$115bn is the sum of money that will be spent by the global pharmaceutical industry on research and development in 2007. In 2009 this figure is expected to be $148bn. Well, they say that ‘If you have your health, you have everything,’ so I suppose that no sum of money is too great if it keeps us fit.
And yet, of course, we get nothing like $115bn worth of benefit from this massive research effort, because for every five thousand compounds that are tested in the laboratory only one will end up as a marketed drug.
The big obstacle, and the big cost, is the required succession of clinical trials. Setting the standard here is the Food and Drug Administration of the US, whose mission is to protect the public health by assuring the safety of drugs, and by ‘helping to speed innovations.’
Some critics argue that it is more concerned with the former than the latter, on the basis that while it would be pilloried for permitting an unsafe drug, nobody will ever know of all the treatments that might have become available had it not been so strict.
One can hardly blame the FDA, or any other public health authority for straying on the side of caution. But still, were this any other industry, it would surely be far more efficient.
Long, tortuous and inflexible
Take, for example, the fact that approval of a drug also includes approval of the way in which it is manufactured. This means that the manufacturing process cannot be changed. Where pills and medicines are made there are no suggestion boxes inviting employees to offer ideas for speeding the process or cutting unnecessary corners.
Any change in the manufacturing process needs a new FDA approval – and no manufacturer wants to go through that again. Nor, for that matter, is there any incentive to do so because, once approved, drugs are protected by patents that shield their manufacturers from the sort of competition that drives down prices in just about every other consumer product industry.
Much of the cost of drug development is incurred in the tortuous process of clinical trials. In order to bring a drug to market, a firm must first conduct pre-clinical trials on animals. Next, in phase I, a small number of healthy volunteers are tested in order to establish safe doses and to gather information on the compound.
In phase II, 100-300 individuals with the disease are selected in order to determine safety and efficacy. Phase III repeats phase II, but instead uses a sample of 1000 to 3000 individuals and examines the long run health effects of the drug as well.
Needless to say, this all takes time – on average about seven and a half years. There is no knowing whether a drug compound will successfully complete all these trials. And, even if it does, it will not necessarily be 100% effective.
Each year over 100,000 Americans die from adverse reactions to drugs. But still the whole process could be vastly improved if it could be made shorter, partly because over half of the $1bn cost of taking a drug compund from phase 1 trials to approval is simply the cost of the capital involved in financing the effort.
This is the background to last week’s suggestion by Dr Colin Blakemore that patients should be used in clinical trials that would formerly have been conducted on animals. He also said that drugs should not need to be shown to work on tens of thousands of patients before being approved for prescription.
Except for animal rights campaigners, most of us would be shocked at the notion that drugs should be tested on human guinea pigs, or should be prescribed without the most thorough of tests. But Dr Blakemore is the outgoing chief executive of the Medical Research Council and is certainly no crank.
Meanwhile back on the stock market a number of small companies are trying in different ways to improve the efficiency of the pharmaceutical industry.
One to watch
One of these is Synexus Clinical Research. Although its shares have not been a great success in their brief career on AIM, it is difficult to fault the company’s proposition. One reason why the trials process is so inefficient concerns the business of recruiting patients on whom new drugs can be tested. This is generally done by asking General Practitioners to identify patients.
According to Synexus the average cost of opening a new GP site to a global pharmaceutical companies is between $25,000 and $37,000 – and yet 40% of these will only ever recruit one patient. And 60%of GP sites will only ever carry out one trial, finding the whole process too onerous. So the average number of patients recruited per sit across all trials is less than five.
Synexus is taking over the job of patient recruitment and the conduct of trial from GPs, and effectively scaling up what has been if not a cottage industry, rather a doctor’s surgery industry.
It has created a series of ‘Super Hubs’ both in the UK and overseas, from which it can quickly recruit large numbers of patients and present them, and the rsults of trials, to the drug companies.
Last year Synexus recruited over 3,000 patients for new studies and although delays to drug trials - the timetable of which is out of the control of Synexus - caused a setback to the share price earlier this year, this is still a company that seems to be doing something genuinely useful.
That is usually one of the foundations of a successful business. It is certainly one of the things I look for in the companies that I tip in Red Hot Penny Shares.
Regards,
Tom Bulford
for The Penny Sleuth
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