The Feds Need to Start Supporting Early-Stage Drug Development


Xconomy Seattle — 

The U.S. Congress is on track to fund a pivotal element of healthcare reform, a $50 million dollar down payment on the $500 million dollar Cures Acceleration Network (CAN) initiative. This is a critically important element of the landmark new law. It’s also an opportunity Congress should seize to refocus the National Institutes of Health toward an essential part of its mission—fostering drug development for the improvement of human health. The Cures Acceleration Network has the potential to radiate as much benefit to patients as healthcare reform itself.

CAN is the brainchild of Senator Arlen Specter of Pennsylvania, who himself has twice fought off lymphoma. Specter pressed for the CAN allocation to focus vital dollars at the weakest point in drug development, the translational gap. This is a laudable goal.

In the most generous terms, drug development in America is static. In 1982, the pharmaceutical industry produced 28 genuinely new therapeutics. In 2009, the number was 26. Over that near thirty year time span, the costs of flat-line output have soared from $14 billion to $80 billion in current inflation-adjusted dollars (NIH and pharmaceutical industry spending combined.) What’s more revealing is historical analysis of the quantity of drug candidates entering Phase 1. In 1986, there were 1,618 compounds entering clinical trials at the FDA’s Center for Drug Evaluation and Research (CDER). In 2008, the number grew to 2,039, but this largely reflects a reallocation of numerous biologics products from the FDA’s Center for Biologics Evaluation and Research to CDER. The resource-bloated system is heading toward infinite inefficiency.

Meanwhile, the chronically ill wait for better drugs—real people like Specter, confronting cancer, multiple sclerosis, Parkinson’s… and the list goes on. Anomalous as it is, patients, taxpayers and lawmakers alike are imbued with the belief that new and better drugs are bursting from the pipeline. And why shouldn’t they be, media reports daily tout promising scientific and medical breakthroughs.

The National Institutes of Health is the largest public-sector source of funding for medical research in the world. To be clear, its mission is both to support scientific research for the advancement of human knowledge, and to improve human health and reduce the burdens of illness and disability. Toward this end, the NIH budget has hovered around $30 billion for the last few years. A glimpse into one particular disease area—autoimmune diseases like type 1 diabetes, rheumatoid arthritis, and multiple sclerosis—shows that the NIH provided $879 million in grant funding in 2009. But less than 15 percent of this was directed at new therapies or clinical trials.

The exclusion of biotechnology companies from NIH funding mechanisms was particularly extreme with the 2009 stimulus program. Last year the NIH received an additional $10 billion via the American Recovery and Reinvestment Act. Again, only a fraction was directed at genuine new drug development. Washington State received 406 ARRA grants from NIH totaling $182M. Only five of the 406—0.6 percent of the total Washington State NIH ARRA allocation—were provided to businesses. The remaining 401 grants all went to universities and not-for-profits and was primarily directed at basic research. Furthermore, the process was largely noncompetitive. 57 percent (232) of the approved ARRA grants were administrative supplements to existing grants that did not involve peer review or other competitive process.

In excluding biotechnology companies, a critical engine of both new drug development and job growth in Washington State, small businesses were effectively shut out of the stimulus process.

The current NIH granting process is impeding its stated mission of accelerating cures. Academic research institutions that receive the bulk of federal dollars largely conduct basic scientific research. While important work, academic entities are not designed, nor are they focused on developing drugs. Further, in the last decade, the pharmaceutical industry has precipitously divested itself from early stage research and development. Small startup and early stage biotechnology companies are virtually alone in doing this vital translational work.

If the federal government is genuinely driven to accelerate the development of high-need new drugs, it must adjust its funding ratios to bolster early stage drug development programs and allow private sector companies to compete on a level playing field. The Cures Acceleration Network is a good place to start.

[Editor’s Note: Kineta’s Meg O’Conor Bannecker co-authored this post.]

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3 responses to “The Feds Need to Start Supporting Early-Stage Drug Development”

  1. Your thought-provoking article raises a number of interesting questions and issues that are worthy of debate. However, I was surprised to see no mention of the Government’s stimulus program for biotech companies, the Qualifying Therapeutic Discovery Project Credit. This program, the results of which will be announced at the end of October, will be pumping $1 billion into the nation’s biotechnology industry coffers. Individual companies are eligible for up to $5 million in grants or tax credits. While this is only a one-time program (at least for now), this certainly will be supporting the exact kinds of research (early stage drug development) that you say deserve the money.

    The comparison of the number of drugs developed in 1982 and 2009, while indeed similar, is misleading in the sense that the first biotechnology drug to hit the market, recombinant human insulin, was only approved by the FDA in 1982. Given the large number of FDA approved biotechnology drugs since then, it is clear that the real problem in drug discovery is the declining number of drugs produced by the pharma industry. This is primarily due to their conversion over the years from research and development houses into marketing firms.

    I am certainly a strong proponent of biotechnology and especially its research, having spent most of my career engaged in this work. However, is it the role of the government, which at present appears to be broke, to directly support the work of industry? Scientists in academia have historically been primarily funded by government grants as well as grants from foundations and organizations that focus on finding cures for various diseases. More recently we have seen a trend where industry has partnered with numerous academic centers to specifically fund various projects. However, individual academics generally are not funded by industry, nor can they turn to angel investors or venture capitalists to fund their basic research. Those on the industry side rely on both of these groups, along with government administered SBIR grants, to fund their work. Given that there is (and will always be) a limited pool of money available for research, be it academic or industry, would you advocate having these groups compete with each other for funding? I think everyone involved in this area of endeavor would acknowledge that many basic research discoveries formed the basis for a large number of commercial products. If the government did indeed provide support to a biotech company that led to the successful development of a drug, would you see the company repaying the investment to the government? How would the company’s investors or shareholders feel about that?

    If the biotechnology industry were to get support from the government, how would their applications be evaluated, ranked, and funded? Much of the work done in industry labs is considered proprietary and is highly confidential. It would be difficult to see how this information would be provided to evaluators for review. Finally, while biotechnology is a very worthwhile enterprise, even those of us who are immersed in it must admit that the overall success rate is quite low. A recent analysis I did looking at biotechnology drugs discovered and developed in the Seattle area revealed that over about a 30 year period, only seven drugs were discovered and developed in our region by five of the approximately 145 biotechnology companies that currently or in the past existed here. This is not a high rate of success. While one could argue that funding from the government might have enhanced that rate, there would be no guarantees here. Problems in research funding, whether academic or in industry, are likely to be constrained for some time due to the wasting of the $1 trillion the US has spent on the war in Iraq, much of this debt funded. One can only wistfully imagine the benefits that might have accrued had that money been invested in biotechnology, education, and the general health and welfare of the population.

  2. Anthony RodriguezAnthony Rodriguez says:

    Great article Shawn and Meg. The use of the stimulus money was disappointing to me as well. I am currently a grad student and experienced the hyperactivity of most professors as they scrambled to pull ideas off of their shelves during the months leading up to the ARRA grant deadline. As Stewart mentioned in his excellent comment, academia relies primarily on government and non-profit entities to fuel their research. I fear when the stimulus money runs dry, the normal funding pool will not be able to sustain the surplus of research that was ‘stimulated’ by the ARRA. We will see a loss of available positions; influx of post-docs, technicians and other support staff on the job market; and many good ideas go back on the shelf. If more of that money was given to life science companies attempting to cross the infamous valley of death, they would have had the opportunity to use the funds to create a compelling story that could have led to partnerships, M&A’s or VC/Angel investments. The reality is, however, politics demanded the stimulus money focus on immediate job creation and not the funding of sustainable growth that could lead to even more jobs down the road.

    I agree with Stewart that we should think hard about reallocating funds earmarked for academia to fund business ventures. We need academia to have the funds necessary to build and expand a foundation of knowledge that will support the discovery of new therapeutic strategies. Start-ups, however, need the ‘free’ money too, especially in that early stage when most investors are too afraid to touch them. That is why CAN is extremely exciting to me. The NIH is not built to evaluate business ventures and would require some major restructuring or expansion of their SBIR program to adequately fund start-ups at the level the industry would prefer. CAN has the opportunity to be built from scratch with the current issues plaguing life science start-ups in mind. I am not sure if it will be successful, but you cannot deny the vast potential impact a program like this will have on our industry.

  3. Thank you, Stewart and Anthony for your input on this important topic. We welcome the lively discussion on an issue vital to the future of human health and the biotech industry. We are pleased to respond to your points and will attempt to address all of them.

    Qualifying Therapeutic Discovery Project
    Indeed, the Qualifying Therapeutic Discovery Project is an important program for early stage drug development and should have been called out in our article. It will have a beneficial impact on the industry and hopefully new product development. Since it is focused on small biotechnology companies, it is well positioned to target translational products and increase the stagnant number of new INDs at the FDA. However, the QTDP constitutes roughly one-fifth of the NIH stimulus package, one-fifteenth of the total NIH budget for 2009 and one-twenty-fifth of pharma R&D spending.

    A Fair Comparison
    On the question about the fairness of our comparison between NME approvals in 1982 and 2008/9 – it is absolutely fair to compare the total output of the industry over time in order to measure efficiency. We can think of no fairer way to measure industry performance. In that time span, the industry has become significantly less efficient despite plentiful advances in technology. However, Stewart is right to point out that the real problem over the last 28 years is the declining productivity of Pharma. Since its first product launch, Genentech’s Humulin® in 1982, biotech has dramatically increased its contribution to the pipeline. The biotech sector now provides up to two-thirds of new drugs in any given year, at approximately one-quarter the cost per drug incurred by Pharma, (Lawrence, S. (2006). Nature Biotechnology. Biotech Drugs Blaze a Trail. 24 (7), 736). What this highlights is the fundamental success of the biotechnology industry against a back-drop of poor pharma performance. The data also show that the declining productivity and performance reflected in the 1982-2009 comparison are the explicit reasons pharma is exiting early R&D (especially discovery and translational R&D.)

    On the issue of access to capital, in principle, biotech has access to sources of capital that are not available to university researchers (e.g. venture capital), but in reality these funds constitute a small and shrinking percentage of available U.S. R&D dollars. According to the Price Waterhouse Coopers MoneyTree Survey, venture capital investment in biotechnology peaked in 2007 with approximately $5B invested in total ( Since then it has declined to approximately $3.6B in 2009. The SBIR program at NIH accounts for an additional $0.6B (2.5% of the extramural budget), but in the aggregate, this is a small part of the overall pie. In effect, non-public biotechnology companies have few distinct sources of capital to draw upon, especially to fund early-stage, high-risk activities.

    Competition is Good
    We believe more competition for research dollars among industry and academia would be a good thing, so long as there’s a level playing field. While partnerships between academic laboratories and industry are viewed favorably at NIH, companies that attempt to go-it-alone at NIH outside of the SBIR program face serious obstacles. NIH extramural spending is heavily weighted toward RO1-type grants. These grants are reviewed by “peer” reviewers composed almost entirely of academics that are highly-risk averse, and that favor incremental, non-innovative, hypothesis driven research, making the entire system largely incompatible with new drug development (Kolata, G. (2009 June 28). New York Times. Grant System Leads Cancer Researchers to Play It Safe. ).

    Further, the NIH system heavily favors established investigators with long track records within the system. In 1978, the median age of all NIH Principal Investigators was 37 years. In 2008, the median age had grown to 50 years, and by 2020 it’s expected to approach 55 years, (Berg, J (2009 June 4). Report to the Advisory Committee to the Director, National Institutes of Health. Update on new investigators. ). When peer review committees consist of academics from the same pool, it’s not difficult to see how drug development applications – which even under the best of circumstances are speculative and high-risk – do not fare well. Finally, it should be noted that even though the NIH budget sets aside 2.5% for the SBIR program, these grants typically fund only 6 months of activity at up to $100,000, whereas an RO1 funds 5 years of research at up to $1.25M. The application for both types of grants is the same, making the cost-benefit of an SBIR application much poorer than an RO1 application.

    Disproportionate Funding of Basic Research
    We must again emphasize our strong support for government-sponsored basic research. But we argue that new focus must be directed at the staggering disproportion of dollars funding basic research above applied research. The NIH has a dual mission, to “seek fundamental knowledge” as well as to “enhance health, lengthen life, and reduce the burdens of illness and disability”. We advocate for a more balanced distribution of resources.

    Government Support of Industry
    Is it the role of government to support industry? Government exists to serve the needs and interests of the tax payers, and this has been historically interpreted to include the support of R&D activities that serve the interests of society and are difficult to fund by any other means. Early stage drug development fits within this framework. Government agencies differ widely in how this is implemented. Some outsource R&D principally to universities (NSF and NIH); others primarily source R&D within industry (e.g. DOD). Both models exist. There are also ample examples of proven mechanisms within the government for evaluating quality of work and measuring milestones and deliverables.

    On the issue of government acting as an investor and getting repaid – Uncle Sam has long provided a substantial amount of funding to private businesses through grants and contracts especially for high priority national needs, paradoxically both weapons and new medicines. The infrastructure is in place at NIH and elsewhere to protect intellectual property and proprietary information. The government does not take an equity position in the recipient company, but it does retain a fully-paid license to the resulting intellectual property (so-called “march-in rights”). Passage of the Bayh-Dole Act of 1980 was intended to encourage all grantees, non-profit or for-profit, to pursue patents and commercialization of inventions made using government funds.

    Taxpayers Want/Need New Medicines
    Finally, our experience is that most taxpayers and appropriators are surprised to learn that so much of the NIH budget is devoted to basic research when there are diseases for which new therapies – over many decades – have proven so elusive. In general, we think that tax payers believe nearer-term advancements to patient care should be given higher funding priority, especially during the current period of flat or declining federal budgets. Since the biotechnology industry, while not perfect, has proven itself to be a highly competitive engine of new drug development, we think it’s appropriate to explore new ways that the government can support this important work.