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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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August 20, 2010

Going Hollywood

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Posted by Derek

A reader at one of the big pharma companies sends along this note:

. . .Over my 10 years or so of experience, I have seen a severe decline in risk tolerance at my company, and other large companies as well. When we put a project forward, we are told that either: (a) There are too many unknowns, the target is not well established, and therefore the risk in putting forward the large sums of money required for development are too high; or (b) There are too many other players in the market already and we would never be able to capture enough market share to justify the investment required to go forward. The band considered acceptable in the risk/benefit spectrum has become so narrow that it is like threading a needle with your feet.

I believe that this risk aversion is due to the escalating cost of developing new drugs. Big Pharma has invested such a tremendous amount of money into the infrastructure they deemed necessary to increase project turnaround time that any drug that hoes forward has to be seen as a guaranteed blockbuster or it is considered a failure.

Film buff that I am, I use a Big Studio Production vs. Independent Film analogy when I discuss this with people outside the profession. For example, the film Avatar cost about 300 million to make. That means that if it brings in a mere 50 million in ticket sales, it is a catastrophic failure for the studio. Paranormal Activity on the other hand cost a few tens of thousands of dollars to make. Bringing in 50 million dollars in ticket sales would exceed the filmmakers wildest dreams of avarice.

The end result is that the Big Studio has to KNOW that Avatar will bring in greater than 300 million dollars in ticket sales or it cannot take the risk. Therefore only tried and true box office magic directors like James Cameron are given the opportunity to work at that level. On the other end of the spectrum, an independent film distribution company is willing to take on a high risk project like Paranormal Activity because even a failure will not destroy the comany, and the rewards of success (even if moderate by Big Studio standards) is very high.

So, has Big Pharma doomed itself by massively inflating its drug discovery infrastructure in a misguided attempt to stregnthed its pipeline (which was clearly a failure)? Or is it the regulatory agencies that require such vast and expensive trials that are the cause of this risk aversion? Is there a solution?

Well, the Hollywood analogy has been made before, but that's because it's a pretty good one. There are a few places where it breaks down, though. Some of these are unfavorable to the drug business:

1. Copyright. It lasts a lot longer than patent rights. I think that copyright has been extended to ridiculous levels in the US, but it's always been significantly longer than patent terms. So a studio has a much longer time to makes its money back.

2. Regulatory affairs. There's no FDA approval process for a new film. You think it up, you get it shot and produced, you release it, and good luck to you. The drug industry hasn't worked that way since the 1930s.

3. Cycle time. It takes a lot longer to get a drug project through than it takes to get a movie done. And since time is most definitely money, this hurts.

4. Toxicity and liability. While it's true that a bad film might make you feel sick, it's not going to lead to anything actionable in court. Bad news on a new drug's side effects or performance most definitely will, though. And how.

5. Costs and benefits. A movie, from the consumer's standpoint, is a momentary purchase, made with a small amount of discretionary income. If it delivers, great - if not, no harm done, other than some wasted time and a bit of cash. Drugs, of course, are a much more high-stakes business, both in their pricing and in their utility. And they affect a person's health, which is about as fundamental a thing as you can mess with, and moves any transaction up into a whole new spotlight.

On the other hand, there are some problems that the studios face that we don't:

1. Limits of copyright. While copyright goes on next to forever, it's still easy to move a new film or book right up next to an existing work. Movies get ripped off much more quickly than drugs can be, and often more blatantly. That shorter cycle time cuts both ways.

2. Easier copying. You can find pirated versions of first-run movies pretty quickly - they're not always great, but there's a market. Lots of free stuff gets tossed around in digital formats, too. Drugs are much harder to truly copy, and an inferior version is much, much less attractive.

3. Fashion. An antihypertensive drug from thirty years ago doesn't wear funny-looking retro clothes or pick up a mobile phone the size of a loaf of bread. It lowers your blood pressure, same as always. There may be better ones around now, but it'll still work exactly as it did when it came on the market.

All that said, I think that the key point here is that there's no equivalent in the drug industry to indie filmmaking, which is too bad. Our fixed costs are much, much, higher due to the field we operate in - human health and the regulations around it. My question is - is there any way to bring these down? Of course, that's what everyone in the business has been asking for some time now.

Because if we can't, we're going to see even more of the behavior that my correspondent noted. Risk aversion, I might add, can be fatal to research-driven companies. Our whole business is founded on taking risks, and if the costs are pushing us to deny that, we have a huge conflict right at the center of the whole enterprise. . .

And yeah, I realize that this doesn't help too much with the "less depressing" promise I made for this week!

Comments (36) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices | Regulatory Affairs


COMMENTS

1. Mark on August 20, 2010 10:08 AM writes...

I've heard this analogy over and over again from the non-science types on the commercial side. I think they pick it up from reading Pisano's book "Science Business: The Promise, the Reality, and the Future of Biotech".

It's not a bad analogy, but as Derek pointed out, I think it misses some key points.

Mark

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2. Hap on August 20, 2010 10:19 AM writes...

Even if some of the costs of the are inflated, the costs of trials are still really big, and based on the risk-averseness of the FDA and the lawsuit-averseness of pharma, I don't see how they can get smaller (unless there is some sort of significant biomarker validation which allow trials to be performed more easily on scale).

While smaller companies are closer to indie filmmakers than the big ones, their drugs still need to have the same trial data to get through, since people don't care what the size of the company that makes their drug is, just that it works or does what it says. Trial costs make little companies look more like substudios (because they most likely have to go through a larger pharma company to get their drug to market) than independents.

Nope. Still not helping.

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3. John Spevacek on August 20, 2010 10:34 AM writes...

Let me extend the analogy a little by looking back 50 years when the Hollywood Studios were vertically integrated and had everybody - directors, actors,...all on contract. They kept them working since they were fixed costs.

Studios are now "dealmakers" bringing the various independent parties together. Could this be the future model for pharma? Not that every individual person would be negotiated over, but instead, maybe a lab or two would be contracted to do discovery (and the lab would specialize in that), another entity would do scale-up...

Blockbusters would not necessarily be required. At least not mega-blockbusters.

Those are my simple thoughts. Anyone?

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4. Dave on August 20, 2010 10:51 AM writes...

3. Fashion. An antihypertensive drug from thirty years ago doesn't wear funny-looking retro clothes or pick up a mobile phone the size of a loaf of bread. It lowers your blood pressure, same as always. There may be better ones around now, but it'll still work exactly as it did when it came on the market.

I'd list this as an advantage for the movie industry. How much money have studios made from remakes of TV shows or classic movies? Meanwhile, in pharma, that classic antibiotic or analgesic is still helping people (and off patent); there's no money in a "remake" of ibuprofen or amoxicillin.

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5. geronimo on August 20, 2010 11:08 AM writes...

I dunno, I think it comes back to basic economics. Really basic.

Big Pharmas are an economic group of tens of thousands of people organized as a centralized command-and-control economic system. Top guy makes decisions how on much to spend on R&D, head of R&D (maybe with a council) allocates between therapeutic areas (or similar organizational structures), and everything is further suballocated. Classic command-and-control, and reminiscent of (say) Politburo leaders or Egyptian Pharaohs allocating resources between different areas (with similar behind-the-scenes politicking and maneuvering for position/resources, of course).

Big Pharma is relearning one of the central lessons of economics-- command and control economies don't work, because they make lousy decisions.

Full stop.

(And biotechs? Don't get me started. The ones I've worked at are managed by people who learned everything they know about organization in Big Pharma.)

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6. RM on August 20, 2010 11:12 AM writes...

Dave beat me in mentioning that the Fashion argument is really on the movie industry's side. I'll add that because fashion causes movies to become dated, there's always pressure to make and release new ones. Alien doesn't pull market share from Avatar. The existing statins do reduce potential sales from new cholesterol lowering drugs.

Additionally, Limits of copyright cuts both ways. Yes, your just-release film has less time before it gets knocked off, but for the people making the knock-off, it means that there are plenty of derivative films which can be made which don't infringe copyright. You don't have to be concerned that everything in the general area of "star crossed lovers" is either already claimed or ineffective. Good luck having the same success with "beta lactams".

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7. p on August 20, 2010 11:20 AM writes...

"2. Regulatory affairs. There's no FDA approval process for a new film. You think it up, you get it shot and produced, you release it, and good luck to you. The drug industry hasn't worked that way since the 1930s."

Actually, there is regulation of the movie industry, it just comes by way of "advice". Movies are rated: G, PG, PG-13, R, X, etc. Rather than prohibiting the movie, the "regulatory agency" just tells people what to expect then leaves the decision to purchase up to the individual.

It probably wouldn't translate directly but certainly for terminal diseases, I could imagine approving drugs with various ratings based on the odds they'll achieve the clinical goal and odds, or what is known at the time, about side-effects. Combine that with price and let folks decide if they want to take the chance.

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8. bbooooooya on August 20, 2010 11:27 AM writes...

"there's no money in a "remake" of ibuprofen or amoxicillin."

Not true! Look at prilosec to nexium, pull out the active enantiomer, improves efficacy by

There's a reason big pharma loves to reformulate in xr

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9. bbooooooya on August 20, 2010 11:45 AM writes...

Not true! Look at prilosec to nexium, pull out the active enantiomer, improves efficacy by abt 5 to 7%!!!!!!

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10. Frank Adrian on August 20, 2010 11:55 AM writes...

The only thing I disagree with is your "Fashion" point and your assertion that an old drug will "work exactly as it did". This is not necessarily true in the case of antibiotics. Granted, the drugs and their mechanisms don't change, but the target does and a particular drug's efficacy (and, thus, profitability) can be reduced significantly.

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11. qetzal on August 20, 2010 11:57 AM writes...

Our fixed costs are much, much, higher due to the field we operate in - human health and the regulations around it. My question is - is there any way to bring these down?

I can think of two very effective ways to do it.

1) Substantially lower our standards for efficacy and safety.

2) Substantially increase our ability to predict efficacy and safety during discovery/preclinical research.

Of course, (1) isn't socially or ethically acceptable. That leaves (2) as the only realistically possible solution that I can see. But of course, that's been extremely intractable to date.

If only we could get to Kurzweil land!

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12. Anon 1 on August 20, 2010 12:25 PM writes...

We need our own "field of dream": extend patent protection to match copyright periods: http://en.wikipedia.org/wiki/List_of_countries'_copyright_length

Mother of Lipitor would love it!

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13. cynical1 on August 20, 2010 12:40 PM writes...

Actually, I use the Adult Movie Industry when trying to explain the pharmaceutical industry to those outside. Basically, everybody is either screwing you, screwing someone else, or screwing each other. The top people are all slime. The public thinks you're corrupt. The government thinks you're corrupt. Even the people in the industry thinks it is corrupt. They prey on people who are at a disadvantage with limited options. They spend way, way, way too much on advertising. And in the end, they really don't give you what you were really looking for. I think my metaphor is more accurate.

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14. Skeptic on August 20, 2010 1:12 PM writes...

>>2) Substantially increase our ability to
>>predict efficacy and safety during
>>discovery/preclinical research

Thats the argument against Med Chems. The "magic bullet" of Med Chem, SELECTIVITY, is witchcraft. There is no theoretical bedrock to establish that your inhibitor will actually do such against the designated target. therefore the profession is coin tossing.

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15. Karen on August 20, 2010 1:30 PM writes...

Another issue is technology. One reason independent films are possible these days is that inexpensive cameras, editing software and other equipment is available. Back when cameras and editing equipment were huge and very expensive, independent films were much less of a factor.

The same isn't quite true of drug discovery. Reactions themselves don't require a lot of high tech equipment, but try analyzing those reactions when all you have is a TLC plate. Or purifying those reactions when all you have are old school silica gel columns. I worked at a biotech where they were trying to get by on a shoestring, and all their good ideas got bogged down because it took so much time to run reactions and get pure products without modern lab equipment. (I'm an MS chemist and I was the one in the lab trying to purify 200 grams of product collecting manual fractions in Erlenmeyer flasks and checking fraction cuts on hand broken TLC plates. It works, but it takes a really long time.)

There's no drug discovery equivalent of the independent filmmaker with a camcorder and software package that he picked up at Best Buy, even if you set aside the clinical testing.

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16. No way on August 20, 2010 1:49 PM writes...

The analogy of Hollywood and Pharma works about as well as Hollywood and going to the moon. But then again, some people believe that it was Hollywood that put people on the moon in the first place.

So maybe, the best drugs should be placebos as made in Hollywwod!

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17. davesnyd on August 20, 2010 2:02 PM writes...

4. Toxicity and liability. While it's true that a bad film might make you feel sick, it's not going to lead to anything actionable in court. Bad news on a new drug's side effects or performance most definitely will, though. And how.

5. Costs and benefits. A movie, from the consumer's standpoint, is a momentary purchase, made with a small amount of discretionary income. If it delivers, great - if not, no harm done, other than some wasted time and a bit of cash. Drugs, of course, are a much more high-stakes business, both in their pricing and in their utility. And they affect a person's health, which is about as fundamental a thing as you can mess with, and moves any transaction up into a whole new spotlight.

Spoken like someone whose kids did not drag him to see "Space Chimps".

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18. Hap on August 20, 2010 2:38 PM writes...

But somebody's got to make the coins, no? (or is there a vein of them somewhere that's been ignored?) Somebody's still got to flip them as well.

While I'm sure MBAs can do a lot of things, making and testing drugs isn't one of them, unless they've evolved (biologically, not mentally) some new capabilities lately.

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19. bbooooooya on August 20, 2010 2:45 PM writes...

"I'm sure MBAs can do a lot of things, making and testing drugs isn't one of them"

not true, many many PhDs in chem/biochem who could do this, just doesn't pay, and you have to work with smelly chemicals. ick.

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20. CMCguy on August 20, 2010 2:59 PM writes...

As touched on in the initial quote both Big Pharma and Big Studies tend to suffer from risk aversion and Blockbusteritis that greatly restrict the potential for production of a greater likely number of good products (drugs or movies) that don't fit within set criteria. This indeed is an inherent fatal flaw that has been exacerbated by M&A fever in Pharma. We know the cost of drug development are high, with many factors that contribute to that include inefficiency in R&D, however so much effort seems devoted to profits and/or appeasement of shareholders that the mission to help patients has gotten lost which is most damaging.

I believe another possible point of comparison of the two industries is Outsourcing and Off-shoring Model as we know what is happening in Pharma which is leading to deterioration of internal expertise. I think movie industry went through similar restructuring so can no longer really create many movies on there own without heavily depending on others including foreign locations/operations.

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21. anon on August 20, 2010 7:14 PM writes...

The screwed up FDA is probably the biggest drag on the industry. If they are down on pretty safe drugs like Vioxx and Avandia, it's hard to see much of anything getting approved.

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22. Anonymous on August 20, 2010 7:54 PM writes...

The noose has been tightening in the pharma industry for some time. Patience is stretched in discovery. Tolerance in development manufacturing and sales is minimal. Wall street fans the flames. What we are seeing my friends is evolution ...painfully over time though (evolution on our time scale). The FDA is also evolving. The industry is a moving target at this time. The best advice is to stay ahead of the curve and wolf pack and strive to do your best...and save for a rainy day!

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23. keikei on August 20, 2010 8:06 PM writes...

How about a comparison between drug discovery and oil prospecting? Drilling a well is really expensive, there's no guarantee of success, the oil will run out, and everyone hates the big guys. I'm not sure there is an 'indie' oil industry, though...

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24. Anonymous on August 20, 2010 8:20 PM writes...

@#23
But once in a while you get a gusher (ie: a monumental drug discovery) and no one (including BP)can cap it. I must say It's rare these days but we must continue to "drill baby drill". Just kidding

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25. anonymous on August 20, 2010 9:11 PM writes...

Can I sue movie producers and studios for the pain and suffering incurred while watching an over-hyped movies which did not meet my expectations? Not to mention the multiple 2 hour blocks of my life which I can never get back.

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26. George Fitzgerald on August 20, 2010 11:15 PM writes...

I didn't see any mention of 2 important differences: time frame and cost of failure. A movie takes, what, a couple of years to make. A new drug takes on the order of a decade. If Hollywood makes a mistake, they lose a lot of money. If Pharma makes a mistake, then they lose money but more importantly people die.

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27. Great Molecular Crapshoot on August 21, 2010 4:47 AM writes...

One analogy that I've heard made is that between running Pharma R&D and steering an oil tanker. I believe that the regulatory environment is probably the most significant factor in distinguishing Pharma from other industries. The output of a regulatory authority such as the FDA is essentially decisions on whether or not companies are allowed sell their products. The primary risk facing a regulatory authority is that it will make an incorrect decision. The cost(to the regulators)of accepting a drug that should not have got through is far greater than rejecting a drug that should have been accepted. This 'risk asymmetry' has clear implication for risk perception within Pharma R&D.

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28. Cellbio on August 21, 2010 8:46 AM writes...

anon 21,

Don't you wonder how things would have gone for Vioxx and Avandia if the sponsors had been more truthful in disclosing adverse event findings? The FDA is put in a tough spot when serious adverse events, including death, are cheerfully buried and not shared with regulators due to brilliant thinking like: 'It is not the drug causing heart attacks, the event rate in the placebo group is low". True story. In this case, how would you react as a regulator? Add in the real difference in GI ulcer rate for COX2 inhibitors, the fact that there are other COX2 inhibitors whose clinical profiles you know, and whose sponsor appear more forthcoming, and I think my response would be a good old FU to Merck. Different story if it is a truly innovative, effective med that treats an unserved condition.

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29. EB on August 21, 2010 8:55 AM writes...

avatar is not the norm, its the most expensive movie produced all time. movie studios put out tons of cheap movies as well, like 'lottery ticket' that they know wont create billions in revenue. this analogy is crap

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30. Machira on August 21, 2010 11:08 AM writes...

One Disease - One Drug - One Cure” the present state in Medicine - has failed to solve our problems and this unilateral approach to health and disease becomes part of the problem in Medicine as practiced today primarily uses a drug for treatment of illness or disease prevention.

We need to change this approach as if we we continue to do what we do we will get what we always got.

Instead of a organ based approach we need to fix the malfunctioning cell and immune system the source of all illnesses

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31. qetzal on August 21, 2010 3:15 PM writes...

Machira,

Don't be ridiculous. The immune system is NOT the source of all illnesses. Everyone knows that the one true cause of all disease is chronic acidosis caused by liver flukes inducing subluxations in your chi.

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32. Mark on August 22, 2010 6:06 PM writes...

There is a closer analogy to the oil & gas business. In the 80s, they went through a similar restructuring when the price of oil crashed. People lost their homes, and businesses evaporated. The Exploration and Production (E&P) end of the business (similar to drug discovery) was the riskiest part of the business. A dry hole could cost you upwards of a million dollars. The majors began pulling out of E&P and focusing on downstream businesses that had more predictable revenues (sound familiar). This created an opportunity for so-called Independents to step in. They pioneered the use of technologies that gave them a better idea of how the oil reservoir worked and where to drill. Gradually the majors got back into the game, but they had to share the space with the Small and Large Independents at that point.

We're seeing similar kinds of changes with respect to the pharmaceutical industry. Layoffs from big pharmas have created an opportunity for small startups to focus on a deeper understanding of target and disease biology. There has been an explosion over the past few years in the numbers of virtual drug discovery companies, as it's become easier to outsource a number of assays through companies like Assay Depot (no, I don't work for them).

Besides losing expertise in basic biology, big pharmas are also running into a wall when it comes to treating multigenic diseases like cancer. You have to be able to run trials with multiple compounds acting on specific pathways in a "cocktail" approach. Although this has been done with AIDS for some reason it's not being applied to cancer, and the patients are the big losers in this game.

If you ask clinicians why trials fail, invariably they cite a lack of understanding by pharma of the current standard of care, and how this new drug either fits with that standard of care, or enhances its effectiveness. Most pharmas don't do competitive trials of their drugs, and don't try and optimize drugs against multiple targets in multiple pathways. Unfortunately, this means that regulatory agencies are now doing that for pharmas, in the form of cost/benefit analyses (as evidenced by NICE's rulings over the summer).

Clinical trials also fail in other ways though. By not getting a proper handle on the pharmacogenomic segment that the drug specifically targets, drugs are failing because there's too much noise in the data. We're testing the drugs on the wrong patients, and not identifying the right types of patients early enough in the discovery phase. If you want trials to be cheaper, focus on the right patients, get approval for a specific patient segment, and then re-trial on other segments. This more agile/lean approach (used by everyone from Google to Toyota), saves time and money and will be more likely to save lives. And that is ultimately what we're in the business of doing.

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33. Skeptic on August 22, 2010 6:36 PM writes...

The conventional wisdom about money is false. The problem isn’t that our money isn’t gold-backed. The problem isn’t fiat money. The problem is that all money is hierarchically controlled as an asset to private sector institutions and elite capital holders who have the ability to call-in their chips, i.e. your bank digits, whereas it’s an interest-bearing debt to governments and the people. This has immense ramifications I don’t have room to address here. Government neither prints money nor causes inflation in this system (if it would like the original colonies did to escape British banker austerity and usury, some of the current unemployed would have jobs and those losing their homes in foreclosure might find some relief). Rather, the cartel controls all money and drives inflation/deflation cycles. It has driven consistent inflation for 60+ years. So we are now facing painful deflation, or hyperinflation if the government makes a key mistake, as the senior capital pools attempt to bring about the new banking/currency framework

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34. Morten G on August 24, 2010 8:13 PM writes...

I don't understand why chemistry gets outsourced when clinical phase is where all the money gets spent. Maybe clinical has more political clout in pharma organizations because they have bigger budgets. I don't know.

Anyway, with insurance companies getting into clinical trials to test drugs head to head do you think that they might fund clinical trials in other areas as well? Like spinal cord injury etc (though spinal cord might be more for big governments like EU or USA).

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35. srp on August 24, 2010 9:37 PM writes...

No analogy is perfect. Certainly the Hollywood and oil exploration industries come closest to the pharmaceutical industry in terms of high stakes, high fixed/low variable costs, highly uncertain outcomes, and causal ambiguity about success factors. But of course, each industry has its own unique headaches and opportunities.

You guys do have a serious FDA problem. Which means we, the prospective patients, do as well. What scares me is the Stockholm syndrome I see from so many science types who just refuse to come to grips with the lack of evidence that a) efficacy testing as a requirement for marketing a drug (as opposed to certification) actually improves net health, b) failure in animal models is highly predictive of failure in humans, c) understanding the target and mechanism of action of a drug is important to its safety and efficacy, and d) philosopher-technocrats rather than patients, doctors, or other third-party advisors are best placed to make value judgments about medical risk and benefit

On the other hand, the FDA presents a hell of a protective barrier in blocking imitative patented products (not against generics, obviously). So maybe the Devil's bargain is economically worth it even if it holds back medical progress.

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