Therapy First, Efficiency Second: Why We Should Stop Focusing on Manufacturing Costs

Drug substance manufacturing only contributes around 5% on average to the total cost of a biologic says GE Healthcare’s Guenter Jagschies.

Payors, patients and governments are increasingly looking to industry to justify the high prices of prescription drugs. As new immuno-oncology treatments are being launched with increasingly higher price tags and often the cost of producing these complex biotherapeutics.

“This industry is not pricing based on cost, it is pricing based on perceived value,” Guenter Jagschies, senior director of strategic customer relations at GE Healthcare Life Sciences, told BioProcess Insider at the BPI European Summit in April .

“So if you presume that a cell therapy can actually cure someone from cancer – it may happen in the future or in individual cases now – then the value of that is so high, while manufacturing is a very moderate figure in that picture.”

In fact, Jagschies said the drug substance manufacturing represents – on average – only 5% of total costs. “That’s the core facility with the process in there, the equipment and the people.” This is far from the average of 20% being represented in annual reports, and something not widely understood even within the industry.

“When I talk to senior people in the industry, some of them will admit that they don’t exactly know where these costs are. That is obviously not out of lack of interest, but the way financial management works in all corporations is that someone is responsible for a certain area like R&D or manufacturing, and that someone gets accountability to work on cost structure that he/she is accountable for. They don’t necessarily see the whole picture.”

Learning Curves

Reducing the cost of manufacturing by even a single percent would bring important savings to next-generation therapies, but Jagschies said this will come, and for now the priority is understanding these new entities.

“We will still have to do our homework to establish efficient platforms for manufacturing… but I think in the first round of these things coming to market we will have to accept a certain degree of inefficiency cost-wise in the manufacturing. And that’s fine as we are on a learning curb altogether.”

For monoclonal antibodies (MAbs), which have been around for decades, there are technologies coming through driving efficiency and ultimately lowering production costs. But this level of “fine tuning and optimization” must remain on the backburner for newer therapy classes.

Using cancer as an example, industry has been experimenting with treatments for decades and has been relatively unsuccessful. “If we want to beat cancer at one point – and it’s not one disease but hundreds of diseases, multiplied by the number of patients – this will cost society. And as long as we do this drug development in a model by which we have to develop the product and [drive] the profit, then high prices can actually be defended.”

Biosimilars

Where production cost savings can be beneficial is in biosimilars and lower-margin products.

With biosimilars and the advent of competition, prices go down, Jagschies told us. The total volume of cash to pay for a drug company’s operations, along with the profit, therefore gets reduced.

As seen already with some biosimilars in Europe, the price compared to an originator product can drop by as much as 70%.

“Then all of a sudden manufacturing in percentage terms goes up to maybe 40-50% of their costs which is similar situation to the vaccine industry where we have had this for decades,” Jagschies said.

“In that scenario manufacturing cost savings will contribute to keep cash flow going towards R&D and other activities that the company needs to provide, and of course the profits that the owners expect from them.”