Pharma companies are flush with cash and looking to make deals, but there are still a lot of small biotech companies that don’t have enough money to launch their products entirely. It seems that pharma is only interested in drugs that have the potential to sell hundreds of millions as opposed to small products that may only sell to a limited audience.
A study in 2020 estimated that the median cost of getting a new drug into the market was $985 million, and the average price was $1.3 billion, which was much lower than previous studies, which have placed the average cost of drug development as $2.8 billion.
This study included 63 of 355 new therapeutic drugs and biologic agents approved by the US Food and Drug Administration between 2009 and 2018. The estimated median capitalized research and development cost per product was $985 million, counting expenditures on failed trials. Data were mainly accessible for smaller firms, effects in some therapeutic regions, orphan drugs, first-in-class drugs, therapeutic agents that received accelerated approval, and products approved between 2014 and 2018.
According to the study in JAMA “the FDA approved 355 new drugs and biologics over the study period. Research and development expenditures were available for 63 (18%) products developed by 47 different companies. After accounting for the costs of failed trials, the median capitalized research and development investment to bring a new drug to market was estimated at $985.3 million (95% CI, $683.6 million $1228.9 million). The base case analysis estimated the mean investment at $1335.9 million (95% CI, $1042.5 million, $1637.5 million). Median estimates by therapeutic area (for areas with ≥5 drugs) ranged from $765.9 million (95% CI, $323.0 million-$1473.5 million) for nervous system agents to $2771.6 million (95% CI, $2051.8 million $5366.2 million) for antineoplastic and immunomodulating agents. Data were mainly accessible for smaller firms, orphan drugs, products in some therapeutic regions, first-in-class drugs, therapeutic agents that received accelerated approval, and products approved between 2014 and 2018. Results varied in sensitivity analyses using different estimates of clinical trial success rates, preclinical expenditures, and cost of capital.
For many of these small biotech companies, the restrictive costs are the launch costs. Adding sales and medical support staff is expensive, not to mention the cost of “marketing” the drug to patients and consumers.
Most VC firms aren’t concerned about “marketing: costs and see them as an expense that needs to be closely monitored, but in today’s marketplace, more may be required to get your message out to HCPs and patients who are already dealing with a lot of noise around health.
2020 was a massive year for biotech venture financing – and 2021 has already eclipsed it. Private developers have raised a staggering $24bn so far this year, overtaking the total for 2020, which was itself a record-breaker. VCs prefer to fund companies that already seemed like a sure bet – in other words, were far along. They also chose to support MBAs with previous executive experience and shied away from unproven teams with technical founders. Because they had a lock on the funding market, they asked for onerous financial terms and often replaced founders with favored executives. The only model of institutional seed funding was the “business incubator” model, where VC firms would fund well-connected founders they knew and incubate them in their offices.
Smaller biotech companies who don’t have the money to hire a great PR firm to blow their horns or have a CFO who is experienced in pitching VCs for cash are looking for ways to limit costs, which means that their product may be delayed by months or years.