This is the transcript of my recent podcast interview with Ron Hansen of the University of Rochester.
David Williams: This is David Williams, co-founder of MedPharma Partners and author of the Health Business Blog. I’m speaking today with Ronald Hansen, Senior Associate Dean for Program Development at the University of Rochester’s Simon School of Business. We’ll be discussing drug development and the federal government’s role.
Ron, thanks for joining me today.
Ronald Hansen: You’re most welcome David.
Williams: Let’s start off with the big picture. Give me your sense of the overall state of drug development and discovery.
Hansen: I’ve been involved for many years with estimating the cost of drug development and looking at the trends and outcomes. One of my concerns has been that while the cost of getting a new drug on the market has been steadily increasing, much faster than the inflation rate, the output of the industry in terms of number of drugs that are getting approved has essentially been stagnant. So we are facing a situation in which the costs are rising dramatically and the output is very modest.
Williams: That’s a fairly well known phenomenon largely thanks to you and your colleagues. It seems as though the NIH is planning to try to do something about it. What exactly is the NIH planning?
Hansen: What NIH is doing in terms of trying to invest money in the early stages of drug development, basically the discovery stages as opposed to the later clinical stages, is, in one sense, good news. The good news is that somebody in the federal government is now really waking up to the problem, which has not been addressed. Until the pharmaceutical industry finally came behind the health care bill, in all the discussions, pharma was considered to be one of the villains. Nobody was particularly concerned about their output or their profitability and, even though stock analysts have been concerned for some time about the increase in generics and the number of big blockbusters that were going off patent, at the federal level, no one seemed to be listening. So the good news is that they are starting to address the problem.
Williams: I understand that this proposed new center is the brainchild of Francis Collins. What is he hoping to achieve?
Hansen: They’re trying to jump-start some of the discovery research and to invest money in trying to push the early stages. Unfortunately, it’s a very modest amount that they’re doing, but at least it is something. NIH, for years, has been a very good supporter of basic research that eventually leads to products, but this is the first time that they’re trying to do it in a targeted way, by saying we’re trying to promote drug development.
The signaling value is very great, but the amount of money that’s involved is fairly modest.
Williams: I imagine that it’s difficult to get any new money at all in the current fiscal and political environment. So even the modest amount, where will that come from?
Hansen: They’re talking about a little over $1 billion for the center. Now there’s already about $700 million that is being spent on other projects that will be rolled into the center, so the amount that we’re looking at in terms of increased funding could be as low as an extra $300 million, which, in the greater scheme of things, is kind of chump change. Nevertheless it’s important, I think, as a signal.
Williams: How do you expect the new center to interact with the pharmaceutical industry?
Hansen: Some of this depends on how they treat the patents. When you have a very high cost of developing new pharmaceuticals, you can only justify that if you have a patent on the product. Otherwise you spend all the money and somebody else can come in and compete with you on your own R&D. So one of the issues that they, early on, have to think about is: when this new entity, if it in fact creates some molecule or some other kind of research that will jump start a new pharmaceutical product and start their clinical research, how are they going to treat the patents on that?
There is a concern sometimes that some of these things may end up in the public domain in which nobody is going to be willing to pick it up and run with by spending the millions and millions of dollars that it takes to get it on the market.
Williams: Is there any middle ground where the taxpayer might expect to see some new products, but also have any kind of relief in terms of pricing or patent life? Is it “all or nothing” public domain versus the traditional patent process?
Hansen: Actually there were changes in the laws many years ago that encouraged the patenting of things even though the research was done under public money. There was a time when anything that was done at the universities that was using public money could not be patented. That got changed and that has actually led to a lot more innovation. So there are ways of doing it. They just have to be careful that they in fact follow those rules.
Williams: It sounds like you’re fairly enthusiastic about this new center but giving it modest expectations due to the amount of funding.
Hansen: Well we haven’t gotten to the bad news side.
Williams: Fair enough.
Hansen: The bad news side is that even if they were very successful in getting something through the discovery stage and coming up with something that might not have been discovered by the pharmaceutical industry, and even if they did that rather quickly and it went into clinical trials in 2012, which would be quite remarkable in itself, we’re still not going to see product until 2020. That’s because the clinical testing period typically takes about six years and the FDA review time takes an additional two years, so even anything that gets into clinical trials next year will not be on the market and available as a therapy until the year 2020. So it’s a very long-term process.
Just doing some kick starting right now in the early stages is not going to have any major impact on therapies available for at least eight years.
Williams: What would you do in order to increase the productivity of industry, whether that’s through the federal side of things or in the private sector? Any thoughts about that?
Hansen: Yes. Because this is a very long investment process, the industry, if they’re going to put money into additional research and development today, has to think about what the markets are going to look like ten or twelve years from now. Anything that gives them pause, such as the prospect of price control or concerns about the FDA approval process, is going to have a very depressing effect on the willingness to invest in R&D today. Unfortunately I think there have been many signals that the industry has been receiving recently that the markets out there, ten or twelve years from now, are not going to look all that well despite the fact that we have the aging of the population, which would normally be a signal that the pharmaceutical sales should go way up. The increasing comparisons of prices in the U.S. with international prices and the increasing trends of larger and larger clinical trials being required mean that the incentives for the firms right now to invest in R&D have been lessened considerably.
Williams: Are there things that other governments or private foundations have done that are encouraging in terms of improving innovation or productivity in R&D for the pharma industry?
Hansen: There are some targeted areas. Certainly the Gates Foundation has been doing a lot of work in areas that often times are not very profitable for private firms to do; diseases that are typically in lower income countries, the sub-Saharan countries. A lot of this work is being done by the foundations, but very few of them are really getting involved in scale of clinical testing that’s required to get a product on the market today.
Williams: As you mentioned up front, you’ve been involved in this field for a long time. What’s you level of optimism or pessimism today compared to five, ten, fifteen, twenty years ago?
Hansen: When I first got into the field back in the ‘70’s, it was a time when the effects of the changes of legislation in the 1960’s were beginning to bite. That was a time when there was a lot of evidence that the number of new drugs coming onto the market had been declining very rapidly since the early ‘60’s. There was a lot of public policy concern from the ‘70’s and into the ‘80’s.
As I started to see some of the changes, it looked like we were making progress in terms of giving the industry an incentive to develop new products. Unfortunately, events after that have given me much greater concern. The costs keep rising, the competition coming from generics has substantially increased, and so right now I’m somewhat pessimistic about the future of the industry.
Williams: So as not to end on a completely negative note, let’s look at this new development center at NIH. When will we have a chance to see if there is some success? Are there some milestones to look for over the next few years before we get to 2020?
Hansen: One of the things that I think NIH could possibly get involved with to a greater extent is biomarkers. Some of the biomarkers are useful to screen out bad candidates for drugs before you spend millions and millions of dollars in additional clinical research. Right now most of the biomarker research and acceptability is on the screening out side. Possibly there could be more work done on using biomarkers as proof of efficacy or proof of safety of products to try to reduce the total cost of clinical development.
Williams: I’ve been speaking today with Ron Hansen from the University of Rochester’s Simon School of Business. We’ve been talking about drug development and its future prospects. Ron, thanks so much for your time.
Hansen: You’re most welcome.February 14, 2011