Can stratified medicines sustain industry economics?
A useful exercise strips a problem to its essential elements, then asks what one would observe if those key elements change — often with surprising results. Such ‘Gedanken experiments’ became famous through the work of physicists such as Einstein and Schrödinger. The following Gedanken experiment explores the industry economics of stratified medicine.Essential components of such a Gedanken experiment for drug development are effective patent life, development cost, average yearly sales and gross margins. Proxy measures for the economic value of the drug are lifetime gross margin and the non-discounted payback ratio compared to development costs.The first column in Table 1 describes the environment for recently approved medicines. In this environment, a reasonably successful drug with $500 million yearly sales resulting from a $1-billion development programme12 (Box 1, Note 5) having a 10-year effective patent life13 and receiving 80% gross margins14 yields a $4-billion lifetime gross p
