"What I especially liked about today's presentation is that it showed how theory works in practice," said Souran Chatterjee, CEU researcher and PhD candidate. Zoltan Kalo drew on his many years of practical experience to explain how investment decisions are made in pharmaceutical R&D. "This is a topic," he said, "that you can never read about in textbooks."
Kalo, who is a professor of health economics at Eotvos Lorand University (ELTE) in Budapest, made his presentation to students enrolled in Cost Benefit Analysis of Public Decisions, a two-credit elective taught by Visiting Professor Izabella Barati-Stec.
As Kalo explained, the pharmaceutical R&D process is an especially risky business. Only one or two compounds out of 10,000 make it to market. Of those products that make it to market, about 20 percent are withdrawn or given a "black box warning," the term used in the industry for the label that appears on some products (such as packets of cigarettes) warning of possible risks or side effects.
The R&D process is very long and includes early phase research (4-6 years), preclinical testing (one year), and clinical trials and regulatory review (6-7 years). "The world can change a lot during this time," said Kalo noting that some of these changes, such as the emergence of new products, can change the cost-benefit analysis. The R&D process in the pharmaceutical industry is also very expensive costing hundreds of millions of dollars. Interestingly, most of these expenses occur toward the end of the R&D process, during Phase III, when companies administer the drug to large groups of people to test its efficacy, identify side effects, and compare it to other treatments that are already available and widely used.
Many drugs – sometimes quite promising drugs – are not launched because, according to Kalo, "they won't make money." He went on to explain that because so much of the cost of developing a drug is incurred in Phase III, "if you're going to kill a product, you want to do so before then." Most products are abandoned long before Phase III – primarily for financial reasons. MAPP student Togrul Safarzade ('16) commented that he was especially interested to hear about "the long process that pharmaceutical companies go through before their products appear in the market."
The person with the authority on whether or not to move ahead with a particular product varies depending on where you are in the product cycle. Investors have a large voice. So too do regulators. They are the ones who assess the risk/benefit profile of a particular drug. The European Medicines Agency, which Kalo described as "one of the most successful EU organizations," is responsible for evaluating medical products for all EU member countries.
Kalo cited January 2016 news stories about the clinical trial in France that led to the death of one person and the hospitalization of five others to demonstrate that the risks involved in the pharmaceutical R&D process are not just financial.
"I was so pleased to be able to get Professor Kalo to speak to the class. His knowledge and experience are invaluable, and was so interesting for the students – and for me too," said Barati-Stec.