Executing our socio-economic mission requires the price of our FSHD drugs (if and when approved) to be low enough to be affordable, and high enough to generate the funds necessary to expand treatment options and to support projects that give people with FSHD a higher quality of life. These two requirements may sound contradictory, but in fact they are not. All we need is a viable way to ensure affordable prices; in that case, prices only need to include a fair margin to achieve our other goals. The key to affordable pricing is getting a bigger bang for the buck by means of strict cost management, simply because lower cost means a lower need for cost recovery through sales. We follow two cost management rules:
• Spend less: only incur costs if and when they are necessary;
• Achieve more: when costs are incurred, make them as productive as possible.
We spend less because we solely focus on FSHD therapy development. Therefore, we only engage in activities on the critical path to that goal and thus only incur “therapy-critical” costs. That is why our drug discovery program is primarily designed to identify compounds that repress DUX4, not to test a biochemical hypothesis about DUX4 repression and then – if the hypothesis proves to be correct, which may or may not be so – find a compound that fits the hypothesis. When in the course of our work we encounter interesting but non-critical issues, we do not pursue them. Neither do we explore if our compounds can be used to treat diseases other than FSHD.
We also spend less because we are a network company, and thus keep therapy-critical costs flexible by outsourcing all associated activities (currently to Evotec). We do not and will not have an expensive R&D infrastructure to maintain. Likewise, we outsource support services. Outsourced activities are more costly because providers charge a margin, but when completed they can be terminated immediately. That enables us to keep fixed cost at a functional minimum. We only maintain a small core team that is charged with essential strategic and management tasks (including management of outside relationships), and we pay our staff fair but, compared to industry standards, moderate compensation. Our Board members have waived compensation. Our real-estate costs are limited to the lease of a single office space. Our capital expenditure is limited to computers and office furniture. We will also spend less on the cost of goods because we work with relatively simple compounds that can be manufactured. There are many contract manufacturers that offer this service.
We achieve more by boosting the productivity of therapy-critical costs. This is a direct consequence of our R&D approach being built on improving the chance of success of therapy-critical activities early on. By being rigorous in our R&D, we reduce the risk of clinical drug development failure, also known as “attrition”. This is very important because in the traditional pharmaceutical industry attrition rates are high (various studies show that overall only about 5% of drugs entering clinical studies ultimately get approved). High attrition drives drug prices up because the costs of failure, which can be quite substantial, can only be recovered by the few drugs that do make it to market.
As the public debate on drug pricing both widens and deepens, it might appear that affordable drug pricing is a political issue that requires a political solution. We beg to differ. Affordable drug pricing is a business issue that requires a business solution, and that solution is cost efficiency based essentially on focus and rigor.