New drug price tag: $1.2 billion

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The San Diego Union-Tribune (California)

Biotechnology innovation comes at a heady cost: about $1.2 billion per new medicine, according to a new study released yesterday.

On average it costs more and takes longer — 97.7 months versus 90.3 months — to get a complex biologic therapy through human testing and regulatory review than it takes to do the same for more traditional medicines made by pharmaceutical companies, according to the study by the Tufts Center for the Study of Drug Development.

The study from the Tufts University-affiliated center, which receives funding from the drug industry, comes at a time when biotechs are facing growing criticism about the rising cost of new biologic agents, such as Genentech‘s cancer therapy Avastin.

Avastin, approved two years ago as a treatment for colorectal cancer, recently won approval as a treatment for lung cancer — at a cost of about $100,000 per patient. But the drug prolongs the life of lung cancer patients by only about two months.

Last month, Genentech, which will be manufacturing Avastin at its Oceanside biologics manufacturing plant, tried to deflect critics by capping the total cost of Avastin at $55,000 a year for patients below a certain income level.

With a new Democratic majority in Congress, reining in the cost of health care is likely to be a top priority, health care observers agree. There are already rumblings of price control measures for the nation’s Medicare program, and bills have already been offered to create a legal framework for allowing generic versions of biologics on the U.S. market.

Jerry Flanagan, health care policy director for the Foundation for Taxpayer and Consumer Rights, dismissed the Tufts report’s drug industry-generated “fuzzy numbers.”

Such reports are part of a “desperate strategy” by the biotech industry to insulate itself from reforms when the new Congress convenes in January, he said.

Flanagan took exception to the report’s $1.2 billion “average capitalized cost” per biotech product. The capitalized cost calculates both the cash spent by a biotech in developing a drug and the implicit cost to investors of having funds expended for years before there is a return.

In terms of real out-of-pocket cash spent by biotechs per approved new biotech drug, the figure was $559 million, according to the Tufts study.

“The data the drug industry produces for these studies is highly questionable,” Flanagan said. “And the capitalization of investment income is totally irrelevant to the cost of a drug; to count that with the cost of a drug is inexcusable.

“Biotech companies like Genentech have been pricing patients out of life itself by charging astronomical prices for life-extending medications,” Flanagan said. “The dirty little secret that companies don’t want people to know is that 44 percent of all health research and development is paid for by taxpayers (through government-funded research grants and clinical trials).”

Joseph DiMasi, director of economic analysis for the Tufts Center, said the $1.2 billion estimate reflects the costs of drugs that fail in testing and the time costs associated with bringing a therapy to market.

Such capitalized costs are relevant to the health care debate, he said.

“Society should care because these are enormous sums,” DiMasi said. “If we can shorten the drug development process, reduce the time cost, that would be a benefit to all. It would lower out-of-pocket costs, increase innovation incentives and serve as a spur to further investment.”

DiMasi said comparisons between the Tufts biotech drug cost study and earlier Tufts studies of pharmaceutical industry drug costs should be made with caution. Adjusted for inflation, the average cost of developing a traditional drug in 2005 was about $899 million, according to the center.

Making comparisons is tricky because pharmaceutical industry costs may not have changed to the same degree in recent years, and costs typically vary by therapeutic class, DiMasi said.

Unlike prescription medicines made from synthetic chemicals, biotech drugs — such as monoclonal antibodies and recombinant proteins — are derived from natural substances in the body.

Joseph Panetta, president of Biocom, the San Diego biotech industry association, said the price of biotech drugs are higher in part because the industry usually tackles tougher diseases.

The biotech industry is also a comparatively new one that hasn’t yet developed the cost efficiencies, from discovery research to manufacturing, that the older pharmaceutical industry has realized.

“Biotech is still in its infancy,” said Panetta, whose association represents several hundred San Diego companies that make up the third-largest biotech cluster in the nation. “The kinds of therapies biotechs pursue, the ones that are on the market, are revolutionary — a monoclonal antibody like Rituxan, for non-Hodgkin’s lymphoma, can’t compare with the latest of several heartburn drugs coming out of pharma.”

Highlights of the Tufts biotech study, which relied on product-specific costs for a sample of 17 unidentified biotech medicines from four unidentified firms, include:

— Biotech products had an overall approval success rate of 30.2 percent, versus 21.5 percent for traditional pharmaceutical company drug pipelines.

— The average cash outlay per approved biotech drug during the discovery research and preclinical stage was $198 million; when capitalized, the estimate rose to $615 million.

— The average amount of cash spent during the clinical period of biotech drug development — including the cost of testing the products in humans and getting through the regulatory process — was $361 million. When capitalized, the cost rose to $626 million.

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