How business models shaped our current drug development trends

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This article was authored by Ward Capoen from V-Bio Ventures.

With the soaring cost of drugs for rare indications, many biotech and pharmaceutical companies are focusing R&D efforts on orphan diseases. Will the pendulum swing back towards more common maladies? When will the price of drugs start to fall? In this month’s VC views, V-Bio Ventures examines the current business model for rare diseases.

Belgians were recently introduced to baby Pia, whose parents crowdfunded over 2 million euro to pay for a course of Zolgensma, a Novartis-owned gene therapy to treat spinal muscular atrophy. Just last month, Alnylam Pharmaceuticals got approval for Givlaari, an RNAi-based treatment for acute hepatic porphyria. The annual price for Givlaari has been set at $454,000. It seems like not a day goes by without news of a new drug for a rare disease with a jaw-dropping price tag.

You don’t need to be a baby boomer to remember that such high prices for medicines didn’t use to be a thing; they’re a recent development. A new book provides an insight into this: in the biography, the author details how visionary Dutch entrepreneur Henri Termeer founded the biotech Genzyme. His idea was that, to treat patients with rare diseases, we would have to charge hundreds of thousands of dollars per year in order to make up for the low patient numbers.

It seems like not a day goes by without news of a new drug for a rare disease with a jaw-dropping price tag.

Termeer figured that society would agree to these costs for two important reasons. Firstly, even at such high prices, the total cost to society would be low, as the diseases are rare. Secondly, once the patent lapses, the treatments would be cheap and forever available to society at a low cost. Many agreed: Termeer’s business model for rare diseases has been adopted by a lot of major players in the biotech industry.

A business shift towards rare diseases

Given that this pricing-pact between industry and government has held since the 1990s, developing drugs for rare diseases has become all the rage. As there is often no standard of care to provide a benchmark, any first drug showing some improvement over the placebo will often be approved at a high price.

Being the first to market in a rare disease with no treatment options is a coveted advantage. Once your therapy becomes the entrenched standard of care, the competition will have a hard time of it. To enrol participants in clinical trials, they need to convince the few patients out there to give up their current treatment for a new and unproven one. This also means that even large pharmaceutical companies, like Novartis, GSK and their peers, are increasingly focused on gene therapies, cell therapies and orphan diseases.

Every year, the best-selling drug lists are topped by cancer and auto-immune disease drugs…  for diseases that, although devastating for the patient, often account for less than 1% of the population.

It almost makes you feel like nobody is working on the great diseases of mankind anymore; that heart disease, hypertension and diabetes were a thing of the nineties, no longer in the spotlight. Every year, the best-selling drug lists are topped by cancer and auto-immune disease drugs like Herceptin, Humira and Revlimid. These are all multi-billion-dollar franchises for diseases that, although devastating for the patient, often account for less than 1% of the population.

Conversely, when looking at what drugs are actually prescribed, a whole different picture emerges. An analysis from 2018, looking at the most prescribed drugs in the US, provides an insight into the most common diseases where innovation is possibly needed. The top indications, based on the number of prescriptions, are hypertension, hypothyroidism, diabetes, high cholesterol, heart disease, GERD, pain, depression and infectious diseases.

Very few innovative treatments have been developed for any of these diseases in recent years, and the medicines that do exist are usually symptom-reducing rather than curative. Though there are a lot of generic options available for these diseases, that in itself makes development of new and better treatments even harder. A semi-effective old drug is after all harder to beat in a clinical trial than a placebo, making trials larger, longer, more difficult and more expensive.

Will the pendulum swing back?

We tend to classify diseases by their outward appearance: their symptoms and clinical phenotype. But cancer and auto-immune diseases have taught us that, under the hood, these are not one disease: they are many different diseases that all look alike. This has led to the development of the targeted therapies that are currently transforming oncology and immunology.

For more on drug pricing, read this previous VC views article on how to determine the cost of lifesaving treatments.

This approach is now also starting to be applied to the “big” indications. Heart failure can be divided in subgroups depending on which pathway is affected; depression can emerge from many different imbalances in the brain or immune system; and pain is the result of the rewiring or dysfunction of any number of signalling pathways in nerve cells.

These new insights in the intricacies of different diseases will no doubt usher in a wave of new drug targets, and the pendulum will inevitably swing back from rare to prevalent diseases. But if we keep splitting these large diseases into a bunch of orphan indications, can we then charge rare disease prices for them? Will society bear the cost? This unsolved question will certainly become a hot topic in the years to come.

Scientific progress will go the way it always does: forward, to the benefit of many patients. As with Genzyme in the 1990s, and in the face of ever-increasing constraints on government budgets, new business models will emerge to adapt with the changing times.