I just came across a great overview article titled Pharmaceutical R&D Financial Ecosystem. The white paper, prepared for the Dutch government, outlines the drug development process and how it is financed (and by whom). The white paper answers the following questions:
What do the different players in the drug development ecosystem do?
- Academic institutions and public research groups (PRGs)/non-profit organizations1 are primarily focused on target selection, i.e. identifying disease targets, although they may also play a role in later stages.
- Biotech companies, or small and medium-sized biopharmaceutical companies (SMEs), are most active in drug discovery, preclinical development, and early clinical development. Drug discovery involves finding and optimizing drug candidates that interact with disease targets. During the preclinical development stage, drug candidates are tested for safety and efficacy in animal models, followed by human trials during the clinical development stage.
- Mid/large biopharmaceutical companies (Large Biopharma) are active throughout the value chain. They are key late-stage clinical development executors. This responsibility typically shifts to the large biopharmaceutical company at the end of Phase 1 or Phase 2. However, such efforts are increasingly being undertaken by biotech/SMEs seeking to commercialize their own assets.
What is a typical prototype of how different stakeholders interact in the drug development process?
The paper also lists seven different prototypes for drug development.
Who funds drug development?
About two-thirds came from private life sciences companies. However, we saw private sector funding grow between 2011 and 2019. Venture capital funding increased by 14.2% annually, biopharmaceuticals grew by 4.1%, but public sector and non-profit organizations grew by only 1.1% and 0.8% respectively.
Several recently developed cystic fibrosis drugs present case studies in how nonprofits and biopharma funding interact.
Because only a few therapies were available to treat the symptoms of cystic fibrosis (CF) in the late 1990s, the Cystic Fibrosis Foundation (CFF) wanted to support the development of disease-modifying therapies. CFF seeks to make strategic investments in pharmaceutical companies with a clear commitment to the development of cystic fibrosis treatments. In 2000, CFF collaborated with Aurora Biosciences to identify disease-modifying molecules. Vertex Pharma acquired Aurora Biosciences in 2001 but did not invest heavily in the CF franchise as its strategy focused on virology. When Kalydeco entered Phase 1 trials in 2006, CFF funded an additional $37 million. The successful results of this phase encouraged Vertex Investment to build additional R&D and commercialization capabilities for the CF franchise. In addition, CFF provided an additional $75 million in funding as Phase 2 trials began. After approval in 2012, Kalydeco became a commercial success. CFF benefits from sale of Kalydeco franchise in $3.3 billion deal, reinvests in CF research
How much does it cost to develop a drug?
It is expensive:
Executing companies' out-of-pocket costs for a compound, regardless of successful launch, are estimated at $280 to $380 million. However, if the development costs of failed drugs are included, the estimated systemic out-of-pocket cost of developing an approved drug increases significantly to $1.2 to $1.7 billion (Article 2.3.2).Including capital costs, the total system development cost for each approved drug is estimated to be $24 to $3.2 billion
Not just the expense, but the uncertainty. Government, nonprofits, and venture capital can help bridge the “translational gap” from early-stage basic science research to target selection and drug discovery and preclinical and clinical trials.
How does R&D investment respond to drug revenue and/or market size?
A key number is how responsive drug development is to expected revenues. This elasticity ranges from 0.3 to >2.0, but the figure below focuses on newer research with a range of 0.3 to 1.0.
The full report is available to read here.
