24 years and $1.2 billion in red ink: That's how long and how much money it burned before biotech company Regeneron Pharmaceuticals produced its first FDA-approved drug (Eylea) likely to turn a significant profit, according to a recent article in the New York Times. Eylea is expected to compete head-to-head with a more expensive drug from Genentech, Lucentis. Both medicines treat the "wet" form of macular degeneration, one of the leading causes of blindness among the elderly (1.7 million cases in the U.S. today, and rising thanks to an aging population).
Once you've shouldered that much risk - and convinced your investors to stick it out for that long - you have to compensate them for their investment. High risk+high cost = high drug prices.
The Times story should allay several myths about drug companies:
Drug companies don't do any real science, they just re-package and market discoveries from the NIH. If that was true, there'd be a lot fewer biotech companies bleeding red ink. Regeneron started out chasing new treatments for Lou Gehrig's disease, and then obesity. Neither of those projects panned out. They did manage to market one drug for a very rare disease, Arcalyst, in 2008 (2011 revenues: just $15 million dollars). Looking ahead, they're developing what may turn out to be an entirely new class of cholesterol inhibiting drugs, along with other medicines for colorectal cancer and gout.
Drug competition doesn't benefit consumers. Eylea, like Lucentis, is a VEGF inhibitor, but it will also be much less expensive. Regeneron reports that it will charge $16,000 a year for Eylea, compared to $29,000 for Lucentis. Assuming those numbers hold up, Eylea will also save the health care system money because it is injected less frequently, requiring fewer paid doctor's visits. If Genentech starts to lose market share to Eylea, expect them to either cut their prices or find other ways to reduce their own dosing schedule to stay price competitive.
The FDA is just a patsy for industry to churn out "me-too" drugs. Again, if the agency was a toothless watch dog, it would be much easier for companies like Regeneron to bring new products to market. Instead, the FDA is almost certainly too stringent and risk averse both when it reviews new medicines, and in the slowness with which it adopts new procedures for evaluating new medicines. The combination of excessive caution and regulatory inertia drives up the cost and time required to bring drugs to market, which makes them much more expensive.
Still, even though drugs like Eylea or Lucentis carry a high price tag, they are cheap compared to the alternative: disabling blindness that severely reduces quality of life for millions of seniors and exposes them to a higher risk of serious accidents, or being moved into a (even more expensive) nursing home.