Credibility and prosperity in biotech

Welcome to Boston, BIO attendees! I hope you’re enjoying the show and the city.

I want the biotechnology industry to prosper. I don’t object to the concept of drugs that are priced at $100,000 per year, though I realize that explaining that kind of cost to the public can be hard.

So, biotech industry, let me make a suggestion, which I hope you’ll take in the right way: You shouldn’t exaggerate the truth to get your point across. It could come back to bite you.

What am I talking about?

In the run-up to BIO the Boston Globe had a special section on biotech, and an interview with BIO’s president, James C. Greenwood. There were a few distortions from the industry, and I don’t like them. Here are three examples:

The first two are from “It costs how much?

“It costs you the same to develop that drug whether there are a thousand patients or a million patients or 10 million patients. The same investment went into it,” said Alison Taunton-Rigby, a biotech entrepreneur and former Genzyme executive.

When [Cerezyme] was approved by the [FDA]… “We said, what, $600,000 per patient per year? We can’t do that,” Taunton-Rigby said. They launched the drug for half that price…

The third is from the Greenwood interview, in which he was asked “what he’d most like the Democrats to understand”

We favor competition, but we think that companies should be able to have 14 years of market exclusivity in order to recover their investments in R&D. If you look at the Waxman bill or the Clinton-Schumer bill, they’re at zero and we’re at 14, so that’s a pretty big gulf.

So what’s wrong with those statements?

  • The development cost does vary with the number of patients. Drugs designed to treat “a thousand patients” enroll far fewer subjects in late-stage clinical trials than those that treat 10 million. Sure, early stage costs may be similar, but the later pivotal trials are where the bulk of development money is spent. (I won’t bother now to get into why the Tufts $1.2 billion per biotech drug number cited in the article is bogus. Suffice it to say that no investor approves $1.2 billion to develop a drug.)
  • The $600,000 per patient cost for Cerezyme is a red herring. The first Intel Pentium prototype probably cost $1 million. That didn’t stop them from charging $200 per chip once they scaled up. Cerezyme (as the author of the article astutely points out) switched to a much, much less expensive manufacturing process once the drug was launched, but didn’t reduce the price. Even drugs that don’t make such dramatic process changes have vast opportunities to improve titres and yields. The initial manufacturing cost is simply not the relevant metric. (Doesn’t such logic also undermine the dearly-held notion that pricing has to recover development costs, not manufacturing costs?)
  • And maybe someone can explain to me what Greenwood is talking about when he’s says “they’re at zero and we’re at 14.” I’m going to give him the benefit of the doubt in case he was misquoted, but the Democrats are absolutely not trying to reduce market exclusivity to zero. (I also wonder whether Greenwood thinks the Republicans understand these issues. The evidence is not good!)

Each of the arguments above is at least somewhat true, but by stretching the point the industry undermines the support of those who understand the nuances. Why do that?

May 8, 2007

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