling to investors." Hal Barron, vice president of medical affairs at Genentech, cited Herceptin, the first biologic therapy for breast cancer, as one example of a niche market success that produced $425 million in 2003, even though it targets only 20 to 25 percent of breast cancer patients.
Although the National Institutes of Health budget has climbed steadily since 1993, it hasn't enhanced drug approval, said Volinsky of RCT BioVentures. "There's still no therapy for pancreatic cancer, still no therapy for glioblastoma—and you're not going to get a cure for these unless you have people who are MDs and PhDs and MBAs who are interested. The government has not gotten a drug approved in the last 10 years without private money."
Volinsky added a cautionary note: "Forty to 60 percent of postdocs in the United States are from the PRC and Taiwan. In 10 years, there will be a reverse brain drain in U.S. biotech. The people who will be leaving are the same people who are doing our best research here."
By controlling a significant portion of revenues and expenditures, the U.S. marketplace plays a major role in health care cost, funding, and pricing decisions around the world. Karen Bernstein, chairman and editor-in-chief of BioCentury Publications, attributed soaring health care costs to Americans' low tolerance for health risks and our increased litigiousness, leading to more government regulation and physician over-prescribing.
Professor Emeritus Alain Enthoven of the Business School faculty pointed to the dramatic 15 percent per year rise in employment group health care insurance premiums for the past three years. "We could have better care for half the cost if we had integrated delivery systems. As it is, the government pays 60 percent of health care if you include tax breaks for health insurance.
"We don't have a free market in health care," said Enthoven. "A free market means informed, responsible choice, and that's not happening in drugs or anywhere else." Average annual family health insurance premiums paid by Stanford University range from $10,000 to $17,000, and Enthoven predicted that by 2008, those costs would double. "Seventy-five percent of health care costs are for chronic care," he said, adding that "we need to think about how to head off the diabetes epidemic that's coming" as a result of Americans' widening waistlines.
The pharmaceutical industry has drawn increased scrutiny as a key factor in skyrocketing health care costs in the United States. Statistics from the Kaiser Family Foundation show prescription drugs account for 11 percent of total health care dollars. "That's why we need to use globalization to keep drug development costs down," said Volinsky. "We need to get therapies to patients cheaply, quickly, and effectively."
Reminding the audience that most research and development funding is dedicated to diseases that represent a small percentage of the disease burden in the world, Volinsky asked, "How do we create a place for pharma to meet the needs of the rest of the world?"
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One woman has found an answer to that question. Take profit out of the equation and add integrity, passion, and vision, counseled keynote speaker Victoria Hale, founder, CEO, and chairman of the Institute for OneWorld Health (www.oneworldhealth.org), the first nonprofit pharmaceutical company.
Named by Fast Company as a leading social capitalist, Hale founded OneWorld Health in 2000 to provide drug research and development for millions of the world's people who have no therapies because they are poor. "Ten percent of the R&D resources are devoted to disease conditions that affect 90 percent of the developing world," said Hale, who added that 98 percent of childhood deaths occur in the developing world. Of the 1,393 drugs approved between 1975 and 1990, only 13 were for tropical diseases and many of those were first approved for animals, not humans.
Largely funded by the Bill and Melinda Gates Foundation, and the National Institutes of Health, working in partnership with the World Health Organization, this innovative nonprofit brings together potential new drug leads, experienced scientists, millions of dollars, and, most important, the leadership of a passionate pharmaceutical scientist. Together, they have made remarkable progress in less than four years.
OneWorld Health focuses on therapies for six infectious diseases that kill nearly 4 million people each year and threaten half the world's population: leishmaniasis, malaria, diarrheal disease, intestinal parasites, Chagas disease (American trypanosomiasis), and sleeping sickness (African trypanosomiasis).
Four years after its founding, OneWorld Health is on the threshold of having a cure for visceral leishmaniasis, a deadly form of the disease found in North Africa and the Middle East, including Iraq. The drug is called paromomycin, and it is expected to enter the market in 2005. A single injection of paromomycin will achieve a lifetime cure. The cost per patient: $10.
Also in the pipeline at OneWorld Health is a promising compound with action against the parasite that causes Chagas disease, which now infects 18 million people in Latin America. Celera Genomics donated the compound and the National Institutes of Health will collaborate with OneWorld Health to develop this new therapy.
"When we talk about companies being involved in the developing world, it's companies and corporate structure and business structure that don't allow companies to be there," Hale offered. "There are many, many scientists and executives of companies who want it to happen. They just have to be creative."
—Nancy Evans
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Biotech Innovators and Investors Assess Challenges, Opportunities (2002 conference)
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