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The Future Costs, Risks and Rewards of Drug Development

The Economics of Pharmacogenomics

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Abstract

This article discusses the evolving field of pharmacogenomics, which is the science of using genomic markers to predict drug response, and how it may impact the future costs, risks and returns to pharmaceutical research and development (R&D). We uncover a number of factors and issues that are likely to influence the expected returns and, hence, the incentive to invest in new pharmaceutical R&D in tandem with the development of pharmacogenomics. Specifically, we identify how pharmacogenomics may lower the cost of drug development by shortening drug development times. Thus, pharmacogenomics may lead to an increase in a drug’s effective patent life, and may also increase the demand and adoption rate for new products. For these and other reasons, pharmacogenomics may one day enhance expected future returns to R&D, leading to higher levels of R&D investment and an increased pace of pharmaceutical innovation.

Our conclusions must be read with much caution, however, as there is considerable uncertainty as to how the area will evolve, both clinically and economically. The time horizon necessary for the science to develop and be adopted into clinical practice is not clear. Nevertheless, we think the issues and factors outlined in this article shed light on possible future economic outcomes and changes in the industry’s structure, conduct and performance. Hopefully, this will provide researchers with avenues to pursue regarding a better understanding of the economics of pharmacogenomics.

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Notes

  1. A gene that transforms normal cells into cancerous cells.

  2. The sensitivity of prescribing behaviour to the genetic marker may not be strong for trastuzumab because the drug is still reasonably effective for those who do not exhibit the HER2/neu gene. This has resulted in doctors prescribing the medication even in the absence of a genetic test.

  3. This assumption follows the model laid out by Vernon et al.[8] While a constant linear relationship between value and price for a drug is not likely given existing prescribing and reimbursement structures, as long as the price does not fall with increases in value, the general conclusions of the model should hold.

  4. For an industry discussion of the importance of pharmacogenomics and an adoption rate (as well as the potential for R&D savings), see The Pink Sheet.[12]

  5. For industry discussion of these points see The Pink Sheet.[9,12]

  6. “The number of drug targets has risen from 500 to more than 5000 in recent years, and expansion of research activity to investigate them is a natural and desirable consequence. Some part of the spending increase also represents well-justified ‘retooling’ investments in new technology and development of new research capabilities that will pay off for years to come. But other spending drivers might be lowering industry productivity. Two muchdiscussed issues are ‘mining out’ and regulatory delay. Research might necessarily be becoming more expensive because the ‘low-hanging fruit’ has been already been picked: Current areas of unmet medical need are increasingly those in which diseases are more complex and more difficult to understand and control, and drug targets more difficult to attack. And notwithstanding various reforms of the funding and management of the FDA, the time and cost of obtaining regulatory approval remain sources of concern.”

  7. The reasons why there may be a socially suboptimal level (too little) of current pharmaceutical and medical R&D are beyond the scope of this article; the interested reader is referred to the edited volume by Murphy and Topel, Measuring the Gains from Medical Research.[26]

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Acknowledgements

The authors are very grateful to a number of individuals for helpful comments and suggestions regarding this research: Ernie Berndt, W. Keener Hughen, Gary Persinger and Kimberly Westrich. The authors gratefully acknowledge the support of the National Pharmaceutical Council for funding this work. The funding was to support independent research and no agreement was formed as to the conclusions contained in the paper.

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Authors and Affiliations

  1. NERA Economic Consulting, White Plains, New York, USA

    Joseph Cook

  2. NERA Economic Consulting, New York, New York, USA

    Graeme Hunter

  3. University of North Carolina at Chapel Hill and NBER, Chapel Hill, North Carolina, USA

    John A. Vernon

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  1. Joseph Cook
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  2. Graeme Hunter
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  3. John A. Vernon
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Correspondence to John A. Vernon.

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Cook, J., Hunter, G. & Vernon, J.A. The Future Costs, Risks and Rewards of Drug Development. Pharmacoeconomics 27, 355–363 (2009). https://doi.org/10.2165/00019053-200927050-00001

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