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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

In the Pipeline

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August 5, 2009

Just Give It to NIH

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Posted by Derek

I know that many people are getting tired of this topic. But many people who work in the industry have never met someone who's convinced that drug companies are just standing in the way of innovation, and that all the good stuff comes from the NIH, anyway. So allow me a couple of quick quotes from Dr. Jerry Avorn, chief of pharmacoepidemiology at Boston's Brigham and Women's Hospital, and (thus) a person who should know better:

". . .Virtually every progressive recommendation about health policy for the last 20 or 30 years that the drug industry felt might harm its bottom line has been met by the threat that if they don't make as much money before, innovation will cease and there will be no cures for new diseases. It came up around Medicare drug pricing and generic drugs. It's not a surprise to see it come up around health-care reform.

There are a couple reasons that this is a specious argument. One is that according to their filings with the SEC, the drug companies only spend about 15 cents of every dollar on research and development. That's compared to more than 30 cents in administration and marketing and more than 20 cents on shareholder equity. As an investment in R&D, I think any venture capitalist would say a company spending 15 percent on research is not a robust innovation engine.

The second issue is that if one looks at the new pipeline of drugs that Pharma has been generating in recent years, it's been puny. Wall Street has noticed this as well. There have been 20 or fewer drugs approved by FDA in recent years, which is lower than in past periods. It's sort of an open secret that innovation isn't working that efficiently.

The third leg of the stool is that if you really trace back where the seminal discoveries come from on which new drugs are based, it is federally supported research, usually funded by the National Institute of Health, and frequently conducted at universities or academic medical centers. The drug companies will then identify these discoveries and do hard, costly, and important work commercializing them. And they deserve compensation for that work. But it's disingenuous for them to imply that all the discoveries occur in their walls.. . ."

Read the rest of the interview if you want to hear how we'd all be better off if everything turned into biotech start-ups. But you say that you thought those were companies, too, and weren't funded by NIH money, but rather by investors who are often hoping for a deal with a big drug company? Adjust your thinking! This last quote should help you:

". . .if we want innovation and scientific discovery we should fund innovation and scientific discovery, not go after it bass-ackwards by paying too much for overpriced drugs and hoping that some of the excess profit will trickle down into innovative research. If I'm right that a lot of the important and useful innovation comes from NIH studies, then the way to get more innovation is to fund innovation. It frankly would be a far more interesting use of any given dollar one wanted to spend. . ."

Megan McArdle has done the work of attacking this at greater length than I can right now, and her post is a good palate-cleaning read after the Avorn interview. One tiny point she brings up that Dr. Avorn might want to internalize is that 15% is actually quite a large percentage of R&D spending. Apple spends 3%, and Google, 10%. Intel manages to get all the way up to 15%. At any rate, the whole post is worth reading, and was clearly written in a mood of complete exasperation. Which I share.

Comments (31) + TrackBacks (0) | Category: Academia (vs. Industry) | Drug Prices


COMMENTS

1. Hap on August 5, 2009 12:49 PM writes...

1) Merck had $23.9e9 in sales in 2008. NIH's 2009 budget request is $29e9. You'd figure with that much money, they could discover and commercialize/release for generic manufacture a bunch of drugs - after all, they're doing it already, right? So, where's the list?

2) Isn't the idea that NIH is developing drugs for pharma inconsistent with pharma's lower production of candidates (particularly with NIH's funding doubling about ten years ago and the increased funding now)? Shouldn't one expect more rather than fewer candidates if NIH research is facilitating drug discovery?

3) With $29b/yr, you wouldn't figure they'd need more money, but that's human nature, I guess.

I'm sure there's stuff I'm missing. NIH obviously does a lot of useful things - I just don't see that one of them is drug discovery.

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2. Fred on August 5, 2009 12:53 PM writes...

One thing that has always struck me about this cluelessness; if all the useful innovation comes from NIH and the new pipeline of drugs is "puny", shouldn't NIH be blamed for that, not pharma?


I would really like to see some of these "experts" propose a significant increase in NIH budget that is tied to clear milestones for producing actual drugs. There is a lot of people in academia that would cheer the first part, but would scream bloody murder about the second part.

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3. KN on August 5, 2009 1:33 PM writes...

Much of the R&D spending is for clinical studies which don't require alot of innovation but are crucial for drug development. They are also a large gamble which the NIH doesn’t want to spend their $ on.

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4. Jonathan on August 5, 2009 1:34 PM writes...

"Read the rest of the interview if you want to hear how we'd all be better off if everything turned into biotech start-ups"

Since that's currently the pharmaceutical industry's answer to their bare pipelines, I'd say he got the idea from you lot.

"I'm sure there's stuff I'm missing. NIH obviously does a lot of useful things - I just don't see that one of them is drug discovery."

This attitude really fucking annoys me. For a start, without NIH funding how many scientists working for pharma wouldn't even have been trained in the first place? You certainly wouldn't have a fraction of the foundational knowledge upon which to build your applied research. And industry is doing fuck nothing for rare and neglected diseases; I guess the proof of the pudding is going to be seeing how TRND turns out over the course of the next few years. Someone's going to be eating crow, the question is will they be working for the NIH or big pharma.

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5. Lucifer on August 5, 2009 1:44 PM writes...

Derek,

People are questioning the power of gods (big pharma) because they have failed to deliver on their promises (innovative drugs for diseases) for the last 20 years.

They just want a new god that can deliver.


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6. VC on August 5, 2009 1:49 PM writes...

Also if he mentions Biotech Venture Capital as the great innovator it is, he should consider that Big Pharma is a big part of it, providing one of the main exit routes (especially right now during the crisis) and thus most of the funds that go into it.

Generally I would say both NIH and Big Pharma have the right to exist because both fulfill important and complementary roles.

The more players there are in the innovation market the better.

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7. Hap on August 5, 2009 2:25 PM writes...

Jonathan - if you're training people to do drug discovery, would you expect them to discover drugs? That's what people seem to be claiming credit for them, but which their output seems to indicate that they don't do. Also, if NIH were doing drug discovery, neglected diseases would be the place, because the research wouldn't step on any toes - but it hasn't really done a lot there either. That seems to indicate that NIH really doesn't develop drugs, and crediting them with doing so is inaccurate.

Why is it annoying to posit that NIH isn't doing drug discovery? They train people in foundational science, and fund the acquisition of skills and knowledge that would be time-consuming and expensive to acquire and for which no individual employer has the incentive to fund. They make sure that much of it is available for all to use, and help to generate a set of people who can help people to save lives and make money using it. (I was funded in part by an NIH training grant). But that isn't drug discovery, and it shouldn't be treated as such.

The concept that pharma is a free rider on the skills funded by NIH would be valid had that not been much of their reason to exist - that's why NIH gets the lots of money it gets. Isn't that why people fund research in the first place - you can't say "we'll find a cure for cancer and lights that draw no power and never go out" (and be accurate), but you can train people to know how to do research, start companies, and make drugs. The jobs and training are the things you can provide reliably and which directly benefit lots of people. The knowledge is the key, but you don't know what you'll find, so you can't promise anything. All these purposes help for-profit companies, but that's their point.

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8. Mr. Gunn on August 5, 2009 3:02 PM writes...

I agree that the first points about a "puny" pipeline are rather specious, but the overall point is that trained and intelligent researchers are required before any development can occur, be it in academia or industry.

The route seems to me to be like this: academic research -> startup -> acquisition -> development and commercialization.

clearly, a balance is required because you don't want 18 different "me-too" drugs and you don't want to make decisions that cut off the roots from which commercially successful developments arise, but you also don't want to have tons of valuable IP piling up with no recovery of the R&D expenditure by the public in terms of new therapies. Kinda seems to me like we're more in "me-too" territory than in "valuable IP going to waste" territory. Do you have any data that argues otherwise?

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9. rpl on August 5, 2009 4:12 PM writes...

I'm surprised to learn that administration *and* marketing only amount to 30%. The last university I worked at had an overhead loading for grants of 0.6, which works out to about 37%, if the grant is 100% for labor (less if there were large equipment purchases or a lot of travel). By that standard, pharma companies would seem to compare rather favorably. Has anyone asked Dr. Avorn what the overhead rate at *his* institution is?

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10. milkshake on August 5, 2009 4:18 PM writes...

problem is not with me-too drugs but with the blockbuster mentality and pernicious effects big pharma management has on research productivity. The main difficulty with the system is that the cost of entry (clinical trials and approval process) is so high that a small but excellent company can hardly make it on its own all the way to the market and grow on the success of its research excellence without being swallowed up by a big company with moribund research and imbecile management.

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11. MTK on August 5, 2009 4:23 PM writes...

Jerry Avron displays unbelievable ignorance from the very first paragraph when he says he's not surprised that Big Pharma is using the same argument against health care reform.

Uh, Jerry...in case you didn't know, PhaRMA supports Obama-care and is actively lobbying for it's passage. In fact, that's one of the main arguments by ultra-liberals against health care reform: "If Pharma is for it, it must be good for them, so therefore bad for us."

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12. Anonymous on August 5, 2009 4:32 PM writes...

"That's what people seem to be claiming credit for them, but which their output seems to indicate that they don't do. Also, if NIH were doing drug discovery, neglected diseases would be the place, because the research wouldn't step on any toes - but it hasn't really done a lot there either. That seems to indicate that NIH really doesn't develop drugs, and crediting them with doing so is inaccurate."

You mean like how the NIH has launched the Therapeutics for Rare and Neglected Disease Program?

http://www.genome.gov/27531965

As I said, we'll have to give it a few years.

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13. Joanthan on August 5, 2009 4:34 PM writes...

Oops, that last comment was me btw.

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14. Jonathan on August 5, 2009 4:34 PM writes...

Oops, that last comment was me btw.

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15. Palo on August 5, 2009 4:46 PM writes...

15% is actually quite a large percentage of R&D spending. Apple spends 3%

Well, it's certainly different for a company whose profucts have a manufacturing cost that is 100+ times that of Pharma. For Apple to sell a computer at $1,000, it has to spend more than $750 in parts. The profit margin per unit is small. That is not the case for pharma, where by far, by far, the cost of the final product is the R&D (or so we are told by you and Pharma fans).
Also, I don't know where the 3% number comes from, but I found completely different ones (http://seekingalpha.com/article/69148-it-s-all-about-apple-s-r-d)

Permalink to Comment

16. milkshake on August 5, 2009 5:16 PM writes...

right, the biologicals can be rather expensive to make but with a small molecule synthetic drug the cost of making the active ingredient and turning it into pill is pennies per dose. A better comparison would be with software industry. A software company that spends just 15% of their money on writing and testing their code would be some kind of a Redmond Monster

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17. TW Andrews on August 5, 2009 6:15 PM writes...

One of the things that Megan's blog reminded me of is that the participants in this argument really do have asymetrical information.

The substantial majority of researchers in Pharma have a pretty good idea of what happens in academia, because largely, they've been there. Industry doesn't give out post-graduate degrees, and all those Ph.Ds have to come from somewhere.

In contrast, I think only a tiny fraction of academics have ever worked in a professional research organization, and it tends to be pretty obvious when they talk about what happens there.

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18. MTK on August 5, 2009 6:18 PM writes...

Jonathan,

The link you provided regarding the Therapeutics for Rare and Neglected Diseases specifically states that the program is intended to take drug candidates to IND.

"TRND's aim will be to move candidate drugs forward in the drug development pipeline until they meet Food and Drug Administration (FDA) requirements for an Investigational New Drug (IND) application. Once TRND generates enough data to support an IND application for a candidate drug, the drug would then be handed off to an experienced organization outside of NIH, such as a pharmaceutical company, for human testing and other aspects of clinical development."

So yeah, I'd say that NIH doesn't develop drugs.

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19. ChristianK on August 5, 2009 7:22 PM writes...

What the source for the google number?

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20. SRC on August 5, 2009 8:34 PM writes...

The operative word in your quote, Derek, is the third one. Hardly necessary to read any further to know what was coming: pig ignorance. And Avorn did not disappoint.

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21. Anonymous on August 5, 2009 11:11 PM writes...

Is it open season on pharma companies at the moment? There was a recent article by Johann Hari in the British newspaper 'the Independent' trotting out something similar:

"Most of the work carried out by scientists to bring a drug to your local pharmacist and into your lungs, or stomach, or bowels is done in government-funded university labs, paid for by your taxes.

Drug companies usually come in late in the process of development, and pay for part of the expensive, but largely uncreative final stages, like buying some of the chemicals and trials that are needed."

Nice to know that all medchem can be described as 'buying some of the chemicals'.

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22. RB Woodweird on August 6, 2009 7:28 AM writes...

What is it? Strawman Day? Overmedicated Overreaction Day? I missed the memo.

Avorn is wrong that the University of Merck can do it all, but his basic points seem to go unrefuted:

Mention drug pricing, and the pharma guns roll out.

There should be a linear relationship between results and R&D spending within some limits. Are those limits 0 to 15%?

The pipeline is slowed to a trickle compared to previous decades. Is this some natural limit reached, or is pharma beating an old business model to death?

Seminal discoveries in academia vs industry? Seems reasonable to me. I have sold a lot of reagents to all the big players over the years, and the division has always been that academia bought materials for basic research and pharma bought a lot of materials for ADME and other big scale activities.

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23. processchemist on August 6, 2009 7:39 AM writes...

In my limited, personal expericence, all the few times that I've been involved in projects originating from academia I struggled with messy syntheses (in the best case) of improbable lead/candidates. As far as I know none of them hit the market and only one landed to a Phase I.
No friend of mine in academia knows something about "translational research". Most of them understand that is not their line of work to turn basic research into practical applications/products.

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24. Hap on August 6, 2009 7:57 AM writes...

1) I don't know why it's reasonable to expect a linear return for research investment - if the return on money decreases with spending, then companies and people are less likely to invest, but return on investment could be greater than linear.

2) The business model for pharma is not working, but lots of business models seem to be doing that lately. If NIH is the alternative for drug discovery, then the alternative doesn't appear to be an improvement - you'd have to find drugs (rather than leads or candidates) to do that. NIH is good at some things, but not hard-core drug development.

3) Software development might be a more appropriate analogy to drug development (in terms of the relation between cost of goods and cost of product) - the cost of goods for software is essentially zero ($1-$10 for packaging and CDs/DVDs), so all you're paying for is the research investment to write it, which is substantial. You can get free software because of that (no cost of goods, and the people are doing the research for nonmonetary reasons). On the other hand, most software specifically eschews high-risk, life-and-death situational usage, which is what (at least some) drugs are designed for (and those that are not are still in high-risk situations) - so software doesn't have the safety expenses that pharma does, and the resultant goods expenses.

If someone has a better model to run pharma to make drugs, than I'm sure the Dems would be willing to fund it. If someone want to make money in pharma and has a better way, I'm sure VCs or drug companies will probably fund it. The "NIH discovers lots of drugs for pharma" theme seems to come out when someone wants drugs for cheap - but it seems to be the wrong argument for that in so many ways that it's hard to take the people using this argument seriously, even if one can understand what they want.

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25. rpl on August 6, 2009 8:14 AM writes...

Anonymous #21, the reaction against pharma makes a lot more sense in the context of the larger debate over health care reform. The argument is really about whether we can wring profits out of the system and still expect to get advancements in medicines and treatments. One school of thought regards profits as a form of waste and contends that we can reduce costs by eliminating them. Since eliminating profits would also eliminate private investment in medical R&D, adherents to this line of thinking have to argue that government research programs could perform just as well as the ones in private industry. Therefore, they claim that the pharmaceutical industry is bloated and not very innovative anyhow, while NIH programs are lean and make most of the real discoveries.

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26. milkshake on August 6, 2009 8:29 AM writes...

The whole discussion whether the drug innovation should be government run or be completely left alone to the industry in on wrong track.

Far more serious problem is the ease of entry for a new player, and hence the huge advantage of the big established companies. Running clinical trials and the regulatory burden and the drug marketing system in US present such a huge entry barrier that small players have difficulty surviving on their own even when they have excellent and potentially profitable research - the better prospects they have, the more likely they will be bought up and strangled in the cradle. Academia usually does not run development of clinical candidates because it cannot afford to do chronic toxicities and metabolic studies in primates, not mentioning the cost of the actual clinical trials.

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27. MedChem on August 6, 2009 2:49 PM writes...

"..Drug companies usually come in late in the process of development, and pay for part of the expensive, but largely uncreative final stages, like buying some of the chemicals and trials that are needed."

This was so ignorantly funny that it cracked me up big time. This Johann Hari character needs serious help.

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28. Art on August 8, 2009 5:19 PM writes...

I discovered this blog and it brought out that deeply embeded rant. Drug companies are the worst burglers on the planet. Here is just a tiny fraction of their game. If you are diagnosed, let's say, with kidney cancer. You will be sent of to the oncologist. If it is in stage 4, you will be given a choice of two drugs. Neither of the drugs will give you more than a 10% chance of survival. The flip side is a 90% chance that you will not survive. And the cost for those drugs will be extremely high. Here's the kicker. If the oncologist discovered that an apple a day keeps cancer away, he cannot tell you. In fact, he would be liable for telling you. The law says, he can prescribe either of those two drugs, but nothing else. And who do you think benefits from that little omission? That's right, the drug hawkers. Worst of all, they do it with the help of congress, who have the lobbyists in their ear.

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29. Ben Hemmens on August 10, 2009 4:03 AM writes...

Look, I derive some of my income from big pharma and I appreciate what you're saying.

But the other side of the coin is how your health system is working in the USA - which is, not in any civilized way; and not actually promoting the health of the population.

I don't see how Americans can tolerate one moment longer having tens of millions of people uninsured. I don't see how anyone can tolerate paying 15, 20 thousand dollars a year for insurance, and then being refused treatments that should actually cost a fraction of the premiums they pay. This is simply outrageously unjust, and it's on the verge of seriously destabilizing your society. And it makes a nonsense of producing more cooler medicines, because the ones we have are simultaneously a) not getting to large numbers of people who need them and b) being given to other large numbers of people in greater quantities than is good for them. How is that supposed to increase public support for research?

I'll offer a prophecy: decent health care is one of the few things left that the rest of the world still envies "the west" for. Both the US and Europe have their pressing issues to solve in trying to make it sustainable, but if we don't, then the few decades in which it has existed across large parts of Europe and North America will become a footnote in history. Nobody will have any reason left to be interested in our supposedly superior "open society" way of doing politics. And we won't have any research left either.

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30. red rabbit on August 15, 2009 12:47 PM writes...

Hey Art, paranoid much?

Of course a doc will tell you if something, anything, will help. Stop smoking! Exercise more! Don't eat fast food!

Omega-3 prevents cardiovascular complications as well as any statin studied to date (no advertising budget, but true anyhow).

Other than that, nope, no magic bullets. Sadly. Pharma pulls some dirty tricks, but we keep them around because they do the job.

I've always been under the impression that yes, most basic research leading to drug discovery is done in universities, but also yes, many of these researchers are toiling under a grant from *insert evil company name here.* So again, big pharma funding basic research leading to drug discovery, I buy in.

I just discovered this blog, too, and I find it a little on the shill-y side, but informative. As Arnie said, I'll be back.

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31. Amiatbh Bachan on July 30, 2014 2:00 PM writes...

Thanks

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