Thursday, July 12, 2007

Why Grow Your Own Drugs When You Can Buy Them Off the Street?

According to a report on Pharmalot, Merck is expanding its move into oncology by striking a deal with Ariad Pharmaceuticals to buy the cancer drug AP23573 mTOR from Aiad Pharmaceuticals.

"Here's the deal: Ariad will receive an initial payment of $75 million, up to $452 million more in milestone payments based on the successful development in different cancer indications, and up to $200 million more based on sales thresholds. Ariad can also expect at least $200 million in estimated contributions by Merck to global development, and up to $200 million in repayable advances from Merck to cover its share of global-development costs, after Ariad has paid $150 million of those costs. (See "Merck Invests $1B In A Cancer Pill")

So this is what the pharma industry means when it says it costs $1 Billion to "develop" a new drug!

I've argued that the $1 Billion number is based less on actual costs than on a Tufts' analysis, which includes about $400 million in "lost opportunity" costs (see "Tufts Hangs Tough on Opportunity Cost Analysis").

Merck's deal with Ariad is a wonderful example of an "opportunity" that Merck is pursuing instead of putting that $1 Billion in its own development effort!

Increasingly, Big Pharma is turning to "buying" drugs from smaller, more innovative companies rather than developing them on their own!

No doubt, Big Pharma will continue to portray themselves as innovative companies that need to cover the costs of innovation with higher drug prices. In reality, Merck had to out bid competitors to make this deal with Ariad. One has to wonder how much of that money goes to actual development efforts versus Ariad's bottom line? I'm no accountant, but it looks like everything after the initial $75 Million and $452 Million is pure gravy for Ariad to sock away for investors.

4 comments:

  1. Occam's Pendulum7:59 PM

    "Merck's deal with Ariad is a wonderful example of an "opportunity" that Merck is pursuing instead of putting that $1 Billion in its own development effort!"

    Are you privy to Merck's internal funding strategies? What evidence do you have that they are sacrificing their own bench research by pursuing the Ariad deal?

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  2. Absolutely no evidence at all. Just speculating and adding something to the discussion about innovation, hone-grown or imported, and drug prices.

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  3. Honestly, I believe the initiator of this concept is Pfizer - assimilate small business ideas, pawn them off as their own, and move on with large profits. I hope Big Pharma’s not shifting to this attitude. It seems GSK would be on this list (but I could be wrong). That’s why I hope to work for Lilly, Endo, or Wyeth. Innovative ideas of their own drive their research and sales divisions. But what about the small companies that might not be able to distribute at that grand scale otherwise? Could this be the best move financially? Or is it just an attempt to monopolize by the larger constituent?

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  4. "Slash and burn" R&D has been around for a while now. It was pefected by Glaxo and copied by others such as Pfizer. It is the biggest factor in the decline of innovation within the industry as it is destroying the diversity of commercial research that was being undertaken.

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