No Easy Answers for Drug Pricing

Improving manufacturing efficiencies offers most concrete possibilities for cost reduction

By Jerry Martin, Pharmaceutical and Life Sciences Consultant, PMMI

Drug pricing is a complex and controversial topic that does not have an easy or particularly straightforward remedy. The cost of medicine is a function of R&D and process development/validation costs, the cost of regulatory approval and manufacturing costs — with manufacturing costs accounting for the smallest portion of the burden.

Today the average estimated cost of discovery and development for a new molecular entity is $1.4 billion, a sharp increase from 2010, when that estimated cost was $830 million. A single clinical trial can cost well over $100 million, and a new drug can require multiple trials before approval.

Perhaps the most significant part of this equation for research-based drug manufacturers, however, is the cost of failure. When comparing total R&D spending to revenue of approved drugs per company, the cost per drug balloons to between $4-11 billion. Rather than assessing individual drug case studies, this estimate accounts for each failure a respective drug company sustained and the dollars spent on every drug that did not make it to market. With only one to two drugs per 10,000 new molecular entities ever making it to market, this consideration becomes significant.

Any macro changes to this system will require difficult choices and political impetus. Cost controls in other countries, for instance, deliver savings to the domestic patient population, but do so at the expense of a pharmaceutical company’s R&D budget. Thus, for new drugs, these companies are more dependent on research funded by approved drugs sold in the United States.

The other end of the cost equation — manufacturing — offers more concrete possibilities to reduce costs, and potentially pricing when those cost savings are passed on the patients, or to better subsidize R&D for new, better drugs. Suppliers of pharmaceutical machinery and equipment are constantly at work looking to improve drug manufacturing efficiency:

• In biotech, moving to single-use systems can reduce operational and utility costs by eliminating the need for cleaning and cleaning validation, sterilization and sterilization validation, and significantly reducing changeover time. Single-use also reduces costs associated with supply and shortage issues, as manufacturing drugs on a local level is made more tenable.

• The move from batch to continuous manufacturing with automated process controls also offers manufacturers the promise of a more efficient line by integrating processing with fewer steps and eliminating downtime for cleaning and re-setup.

• Processing and packaging equipment is becoming increasing modular and flexible, streamlining changeover of components and therefore reducing downtime.

• New software and sensors that monitor and make adjustments to equipment, known as the Industrial Internet of Things (IIoT), will likely become more widely adopted in drug manufacturing in the future and offer a host of benefits that can improve efficiencies and reduce costs.

In addition to employing their technical innovations, close collaboration with suppliers can help manufacturers mitigate process development, validation and regulatory costs. Even though the onus is on the drug manufacturer to assess the risk of its equipment from a regulatory perspective, suppliers are increasingly assisting customers in the validation of equipment by providing technical support, testing data and documentation for regulatory submissions.

Single-use suppliers, for instance, are now providing testing data on extractables and potential leachables to their customers. Providing this type of testing data is particularly valuable for the drug manufacturer, as it eliminates the cost of conducting the test themselves and, more importantly, reduces the time to market for the drug. Each day that FDA approval is delayed while testing data is gathered, represents a significant cost to the manufacturer. This type of collaboration is compounded when accounting for the fact that a supplier can share testing data with multiple customers, whereas previously, each of those companies would have undergone their own testing and incurred that cost separately.

 

 

SOURCES
http://www.mckinsey.com/business-functions/operations/our-insights/outlook-on-pharma-operations
https://blogs.scientificamerican.com/the-curious-wavefunction/dont-mind-the-gap-manufacutring-costs-and-drug-prices/
http://www.forbes.com/sites/matthewherper/2012/02/10/the-truly-staggering-cost-of-inventing-new-drugs/#1e5069ff4477