Our view is that with its history of innovation the biopharm industry should be looking at significantly reducing costs in the range of 50–90% to widen patient access for high-cost MAb treatments. So here's the real question: What are the costs of developing and making a biopharmaceutical product? We've had an active interest in biopharmaceutical development and manufacturing costs for a couple decades. Through our independent biopharmaceutical process modeling experience at Biopharm Services, we can state that the true cost structures are unclear. But there are a number of established preconceptions in relation to costs, namely that biologics are expensive to develop and manufacture and that manufacturing costs are not an important factor in their sales price.

Companies don't make freely available a breakdown of costs making up their drug prices. So there is much speculation relating to price breakdown and the role manufacturing costs play. We can glean some information from public-domain sources, and we quote two here in Table 1 for an illustration of the difficulties. The GE information is a secondary source (12), so we can't fully assess the basis of the numbers presented. The Biogen Idec numbers are taken from the company's income statement (13), and composite costs are skewed toward R&D because it has a significant number of products in development (18) compared with the number of approved products (3).

Comparing net profit margins of the top 10 companies in different industry sectors, the average net profit is 8% for aerospace, 5.2% for computer systems, and 32.2% for pharmaceuticals (14). So it would seem that the pharmaceutical sector has relatively high profit margins. Ideally, we would like to see the development and manufacturing costs associated with a particular product to gain a better insight into the product lifecycle costs. However, those numbers do illustrate the relevance of manufacturing costs. As the industry matures, we would expect to see the selling, general, and administrative (SG&A) costs reduce and the cost-of-goods (CoG) ratio increase in proportion to the R&D costs, especially as profit margins are expected to reduce when competition from biosimilars and other pharmaceutical companies increases.

Similarly, it's difficult to gain much insight into development costs. The oft-quoted Tufts figure of $1.2 billion dollars to develop a new biological drug is based on a 30.2% success rate and capitalizing the spend using a relatively high discount rate for today (15). This represents expenditure for an individual candidate of ≥$360 million. The cost of bringing a biosimilar to market is estimated to be in the range of $100–$200 million (16).

It is difficult to know whether those numbers are directly comparable. The Tufts number is an estimate that capitalizes the costs of a development program's lifetime, whereas the biosimilar number will include most development activities except for preclinical development. Breaking down those numbers into specific activities is not simple; even Tufts does not appear to have access to that level of detail, which makes cost evaluation of clinical trials versus process development quite tricky.

Do manufacturing costs matter? If we recognize that the debate is not about just manufacturing costs, but also R&D costs and general overheads, then they certainly do. For example, take the GE numbers and restate them as the baseline case in Table 2. In scenario 1, increasing the R&D success rate to 50% would significantly reduce R&D expenditure. The same effect could be achieved by reducing discount rates and development times. In Scenario 2, we restate the SG&A so that is maintained at 19% of sales.

In this simple first-level analysis, the importance becomes apparent of reducing R&D and other cost categories in concert with manufacturing cost reductions to keep manufacturing costs from quickly dominating product pricing.

Details Are Coming

To have a meaningful debate about costs, we need greater transparency of cost structures, terminologies, and methodologies. Otherwise there is a risk that discussions, opinions, and entrenched positions and lead to accusations based on self interest. Transparency in this sense is required internally within each company to enable objective targets and effective communication among management, development, finance, and manufacturing to support cost-reduction initiatives.