March 8, 2012

The Cost Of A New Drug

I want to thank a blog reader for sending me Forbes' Matthew Herper's articleThe Truly Staggering Cost Of Inventing New Drugs -- The Print Version, in the March 12, 2012 issue of Forbes Magazine. This is an edited version of his February 10 post, The Truly Staggering Cost of Inventing New Drugs. Herper draws attention to the large expense to bring a drug to market (although the ultimate number depends on the assumptions one uses as to the inputs), from the $1 billion number the drug industry has been tossing around for years (from Herper's article) to the $1.3 billion number an Eli Lilly representative posted the on the company’s corporate blog to the $4 billion number Bernard Munos of the InnoThink Center for Research In Biomedical Innovation estimated (from Herper's article) to Forbes' expanded analysis based on Munos' work of $4 to $12 billion (see table below).

Taking the opposite view, an accounting in the journal BioSocieties claimed drug companies only were spending $55 million. See a Slate article on this here.

One of the attractive features, to me, about Provectus is management's efficient use of capital. In the graph below, I have compared Dendreon, Optimer and Provectus' accumulated deficit as reported on the companies' 10-K filings. Accumulated deficit, a balance sheet item, is a good way of understanding the R&D and "go to market" spend by a company. Note that Provectus has not yet filed its 10-K in 2012 (for 2011), so I used the most recent 10-Q. I also included the total number of shares outstanding (e.g., preferred and/or common shares, stock options, warrants) of each company over the measurement period; however, I plan to use that for a subsequent post.

It's hard not to pick on Dendreon for the staggering amount of money ($1.6 billion) it spent to bring Provenge to market  and on whatever other drug/indications it has in the pipeline. Optimer ($215 million) has started making money, so its accumulated deficit in 2011 was reduced from 2010. Provectus' PV-10 has not yet been approved, of course, so the comparison of its accumulated deficit ($102 million) to that of the other two companies is not completely fair.

We can do a back-of-the-envelope calculation by making assumptions of what the MM Phase 3 trial would cost, non-trial operating expenses through that period (assuming Provectus remains independent), etc., and increase accumulated deficit by $30 to $40 million on the high side. Even then, the final number (i.e., <$150 million) still is lower than Optimer and an order of magnitude lower than Dendreon.

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