Download From the Memphis Business Journal 12-20-04

From the Memphis Business Journal 12-20-04
Miracle meds
Biotech drugs can change lives, but costs are staggering
Scott Shepard
Published: December 20, 2004
-----------------------------------------------------------The next 10 years will see the introduction of new medications so amazing they will
make the 1941 introduction of antibiotics seem quaint. Already on the market are
drugs that can reverse arthritis and treat cancer with a daily pill and minimal
side effects.
The FDA has at least 195 biotech drugs in the late stages of clinical development
and another 750 in earlier stages, according to the Medco Drug Trend Report 2004,
so within a few years medicines ought to be available to do such things as
stimulate the growth of a heart bypass.
In the pipeline are 178 biotech drugs for cancer treatment, 47 biotech drugs for
infectious diseases, 26 for auto- immune diseases and 21 biotech drugs for
HIV/AIDS.
Other drugs will use the body's own healing mechanisms to regenerate tissue;
restoring kidneys, livers and even the pancreatic cells that produce insulin. Known
by orthopedic surgeons as "magic dust" is the Infuse product owned by Medtronic
Sofamor Danek. Containing the genetically engineered version of a protein that
initiates bone growth, sprinkle the magic dust on a damaged vertebra, and it grows
back like new.
In Memphis biotech has mostly been spoken of from the perspective of economic
development. It's pitched as an industry Memphis already has an advantage in -particularly in the realms of cancer, vision and orthopedics.
But biotech medicine will also change the face of health care, extending lives and
making those longer lives better. All at staggering costs.
"A lot of the biotech biologics are very expensive to make," says urologist Mitch
Steiner, CEO of GTx, Inc. "Small molecule drugs are cheap to make, say $.10 a
tablet, but biologics are very expensive. They require live cells, and you have to
purify the proteins and keep them active. FDA requires tests for sterility so there
are no contaminations."
GTx is a home-grown biotech company spun out of Steiner's research at the
University of Tennessee Health Science Center. The company staged a successful IPO
in early 2004 and hopes to launch its first drug in 2005.
Small molecule drugs are those made from chemicals. Once the R&D is done, mixing
the chemicals and stamping out pills costs next to nothing, and they usually remain
chemically stable for years. Biologic drugs meld chemistry with living materials;
keeping them viable requires an expensive life-support system making the entire
process inherently expensive.
For every drug that reaches the market there are nine dead ends to be paid for.
"It costs a billion dollars to bring one drug to market, and somehow you have to
pay for the other nine, and you can spend hundreds of million on an unsuccessful
drug," Steiner says.
Drugs may only seem to cost more because the other costs of medical care are mostly
invisible. Business professor Frank Lichtenberg of Columbia University has compared
the actual costs and determined that $1 spent on drugs saves $3.65 in hospital
costs.
Biologics also have another cost burden, the boutique factor. Many biologic drugs
are carefully tailored to specific ailments with limited applications. The drugs
can conduct surgical strikes on specific cells, but the fewer people with the
disease, the higher the price to treat it.
"These are usually drugs that go after groups the traditional Big Pharma companies
have passed over because they're too small," Steiner says. "If you only have 1,000
patients, you still have to spend the same amount as if it were a blockbuster drug
with 400,000 patients. That 1,000 has to pick up all the costs."
At St. Jude Children's Research Hospital they've been addressing small markets from
the beginning. Childhood cancers are different from those that adults develop, and
they are very rare to begin with; once patients are sorted out each category is
microscopic compared to the population.
The sudden availability of narrowly targeted biologic drugs will dovetail with the
St. Jude model.
"Over the last 20 years we've developed models that represent virtually all
childhood cancers, and have the cancers themselves transplanted into animals so
it's very predictive," says molecular pharmacologist Peter Houghton. "There are
potentially 400 new drugs out there for cancer, but none of these were developed
for children. Our new program will hopefully evaluate 12-15 new drugs a year, and
based on the results we may be able to prioritize which agents can be useful in
trials for children."
St. Jude's primary funding sources -- donations and government grants --fit this
approach; a scientist with a good idea worth exploring can pitch the NIH for a
research grant. As St. Jude refines the protocols, they can be transferred to more
traditional settings.
But in many cases biologic drugs represent costs that current forms of health
insurance were never designed to bear, says Terry Shea, director of Pharmacy
Services at Blue Cross Blue Shield of Tennessee, Inc. "The normal three-tier drug
benefit where the member pays a fixed co-pay is not designed for drugs with monthly
costs exceeding a couple hundred dollars," he says.
Now emerging are specialty pharmacy providers to help manage care plans come up
with utilization criteria for high-dollar drugs. People in the next few years can
expect a process of prior approval and other brakes on utilization.
One likely outcome is a biotech rider on insurance policies, where a person pays
extra for access to these super drugs. Otherwise they get traditional therapies.
Cyril Chang, a health care economist at the University of Memphis, foresees the day
when these expensive biologic drugs may only be available in the U.S. When small
molecule tablets cost a dime to replicate, drug companies can tolerate price
controls in Canada even though they don't pay their fair share of the innovation
cost. It's an entirely new situation when the break-even cost is $1,000 a pill and
Canada wants to set the price at $35.
"Biotech is where the majority of innovation is taking place," Steiner says. "A
little of that happens in Japan and a few countries in Europe, but it's the United
States that is really making it happen. The rest of the world depends on us."