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The Next Frontier: Frugal Innovation For High-Tech Drugs

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Should drug innovation models remain as expensive as what these are claimed to be now by the global pharma industry, in general?

Finding a credible, appropriately quantifiable, and generally acceptable answer to this question is critical. It won’t, then, just be a myth-buster for billions of dollar price tag, that is now being attached to drug innovation and development initiatives, by the global pharma industry, as a justification for arbitrarily fixing high new drug prices. If the upcoming and new startups with frugal models for even high-tech drug innovation succeed with flying colors, the patients and the payers would also possibly breathe a huge sigh of relief, from the increasing burden of disease and the cost of medicines.

I believe, it would eventually happen, may not be overnight, but over a period of time. I shall discuss in this article about some bright sparks, already visible in that direction.

The facade of high cost of drug innovation: 

At the very outset, to avoid any possibility of misunderstanding, let me confess up front, just as many others, I also strongly believe that drug innovation is extremely important. It needs to be encouraged, protected and rewarded reasonably.

That said, let me also give the right perspective of how the cost of ‘drug innovation’ is being often misused as a facade for keeping the drug prices high, if not exorbitant.

According to a contentious study of ‘Tufts University Center for the Study of Drug Development’, the total cost of innovation of a new drug and bringing it to market, has increased more than double from US$ 1.22 billion in 2003 to US$ 2.6 billion in 2014. 

Despite these numbers being vehemently challenged in credible journals, many global pharma majors still keep justifying the high new drug prices on the same old pretext. As a diversionary tactic, they relentlessly argue that innovation has to be adequately rewarded to keep its wheels moving in perpetuity, though no one challenges this basic fact, not even remotely.

The moot questions:

The moot questions, therefore, are: how expensive is the drug innovation and how does the global drug industry establish its relationship with high new drug prices? The answers to these queries must be clear, specific, quantifiable and credible, and not ethereal, if not airy-fairy.

In this context, my article titled, “How Expensive Is Drug Innovation?” found an echo in a globally reputed journal. An analysis published in the BMJ in May 2016 titled, “Propaganda or the cost of innovation? Challenging the high price of new drugs”, expressed deep concern on the rising prices of new medicines. It reiterated that this trend is set to overwhelm health systems around the world.

The above BMJ article also put forth similar questions: “What does it really cost to bring a new medicine to the market, and do these costs justify the high price?”

The authors pointed out that the pharmaceutical market is not actually a “free market” based on supply and demand with minimal government intervention through taxes, subsidies, or regulation. On the contrary, the pharma market is highly manipulated, and not focused on achieving the best prices, or even fair prices for essential and life saving medicines. 

No linear link between high drug price and innovation cost: 

As I discussed this subject in my previous article titled, “Arbitrary Pricing of Essential Drugs Invites State Intervention”, it has been well established by now that there is no linear, or any relationship between high drug prices and cost of drug innovation.  Since long, this argument is being misused just as a façade to keep the cost of medicines high, and making high profits even at the cost of lower sales volume.

The façade has started crumbling:

In India too, the pharma MNCs often use the same façade to keep the prices of also their branded generics much higher than the comparable formulations manufactured by larger domestic pharma manufacturers. However, the façade has started crumbling in many countries, across the world. This gradually increasing general realization is welcoming. 

The Governments in many countries, have now started acting. They are increasingly forcing the drug makers to eye for volume growth, by reducing the fat margin, and improving patients’ access to high-priced drugs.

Just to draw an example, I would quote a very recent development in this area, outside India. On May 20, 2016, the Chinese health authorities announced price cuts of up to two-thirds to three patented drugs, in their latest move to reduce the cost of healthcare for patients. It is noteworthy that this happened in the world’s second-biggest economy, after the United States.

Why is arbitrary drug pricing continuing?

It appears, the only reason for the majority of the drug players to continue keeping the new drug prices high is because they can still make huge money through a small segment of patients who can afford their brands. What about the rest? This doesn’t seem to matter to them, at all, unless compelled to, in various ways.

Need to totally demolish the façade of innovation:

Thus, there is a compelling need is to demolish the façade of innovation, decisively, for keeping medicine prices high.

To move towards this direction, some flickers of a sound possibilities, are now visible in the horizon. The ‘Frugal’ or the ‘Silicon Valley’ type startups for high-tech drug innovation models, especially in the biotech sector, have shown high potential to be a game changer in this area.                                                                

Frugal innovation models for high-tech drugs:

The quest to find a pathway towards this direction continues. Recently, Professor Atul Butte, Director of the University of California Institute of Computational Health Sciences, highlighted that like other Silicon Valley startups, almost anyone can bring a drug to market from their garage with just a computer, the internet, and freely available data. Professor Butte, students, and research staff have already explored various methods and approaches of scientifically utilizing this data in search for new medicines. 

As reported in the May 5, 2016 issue of ‘The Conversation’, Professor Butte outlined this process for an audience of local and international scientists and medics in a talk given at the Science on the Swan conference held in Perth in May 2016.

Professor Butte outlined several models of ‘Frugal Innovation’, especially for new biotech drugs or finding new indications for existing drugs.

A. The search for a new target:

There could be several approaches to the search of a new biotech drug. An example of one such, that Butte’s team is reportedly engaged in, is the construction of a map of how the genetic profiles of people with particular diseases are related to each other. The team looked for diseases with very similar genetic profiles.

Some may argue, this process of discovering other uses of drugs, conventionally termed as “drug repositioning”, is in the strictest sense is not exactly a novel one. They may attempt to establish it by drawing an example from Viagra, which was originally developed for treatment of cardiovascular conditions. However, the major difference is that Viagra’s repositioning for erectile dysfunction is an outcome triggered by its side-effects in patients taking the drug for its original cardiovascular disease treatment. 

B. Desk research and discovery:

The primary desk research can start from the freely available enormous published genetic data, based on thousands of studies on humans, mice and other animals. The publications’ websites are also highly credible, such as, National Institute of Health and the European Molecular Biology Laboratory. Thus, as a result of abundantly available high quality genetic data, the cost of genetic sequencing, using gene chip technologies, is also coming down quite rapidly.                                                                                                 

C. Animal testing:

After the potential drug discovery in the garage, there is a need to test the drugs on animals. 

As Professor Butte suggests, this process also can be made much less expensive. For this purpose, he recommends the internet and the websites, such as, Assay Depot. This site is structured like Amazon, from which a researcher can order an experiment to be carried out to test a drug on a range of animal models, as the report states.

Butte finds this Internet based process very useful for ‘choosing the experiment type the researcher wants, adding it to a shopping cart, paying by credit card and getting the experimental results mailed back in a few weeks’ time.’ Such websites also offer wide choices to the researchers, even regarding the laboratory they would like to use, including the country where the laboratory is located. 

D. Human Trial:

As ‘The Conversation’ article indicates, once a new use for a drug has been shown to work in an animal model, the next step would be to test the drug on human volunteers, get approval for the use of the drug for that condition, and then finally take the drug to market.

This purpose could involve spinning out startups with money from investors. In California, Professor Butte and his students have already followed this process after discovery of new uses for several drugs.

As Professor Butte epitomizes, none of this would be possible without sharing data. The ‘Frugal innovation’ models also highlight, how the growth of availability of open research data will be able to discover a range of uses, that would not have been foreseen, when the individual experiments were being carried out.

Would Big Pharma gobble up these startups?

If ‘Big Pharma’ starts gobbling up these startups paying exorbitant prices, the expectations of lower prices of novel drugs may possibly not come to fruition. Nevertheless, the facade of innovation for high drug prices would crumble. But, surely some other different and well-orchestrated pretext would surface, to maintain their stubbornness to continue with the same business model of very high margin and lesser volume sales, with cash register ringing, as ever.

Here is an example. ‘The Huffington Post’, in an article of May 10, 2016, reported on Big Pharma’s betting on a cancer drug startup.                                                 

The May 2016 article said, the pharmaceutical giant AbbVie acquired a startup named ‘Stemcentrx’ in a deal that values it at as high as US$10 billion.

The startup Stemcentrx has found out a unique approach, though somewhat controversial, for treating several forms of cancer. While most of today’s treatments view cancer as a result of unchecked cell growth, wherein any cell is capable of becoming cancerous, Stemcentrx believes that cancer primarily sprouts from only one cell type: cancer stem cells.

Conclusion:

Be that as it may, hopefully, the evolving models of ‘Frugal innovation’, development and commercialization of high-tech drugs, are expected to be the game changer for quickly bringing a number of new drugs, or existing drugs for new indications to the market, for many disease conditions, at very affordable cost.

Big Pharma may not allow it happen so easily, just for vested interest, but the pressure group must keep a close vigil on this development, and more importantly, must prevail.

Thus, the next frontier of pharma research and development, would possibly shift to small startups of ‘Frugal Innovation’, especially for affordable high-tech drugs, extending their access to the majority of the patients, the world over. 

By: Tapan J. Ray 

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

‘Frugal Innovation’ in Healthcare: Ahoy!

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Patented new products have been the prime growth driver of the research based pharmaceutical companies, the world over. Probably because of this reason the world has seen over a period of time about four different molecules of H2 Blockers and six different molecules of proton pump inhibitors to treat peptic ulcers, nine varieties of statins to treat lipid disorders, ten variants of calcium channel blockers to treat hypertension, three new compounds of similar drugs to address erectile dysfunction and the list could go on. Most of these molecules attained the blockbuster status, backed by cutting edge innovative marketing strategies.

Whether all these patented molecules met significant unmet needs of the patients could well be a contentious point. However, the key point is that all these drugs did help fueling growth of the global pharmaceutical industry very significantly, including our own Indian Pharmaceutical companies, though through immaculate copying during pre-product patent regime of before January, 2005.

Since last few years, because of various reasons, the number of market launch of such patented products has greatly reduced. To add fuel to the fire, 2011-12 will witness patent expiries of many blockbuster drugs, including the top revenue grosser of the world, depleting the growth potential of many large research-based global pharmaceutical companies.

Blockbuster drug ‘Business Model’ is no longer sustainable:

The blockbuster model of growth engine of the innovator companies effectively relies on a limited number of ‘winning horses’ to achieve the business goal and meeting the Wall Street expectations. In 2007, depleting pipeline of the blockbuster drugs hit a new low in the developed markets of the world. It is estimated that around U.S. $ 140 billion of annual turnover from blockbuster drugs will get almost shaved-off due to patent expiry by the year 2016.  IMS reported that in 2010 more than U.S. $ 30 billion was adversely impacted because of patent expiry.  Another set of blockbuster drugs with similar value turnover will go off patent in 2011.  It will not be out of context to mention, that the year before last around U.S. $ 27 billion worth of patented drugs had reportedly gone off-patent.

Decline in R&D productivity with a thin silver lining though:

The decline in R&D productivity has not been due to lack of investments.  It has been reported that between 1993 and 2004, R&D expenditure by the pharmaceutical industry rose from U.S. $ 16 billion to around U.S. $ 40 billion.  However, during the same period the number of applications for New Chemical Entities (NCEs) filed annually to the U.S. FDA grew by just 7%.

It was reported that total global expenditure for pharmaceutical R&D reached U.S. $ 70 billion in 2007 and is estimated to be around U.S $ 90 billion by the end of the year just gone by.  75% of this expenditure was incurred by the U.S alone. It is interesting to note that only 22 NMEs received marketing approval by the US FDA during this period against 53 in 1996, when expenditure was almost less than half of what was incurred in 2007 towards R&D.

The silver linings:

There seem to be following two silver linings in the present scenario, as reported by IMS:

  1. Number of Phase I and Phase II drugs in the pipeline is increasing.
  2. R&D applications for clinical trials in the U.S. rose by 11.6% to a record high of 662 last year.

Funding high cost R&D will be a challenge:

Patent expiry of so many blockbusters during this period will obviously fuel the growth of generic pharmaceutical business, especially in the large developed markets of the world. The market exclusivity for 180 days being given to the first applicant with a paragraph 4 certification in the U.S. is, indeed, a very strong incentive, especially for the generic pharmaceutical companies of India.

In a scenario like this, funding of high cost R&D projects is becoming a real challenge.

Cut in R&D Expenditure has already begun:

Following its acquisition of Wyeth in 2008, Pfizer announced plans to reduce their R&D budget from the US $11 billion to between $8 and $8.5 billion by 2012. Similarly, GSK also announced a reduction of £500 million from its costs by 2012 and half of these costs are from their R&D budget.

As reported by Chemistry World in January 2010, “AstraZeneca announced its plans to reduce around 1800 R&D positions as part of a restructuring process that will see 8000 jobs go as it looks to reduce its costs by $1 billion a year by 2014”.

The time for ‘Frugal Innovation’:

In a new and fast evolving scenario when the erstwhile ‘Blockbuster Drugs Business Model’ with commensurate huge R&D spends does no longer seem to be a practical proposition. Unmet needs in the healthcare space should now be met with cost efficient ‘Frugal Innovation’, which has already dawned in the healthcare space of India.

April 15, 2010 issue of ‘The Economist’ in an article titled, “First break all the rules – The charms of frugal innovation” has described some of health related ‘Frugal Innovations’ as follows:

  • Bangalore Center of General Electric (GE) has come out with a low cost hand-held electrocardiogram (ECG) called ‘Mac 400’, which has reduced the cost of an ECG test to just US $1 per patient.
  • Tata Consultancy Services (TCS) has come out with lower-tech, yet robust, portable and relatively cheap water filter, which uses rice husks to purify water. This water filter could provide even to a large family an abundant supply of bacteria-free water for an initial investment of about US $24 and a recurring expense of about US $4 for a new filter every few months. Tata Chemicals, which is making the devices, is planning to produce 1m over the next year and hopes for an eventual market of 100m.

11th Five Year Plan of India and ‘Frugal Innovation’:

The panel set up for the appraisal of the 11th Five Year Plan of India observed that innovation needs to be “inclusive” and “frugal”.

To accelerate growth of the nation and to meet the unmet needs particularly in healthcare and education, besides others, India needs more ‘frugal innovation’ that produces more ‘frugal cost’ and high quality products and services, quite affordable to the common man of the country.

It also highlighted that a paradigm which bases its assessment of innovativeness on the quantum of expensive inputs deployed, like the numbers of scientists, expenditures on R&D etc. will always tend to produce expensive innovations because the cost of innovation must be recovered in the prices of the products it produces.

The above appraisal report goes on saying:

“This is indeed the dilemma of the ‘innovative’ companies in the pharmaceutical industry. They find it economically difficult to justify development of low cost solutions for ailments that affect poor people.”

‘National Innovation Council’ moots ‘inclusive growth’ through innovation:

To encourage the culture and process of ‘inclusive growth’ through innovation in India, Mr. Sam Pitroda , the Chairman of the ‘National Innovation Council’ had mooted a proposal for creation of a Rs 1,000 Crore corpus in the country, where the Government of India should initially take 10% to 20% share of the corpus and then its equities will be bought by the public. 

Conclusion:

The R&D model of companies like GE and TCS, as mentioned above, are taking the affordability of the common man as a starting point and then working backwards to satisfy unmet needs of the people, just as what Tata Motors did for the ‘Nano Car’ in India.

In an environment of continuous diminishing return from the big ticket R&D expenditure of the global pharmaceutical companies, across the world, I sincerely hope and pray that the world witnesses increasing number of cost effective ‘Frugal Innovation’ in healthcare, including medicines, sooner than later…just for the sake of humanity.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.