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Economics of Pharmacogenomics

Economics of PharmacogenomicsThe pharmacogenomics promise essentially suggests that more targeted therapies will be delivered to patients, but rarely discusses if these promises are economically attractive based on the current market dynamics. The pharmacogenomics promises presented in literature suggest these benefits will be achieved either through an improvement in adverse events (by dose adjustments based on genetically determined rates of drug metabolism), or by a more targeted selection of patients (by identifying genetic profiles that show a higher success rate with particular therapies).


Product Development Challenges

Especially in the latter example, but also to some degree in the former there will be an impact on pharmaceutical research costs for late phase trials.  Although this issue is likely to be true to some degree related to the use of pharmacogenomics for adverse event management, its impact on the economic viability of pharmaceutical commercialization is less dramatic, and for this reason will not be discussed further. Instead this discussion will focus on the application of pharmacogenomics for the targeted selection of patients.


DNA Tests The cost challenges depend on how many variations there are in genetic profiles, as studies must enroll a sufficient number of subjects for each variation to be able to detect statistically significant differences compared to current standards of care. This will in most cases mean larger sample sizes are required.   In many cases it may be difficult to find the intended patients, and this can also translate into a longer enrollment period, which in many cases will have a negative impact on the duration of market exclusivity for the product.  Finally the results of many of these trials will suggest that only some variants will have acceptable success rates, and others will have much lower success rates, resulting typically in a smaller target population for its use.


Impact on Technology Pricing

Higher trial costs, shorter effective market exclusivity, and smaller target markets; the simple economic translation for the pharmaceutical industry is much higher price tags for these products.  We have seen evidence of this with the newer targeted cancer and HIV drugs (e.g.Herceptin, Ziagen).  


These higher price tags are not necessarily a problem. Higher price tags can be acceptable if the drugs are more effective, but as is usually the case from an economic perspective the acceptability of the price depends on the market dynamics.  


Developing countries In developing countries most patented drugs are not affordable options for the masses, as governments do not have sufficient financial resources to pay, and its citizens by and large do not have the ability to pay.  Newer pharmacogenomic based pharmaceuticals will be that much further out of reach for these populations, hence we are not likely to see the benefits of pharmacogenomics in these markets other than through philanthropic work.


In the private pay market in the developed countries the ability or willingness to pay must be balanced against the perceived value by the health professional or end consumer.   If the pharmaceutical industry can convince health professionals and consumers that the increased efficacy justify the extra cost (which they have proven to be quite effective at) then the product will have a viable market, and will be able to generate sales. This is the market segment that is likely to provide greatest value to the pharmaceutical industry.


The more interesting situation is in the markets where a sizeable percentage of the expenditures for pharmaceuticals are through the public purse and includes such countries as Canada, United Kingdom, France, Germany, Italy, Sweden, Switzerland, and Australia.  Although collectively these markets represent less than half of the current world market for pharmaceutical sales (and likely closer to one quarter), all of these markets are much more price sensitive, due largely to resource constraints. As a consequence most have employed some form of cost-effectiveness threshold for reimbursement as a way to ration new technologies. These thresholds typically evaluate the cost per life year gained (or quality adjusted life year gained), and determine a value that they consider acceptable, refusing in most cases to reimburse products that exceed these thresholds.


Public fundsThe public payer markets is where the real challenge with the adoption of  pharmacogenomics influenced pharmaceuticals are likely to occur.  With a smaller target population, more expensive trials, and in some cases a shorter period of market exclusivity it is much more likely that the cost-effectiveness of these products will exceed the currently held cut-offs for funding in most of these countries.  With the public payer often refusing to pay, the question then becomes who is willing or able to pay for this technology in these markets?


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Author : Christopher J. Longo, Ph.D.



  • Foster MW, Sharp RR. (2005) Will investments in biobanks, prospective cohorts, and markers of common patterns of variation benefit other populations of drug response and disease susceptibility gene discovery? The Pharmacogenomics Journal, 5: 75-80.

  • Shastry BS. (2006) Pharmacogenetics and the concept of individualized medicine. The Pharmacogenomics Journal, 6: 16-21.

  • Williams-Jones B, Corrigan OP. (2003). Rhetoric or hype. Where’s the ethics in pharmacogenomics. Am J Pharmacogenomics, 3(6): 375-383.


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