Investors are constantly asking entrepreneurs when profits will materialize so they can begin accurately calculating their return on investment. In device, tool, and diagnostic companies, these calculations are relatively straightforward. But for therapy companies there is an elephant in the room that is often mentally downsized or ignored.
Therapy companies, including genomic and proteomic firms, may have good intellectual property, excellent science and management, and committed investors to buttress their business plans. When investment calculations are made to raise the first or second round of capital, amounts of between $5 million and $100 million are often envisioned and raised. But how accurately does that range reflect the cost of developing new drugs for the market?
Industry figures estimate that it costs at least $500 million over 15 years to take a drug to market. These figures include the cost of failures, which makes the drug approval process pricey: Consider that roughly one in 5,000 laboratory-tested drug candidates for humans makes it to clinical trials, and just one out of every five of them goes on to win regulatory approval.
How many business plans, which often show a pipeline of five to10 drug candidates, have realistic financing plans to approach this costly process? How do we in the biotech business think our 2,000 companies with 10 promising pipeline drugs apiece are going to raise the aggregate $10 trillion of capital to finance this pipeline?
There are various ways to deal with the elephant: Sell the company or drug candidate during preclinical or clinical trials; launch a huge, well-timed IPO to finance clinical trials; form a joint venture with big pharma to cover clinical trial costs; or just ignore it.
Most calculations of cost-to-market for new drugs are based on the one-size-fits-all paradigm. Yet, genomic companies are touting personalized medicine and the concept of tailoring the drug to fit increasingly smaller subsets of patients, down even to individual SNPs. This obviously drives out an increasingly smaller marketplace for the product sales and a lower return on investment. How does the investor reconcile $500 million per drug with personalized medicine?
Because a large majority of drug development costs are directly due to costs secondary to Food and Drug Administration regulations, the industry must critically examine the necessity of each element of these costs. Congress formulated these regulations for the safety of patients in the early 1990s and for proof of efficacy in the 1960s based on the paradigm of a one-size-fits-all marketplace. None of this fits with the concept of personalized, genomic-based drug development. It is time for companies and their investors to take a serious look at these regulations and do some reality testing.
Genomic-based biological drugs are simply not analogous to chemicals being developed as drugs. Genomic-based product are part of our innate biological communication system and as such they are much more specific and less toxic than off-the-shelf chemicals. It is time to change the regulatory paradigm so that entrepreneurs and their investors can truly predict returns on their investments.
Continuing to ignore the elephant in the room will lead to expensive lessons for companies and investors. An important benefit from the process will be less expensive drugs that are more effective and less toxic for patients.
Robert Oldham is CEO of Cancer Therapeutics of Augusta, Ga. He can be reached at [email protected]
Trendspotter is a weekly column that focuses on how trends in politics, patent law and the US and European markets will affect the genomics industry. The column appears every Friday.
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