Friday, January 19, 2024

Biopharmaceutical And Medical Devices: A General Overview (Conclusions)

Drugs Part I

Drugs Part II

Medical Devices 

Intellectual Property, Regulatory Submissions, Commercialization

Thanks for your patience in this detour from the normal posting I do here.  I had only intended this to be a one post response to a comment; the subject matter as I wrote really required me to address a great deal more than I had originally intended.

A few closing thoughts:

Caveat Lector

The first thing to emphasize is that the past four days are an overview, and a high level overview at that.  As with any regulated industry, there are a great many permutations and sub-categories that such a high level review cannot handle.  If you have more interest, I would highly recommend the US FDA website.  There is a plethora of information there.  And like most things, knowing how your government impacts products you use is always a good thing.

Success Rate

Commenter LibertyNews asked if there were statistics around failure rates of products.  That might be a little hard to analyze as companies are likely to not announce discontinuation of such products (especially for early compounds) .  A rubric I learned long ago which might still prove useful as a guide is

For every 1000 compounds identified, one will move to Non-Clinical testing.

For every 100 compounds that enters Non-Clinical testing, one will move to Clinical Trials.

For every 10 compounds that enter Clinical Trials, one will move to Regulatory Submission.

For every 5 compounds that enter Regulatory Submission, one will be approved.

I do not have similar statistics for Medical Devices.  In some ways they can be less complex, but I imagine the ratio is in the same ballpark.

E.g.  Starting a Drug or Medical Device in no way guarantees a final approved Drug or Medical Device.

Timing and Cost

Another relevant question is "How long does it take to do this?" and "What is the cost?"

Timing varies (as with anything), but in 2022 an article stated it took 10-15 years to get a new Biopharmaceutical from concept to regulatory approval.  The same article lists the cost anywhere from $985 Million to $2.4 Billion, depending on company size, product market, etc.  In the past, I have used the number $1.5 Billion, which seems to fit in nicely

For Medical Devices, I found the time frame of 3-7 years (which seems a bit low to me in some cases). In 2010 a cost study in the same article suggested anywhere from $31 Million for a 510(k) cleared device to $94 Million for a FDA approved device.  This article from 2022 give a number of $522 Million for a complex medical device (probably a Class III).  I would say double the higher amount from 2010 to $188 Million for a lower end these days.

E.g. It takes a long time and a lot of money to develop and get a new Drug or Medical Device approved for commercialization.

Why This Matters

So back to a version of the question posed by FOTB (Friend Of This Blog) Leigh about the contraction of Biopharmaceutical/Medical Device Industry.  To be clear, these are only my thoughts on the matter and not really based in anything but my opinion and observations.

I will start with a general observation:  the industry goes through troughs and peaks, like any other industry.  2008/2009 was a trough.  2023 was a trough.  There is a chance that we are entering a peak period in 2024 if the JP Morgan Conference from this year is any indicator:  Investment firms are reportedly ready to offer investments again as they have made a lot of money and are looking to invest again. On the other hand, what I am seeing in the industry news suggests companies are hunkering down for another year of frugality.  Mixed signals at best, to be sure.

Hopefully from the past four posts, I have conveyed some of the processes and challenges of the industry.  It is time constrained, labor intensive, and finance dependent. 

Most companies follow the same initial process:  An idea is proposed which is able to gain traction and attract initial funding.  Throughout the life of the process, initial funding is sought to continue to develop the idea through development.  Most companies are able to reach a Phase 1 trial for Drugs or a Design Validation for Medical Devices.  But the outcomes of those can be uncertain (much more so for drugs) and a poor clinical outcome can spell the end of the program and possibly the company.

Cash management is something that not all firms, especially new firms, are as attendant to as they should be.  It is very exciting to be a start-up company have all the start-up perks that similar technology companies do.  It is much less exciting to work at a cash constrained company with restrictive budgets early in the process, but one is more likely to product making it to the finish line than the other.

For all the products that crash and burn, of course, there is likely no recourse.  Occasionally there may be a salvageable product or data that may indicate another path forward, but largely a failure is a failure.  The money is gone, the time is gone.  For most single product companies with no approved products, there is no recovery from this.  Layoffs and "focus" will follow and perhaps their assets will be purchased or merged with a more successful company, but more often that not, the result is the same:  the product and the company disappear, only to appear in the resumes of those who worked there.  

Even if a product does make it to commercialization, the challenges do not end.  Reader Shepherd introduced me to the concept of the "Cost Floor" for semiconductors, the cost below which a thing cannot be produced.  To my mind this is another version of the Cost of Goods Sold (COGS), which is the cost of a drug or medical device to be manufactured and produced.  Additionally, the company has spent upwards of $2.5 billion to reach this point as well as covering costs for the other products that did not make it and to cover new research for new products.  They (and their investors) expect that money to be made back.  And with the exclusivity periods in place, they have a limited time to do it before generics come into play.

Insurance companies and the government get involved as well, dictating what they are willing to pay (or what they believe the price should be).  This may or may not be reflective of the actual costs.

Generics can be a great boon to the consumer, but it should be born in mind that generics only replicate existing products; they do not produce innovative ones.  They can product 20 replicants of azithromycin or acetaminophen, but they will not be producing the next generation or anti-biotics or pain relievers (and, by law, if it is generic is has to be within a very close range of the original product.  If it varies by more than a narrow percentage or is in any way different than the original form, fit or function, it is a new product).  Also keep in mind that a great deal of the cost of the original product is tied up in Clinical Trials, something which is required by law to be done - and which generic companies will not do.

A second thought to be born in mind is that higher costs subsidize lower costs elsewhere.  For example, companies can offer diphtheria vaccines or AIDS drugs at a much lower cost than they may charge developed countries - but the cost of that manufacture does not go down because the price charged goes down. That cost has to be made up elsewhere. 

So in a real sense, the cost comes down to cost of the research, cost of the product, cost of the clinical trials, and cost of manufacturing.  But these are not nameless costs:  they are facilities and equipment and people and supplies, both directly involved in the process and indirectly involved in the company (we have not touched on it, but all of the normal business functions - finance, accounting, non-manufacturing purchasing, janitorial service, administrative - have to exist as they do with any company).

The Biopharmaceutical/Medical Device Industry falls into what almost every politician defines as a "good (insert country of choice) job":  generally the pay is good, there are benefits, and involves manufacturing and technical development. It can employ both the highly educated and the high school graduate.  It produces products which genuinely improve human lives.  Likely everyone reading this article knows of a friend or family member whose life was saved or quality of life improved by a Drug or Medical Device.  To counter that, the industry is expensive, time consuming, and more often generates failures than successes.

Is there a model that perhaps prevents this trough/peak outcome?  Hard to say.  Remove the profit motive, and the flow of innovative products may not completely shut down but it will decrease significantly.  Initiate severe enough price controls and companies will shut down production or begin to find ways to accept more risk to cut costs even more (which can look like offshoring).  

Like most things, I suppose, there is no "answer".  There is merely trying to find and address the balance between patients, companies, investors that fund the advancements, and governments that regulate the products and protect patients - while continuing to enable innovative solutions to be discovered.


  1. Nylon125:23 AM

    Reading about success rates and costs really helped to open the eyes this morning, the one below zero temperature isn't helping though. Wait until the pols push this industry from the "good" category into the "bad" category because of "gross profits".

    1. Nylon12, I feel for you - in my own, temperate way: We had a single day in the mid-70's yesterday and are back down to the high 30's this morning. Cold over the weekend, then the rain blows in on Monday (thankfully raising the temperature, if nothing else).

      Timing and cost are numbers I suspect most people have no idea about. They only see the cost at the end, not the cost to get there. Even for a very expensive orphan drug (e.g., limited market) at $200,000 a year for treatment, that is 12,000 treatment years worth of drug to make up the cost, let alone show profit.

      Another item which can rapidly drain revenues are legal suits. Johnson and Johnson, for example, has had more than a few over the years.

      Unlike things like computers and cars, drugs and medical devices are medically necessary (at least some), not just "highly desirable". Destroy the profit motive too much, and companies simply will not manufacture them. In some ways this happens currently: Vaccines are not money makers but are necessary, so those contracts are essentially guaranteed to ensure the vaccines are manufactured.

  2. Thank you for this series of informative posts, setting the scene for activities that will likely affect all of us over time.
    The point about needing to generate sufficient returns I have seen referred to as the reason why so little new antibiotics research is done. Any new antibiotics will almost certainly end up as drugs of last resort to treat otherwise resistant infections, and this by definition will be a limited market without the necessary volume of sales to generate sufficient returns.

    1. Thanks Will! This has been good for me as well, to keep my career chops in order.

      Antibiotics is a great example. The need is significant but due to growing resistance, any new developments would indeed be husbanded and used in extremis. It is a huge challenge and points to the fact that either governments need to fund the work or some other mechanism of profitability needs to be created.

  3. Wow - 10 to 15 years is not what I was expecting for the length of time it takes for a drug to go through the whole development/approval process - even after reading all the posts on this subject. Thank you for taking the time to write about this, TB. It was well done, and worth reading. And I appreciate all the "naming of the costs" you've done.

    A question that came to mind reading this post, is... can a scrapped drug or medical device be picked up by the same company (or a different company) at some later date, if it is recognized that the scrapped product (or process) is a perfect jumping off point for new research? It seems that it should be so, but I wonder if all the regulations get in the way or prevent this from happening.

    Again, thank you for this series!

    1. Thanks Becki! I hope it was useful.

      The short answer is yes, an "abandoned" product can be picked up for new work, assuming the patents are still in place. It becomes more difficult if the patent has passed its dating period, or another company has manufactured a generic.


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