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Comment by erikstarck | Hacker News Reader

Will you then also pay those who put huge effort and expense in to research that was perhaps necessary but didn't lead anywhere?

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Is there somewhere any numbers on how much exactly does it cost? What portion is really "research" and what portion is marketing budget? How much trial phase 1/2/3 cost etc?

When I studied pharmaceutical sciences ten years ago, the rule-of-thumb was that it cost around 1 billion dollars from idea to the product being launched. That's only r&d costs and regulations have become stricter over the years, so I imagine the cost has risen since then

I’ve seen this number with some justification being the amortized cost of a successful product, which covers r&d and marketing but also the failed attempts that lead nowhere in between.

There are plenty of 50-100M pharma startups; they wouldn’t exist if your number was right.

>There are plenty of 50-100M pharma startups; they wouldn’t exist if your number was right.

Isn't there a selection bias in that the startups that got to 50-100M survived because they were lucky with a candidate treatment. The ones that failed were the ones that never found a candidate in time? The difference being that large pharmaceutical companies have to swallow ALL the failures, whereas startups can "just" die.

Not to say that pharma companies don't have some fat that can be trimmed...

>which covers r&d and marketing but also the failed attempts that lead nowhere in between.

How do you account for the failed attempts?

As yomly alludes to, pharma startups exist because they don't own the risk - their investors bought it when they were funded. Big pharma does own the risk.

You sum the expenditure and divide by number of successes, with some accounting for the delay. It is actually much easier than trying to figure out the cost of a specific drug, because research is sometimes shared.

"Pharma start-up" is a broad definition which might not only be drug development and there might already be work done on their product before they look for funding

A company that is spun out from a PhD project in a research group, that has done a lot of the groundwork on grants will need less funding

Same goes for a start-up that for instance make non-invasive assays for diagnosis, since the documentation requirements are lower for such products

Producing something that has to be injected into humans is an entirely different league, since the amount of documentation required for such products is staggering

The cost for marketing will vary significantly depending on your definition of the word, and I suspect that it might be misconstrued as only being "commercials and paid holidays for doctors"

90% of start ups fail, so the numbers in that case would be about correct.

No.

GP said idea to product costs 1B just for r&d. That and 1B amortized over failures (and including marketing) cannot be true at the same time unless there are no failed attempts and unless marketing cost is zero.

I've seen you mention marketing several times. What expenditures would you include as a marketing expense?

I'm also not sure what you would define as a failure. Drug development often starts with several candidates for a target. Over the cause of development the list is trimmed, as candidates show lack of affinity for the target or have side-effects that make them unviable. Would you consider each of the excluded candidates a failure?

> I've seen you mention marketing several times. What expenditures would you include as a marketing expense?

I don't get to define that, companies do, but basically it includes everything that does not involve a lab, technician, doctor, nurse, statistician/programmer, etc. The US and the rest of the world are quite different here - if you've ever watched US broadcast in the evening, you'd see TONS of ads for prescription only medicine ("suffering from foo? Ask your doctor about bar"); that's marketing. Taking three hundred cardiologists on an all-expenses-paid 7-day cruise with one 30-minute "purely informative lecture about our new drug" and 7 days of fun? That's marketing too. Lobbying to congress? That's also marketing.

Outside of the US, the marketing budgets are smaller and less overt - but the cruise-style legal bribe-like events are prevalent everywhere.

> Would you consider each of the excluded candidates a failure?

Possibly. You've described one style, but it's not the only one. Many times, it's a weird result from some other research (how Viagra was discovered, how DCA tests were started).

But many things are essentially complete and utter failures - you have a line of research where no viable compound was found at all. BiondVax just failed a 15-year mission trying to develop a universal flu vaccine. Remdesivir is essentially failed even though it is FDA approved (It failed for Ebola; if you look at the data critically, it failed for SARS-COV-2 -- which the WHO's recent studies show even more clearly).

There is some benefit from this research - new techniques, often new devices - but the drug itself is a failure in the sense that it will not generate any income to the company.

Edit: just saw your earlier comment about marketing. It is those things (which you and I mentioned) and a lot more, but it is basically for the company to define in their books and a rule of the thumb would be “an expense a university department developing this to completion without expectation of profit would not have to spend”

The usual course for a biotech is multiple raises as the drug progresses through trials and an early IPO. At each step investors see it as a surer shot.

> regulations have become stricter over the years

Not this year!

Touche! :P

It's not so much the cost, it's also the delay. At a 5% cost of capital, and a 10 year lag between R&D and final approval, your real cash flows are 40% lower due to the delay. At a 10% cost of capital, they are 60% lower. Sales also take several additional years to ramp up.

This doesn't apply so much to Covid vaccines, as the time frame is accelerated and demand is already high.

The 1bn is only the out-of-pocket cost for development and doesn't factor in for instance opportunity cost. If we include everything required to develop a vaccine, I'd imagine we're looking at something north of 2.5bn

There's so many ways to calculate the cost, that I think it's more important to be aware of the assumptions made for the estimate, than the number itself (which I also failed to do in my original answer)

I think people underestimate the cost of drug development, because the numbers are so big, that it doesn't seem realistic for companies to survive

I talked to a bunch of CROs about the cost of Phase 3 trials. It varies, but is roughly $10,000 to $15,000 per patient year.

Pfizer’s trial will run for 2 years, so ~$900M for the trial alone. That’s excluding all the work to scale up the production, regulatory filing, distribution, etc.

Edit: my math sucks. $900M, not $90M

Is it really $10-15k each additional patient year requires or it's more of "total cost was this much, we divide it by number of patients". Where do this money go to? Fx, with these covid trials, 40000 people in pfizer trial, half a year cost would be $200-300 mln. People presumably weren't paid for this. Of course there's some work by doctors that needs to be paid for, but that can't be this large amount. Also, does this all assume USA standards of pricing? Because in rest of the world healthcare is much cheaper.

I just think big pharma are fundamentally ok with huge cost for trials and are not motivated to decrease it/make it more efficient, since they're ok with their pie being larger. They will just shift costs to healthcare system and will be happy with larger profit.

Ha! You think big pharma likes spending that kind of money on trials? I’ve been a part of those negotiations with the FDA. It costs that much because the company says “we believe a 6 month trial is sufficient to prove both safety and efficacy” and the FDA says “if you want it approved, you need to collect 2 years of data”.

Now, $10-15k per patient-year is for a typical therapeutic. And that is an average across global trial sites, not just the US. It’s not much money. You go a 15 min doctors appointment and your insurance is billed $150. Now imagine going 1 per week and having multiple tests run each time. Or having to stay in the hospital for a day when the drug is administered. You can burn through $1,000 per month pretty damn quickly.

I don't see a reason they would be really against it. FDA says it to everyone, so all companies in same condition. And they can shift cost to healthcare system and have larger revenue. They probably don't mind their pie as a whole being larger, because having revenue of 50 billions and profit of 10 billions is better than revenue of 5 and profit of 1, even though proportionally it's the same. All big pharma companies are massively profitable, fx Novartis net income in 2017 $17.8bln on $50.4bln revenue. Pfizer's $14bln operating income on $53.6bln revenue in 2018. And it's year after year. They really don't seem to suffer from those high costs trials. Also, Pfizer reports only $8bln on R&D in same 2018. I'm sure there' a lot of inefficiencies in those trials, same as it turned out vaccine could be created in year instead of a decade. (btw, previous large scale epidemic of swine flu was largely profitable for pharma companies). They just don't have incentive to reduce the inefficiencies. You're telling it's not just US but then you cite high healthcare costs (retail vs large scale trial, definitely can be cheaper at scale), which is much cheaper outside of US. I would be very interested in reading numbers of detailed case study of creation of some real world vaccine/drug.

They probably don't mind their pie as a whole being larger, because having revenue of 50 billions and profit of 10 billions is better than revenue of 5 and profit of 1, even though proportionally it's the same

It doesn't work this way. Pricing of pharmaceuticals is independent of the cost of development. Nobody will pay $200 per Covid vaccine dose just because the cost to develop it went up 10x. Every extra dollar spent on development, is one less dollar of profit.

That's why some drugs never make it to market - the cost to bring them to market and the low price means they'll never be profitable.

Even if it doesn't happen for each and every drug, that can easily be the trend on average. And it probably already happened with covid vaccines. Moderna comes out and says it will cost ~$30 per shot. Why not 3? And for others drugs, when price goes into thousands and don't have much competition that easily can be the case.

I'm a volunteer for this vaccine, in the first month I have three in-patients visits, involving two inoculations, 6 blood draws, 2 Covid tests, and three nasal absorption tests. My first visit lasted a little over three hours including a very comprehensive medical history and physical exam, and time taken to ensure that I was giving truely informed consent. I interacted with three medical professionals on the first visit, sometimes in the exam room, and sometimes via phone from the exam room to protect each other from long in person indoor exposure. Like any medical visit this year, a considerable amount of PPE was used. I was given an app use daily to record my health, and a digital thermometer so that all subjects are using the same calibrated equipment. Having reported a headache two days in a row in the app, there was a remote phone call follow up by a research clinician, in addition to the planned check in phone calls that I haven't mentioned. They do pay me a very modest ammount, so I've bought myself a couple of ebooks after paying for big city parking near the research clinic. They need to pay for that office space. Before I entered the study I needed to interact with recruiters, to qualify that it was safe enough for me to participate and to ensure that they were getting people from a variety of backgrounds. They needed to be ready to respond if I had a severe adverse reaction to the the trial vaccine. There is an entirely separate independent review board that I can go to with questions. In the event that I had Covid symptoms, there is an entirely separate set of assessments, visits and samples taken.

Given the amount of work being done by this and other research labs hired Astrazeneca, and comparing this to quotes I've received for a very modest UX usability studies, it's hard to see see this an sort of money grab.

Most research is government funded

Research broadly fits into two categories, basic research and research with near to midterm industrial viability.

Most basic research is government funded.

No, it's not. Private R&D spending is at least doouble that of the gov't. Look up the budget of the NIH and compare it with the R&D budget of big pharma.

I.e., tax payer funded either directly or via debt servicing.

the expenses paid by governments you mean?

BioNTech developed the vaccine now mass-produced by Pfizer. For that, they received $445m from the German government. So, as a tax-paying German citizen I can say, not only will I do that, but even better, I already did.

It also feels deeply wrong to pull the "but all the research efforts that did not lead anywhere" argument, when Pfizer did not do the research in the first place. They should get compensation for organizing the huge trial, of course; that expertise was why they were on-boarded in the first place. And nobody expects them to manufacture that stuff at loss or cost. But we should not accept public money buying them goose laying golden eggs either.

Nobody’s getting a goose laying golden eggs from a covid vaccine. It’s a one time, relatively low-cost vaccine that is going to go out of demand once the population is immunized.

Oh, and now there are multiple competitors in the market.

Only if the vaccine gives permanent immunity, which I haven't found any research suggesting that it will. In all likelihood, it will be necessary to give yearly booster shots, so the companies developing the vaccines will be able to sell vaccines every year

The quantity of vaccines needed will make even a $0.50 markup worth billions of dollars every year

You can't measure long-term immunity on a virus that's only been in the wild for ~11 months. That said, all the recent studies I've seen show no signs that immunity is going to drop significantly after a year.

I hate to link to a Youtube video, but this doctor walking through the research in the first part of the video is honestly better than any news article I've seen: https://www.youtube.com/watch?v=gFeJ2BqCFY0

Thank you for the link. The study definitely suggest a best-case scenario is viable. I do however think that the sample population of 183 subjects is too small to support the conclusion in the paper. The study only got a single sample from the majority of the participants andI couldn't find any indication of how many subjects from each location participated (or which locations were included outside of California), which makes me think it might not be a representative population used

I also noted that 40 of the participants were excluded because they had no PCR test done to confirm covid and no antibodies were found in the assay. This is in my opinion a major flaw, as the subjects could have been infected, but had no antibodies left, when the blood sample was taken

Finally seven of the 18 authors declare competing interests, which might have affected the research

Getting back to your post itself, I agree that you can't measure immunity for a longer period than the virus has been around, but that also means you can't say that there will only be a need for one round of vaccines, which was what I was disagreeing with

It might very well turn out, that you gain permanent immunity for a specific strain off the virus, but unfortunately that immunity also introduces selective pressure. Whether the virus is able to mutate in a way that bypass existing antibodies in a subject is obviously still an unknown, but we have seen that it's able to jump to other species like mink, which caused the emergence of the Cluster-5 variant

Since the virus is able to use other species as a reservoir and selective pressure is being introduced, I think it's reasonable to prepare for a scenario, where a vaccine won't be a permanent fix

Vaccines are not a great business in general. (Which is not the same as saying they're unprofitable.) But one reason vaccine makers are generally indemnified against lawsuits in the US, it that at least some companies would probably pull out of making vaccines if they weren't.

These nickle and dime arguments are for "old normal".

The society at large is making huge sacrifices and making painful changes to address this collective problem. Are these companies part of "Human society" or not? If they are party of Humanity, then they can make 'adjustments' as much as we are asked to make adjustments.

That seems fair.

Still won't be a fraction of the profit that stands to be made from these vaccines.

Have these companies provide a detailed list of expenses for researching and developing this vaccine, review that, pay it as a one time cost and THEN vacate the patent.

They then get to recover their R&D expenses and make a smaller but probably decent profit from its production.

Of course. And if they spent $100M on R&D and it failed? What then? Would the gov’t pay those costs? And maybe a small profit?

It’s easy to complain about Pharma profits when you ignore all the money spent that goes “poof”.

When was the last time one of there big pharma companies went bankrupt, barring massive fraud?

I'd be glad to be shown some examples, otherwise it's "privatize profits, socialize losses".

Bankrupt? Not many. Bought for pennies on the dollar? Plenty. Where is Upjohn? Parke-Davis? Schering-Plough? All companies with multi-billion dollar sales figures and all swallowed up when the money stopped coming in.

And if you fold in the start-ups who have one shot and if it doesn’t work out? Plenty of those. They go bankrupt.

Busting the patents on Covid vaccines would be “socializing the gains and privatizing the losses”.

Survivorship bias. The bankrupt businesses never get the chance to become big and so you don't hear about them.

However I'm certain that the category "bankrupt pharma company" is littered with examples.

How many of these small companies are

a) researching Covid-19 vaccines?

b) will they actually get to produce millions and millions of doses?

Almost every case I know of, it's a huge company or even a state owned one.

Who are we actually arguing for/against? The hypothetical "small pharma"?

Keep in mind that just like for banking, due to the amount of (necessary) regulation, there aren't many small pharma companies out there.

Well Biontech wasnt big until beginning of this year.

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