The Hard Truths Of Drug Discovery

Includes: LLY
by: Derek Lowe

English has no word of its own for schadenfreude, so we've had to appropriate the German one, and we're in the process of making it our own - just as we did with "kindergarten", not to mention "ketchup" and "pyjamas", among fifty zillion more. That's because the emotion is not peculiar to German culture, oh no. We can feel shameful joy at others' discomfort with the best of them - like, for example, when people start to discover from experience just how hard drug discovery really is.

John LaMattina has an example over at Drug Truths. Noting the end of a research partnership between Eli Lilly (NYSE:LLY) and the Indian company Zydus Cadila, he picked up on this language:

“Developing a new drug from scratch is getting more expensive due to increased regulatory scrutiny and high costs of clinical trials. Lowering costs through a partnership with an Indian drug firm was one way of speeding up the process, but the success rate has not been very high.”

And that, as he correctly notes, is no slam on the Indian companies involved, just as it won't be one on the Chinese companies when they run into the same less-than-expected returns. No, the success rate has not been very high anywhere. Going to India and China might cut your costs a bit (although that window is slowly closing as we watch), but for early-stage research, the costs are not the important factor.

Everything we do in preclinical is a roundoff error compared to a big Phase III trial, as far as direct costs go. What we early-stage types specialize in, God help us, are opportunity costs, and those don't get reported on the quarterly earnings statements. There's no GAAP way to handle the cost of going for the wrong series of lead compounds on the way to the clinic, starting a program on the wrong target entirely, or not starting one instead on something that would have actually panned out. These are the big decisions in early stage research, and they're all judgment calls based on knowledge that is always incomplete. You will not find the answers to the questions just by going to Shanghai or Bangalore. The absolute best you can hope for is to spend a bit less money while searching for them, and thus shave some dollars off what is the smallest part of your R&D budget to start with. Sound like a good deal?

Relative to the other deals on offer, it might just be worthwhile. Such is the state of things, and such are the savings that people are willing to reach for. But when you're in the part of drug discovery that depends on feeling your way into unknown territory - the crucial part - you shouldn't expect any bargains.