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Measuring Trends in the Development of New Drugs: Time, Costs, Risks and Returns. Joseph A. DiMasi, Ph.D. Director of Economic Analysis Tufts Center for the Study of Drug Development Tufts University SLA Pharmaceutical & Health Technology Division Spring Meeting Boston, MA, March 19, 2007.

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slide1

Measuring Trends in the Development of New Drugs: Time, Costs, Risks and Returns

Joseph A. DiMasi, Ph.D.

Director of Economic Analysis

Tufts Center for the Study of Drug Development

Tufts University

SLA Pharmaceutical & Health Technology

Division Spring Meeting

Boston, MA, March 19, 2007

agenda
Agenda
  • New Drug development times
  • Risks in new drug development
  • R&D costs and returns for new drugs
  • Pace of competitive development
  • Impact of improvements to the R&D process
  • Trends in new drug pipelines
mean u s approval and clinical phases for u s new drug approvals 1963 2004
Mean U.S. Approval and Clinical Phases forU.S. New Drug Approvals, 1963-2004

Total Phase

IND Phase

Approval Phase

Source: Tufts CSDD, 2006

Points are 3-year moving averages

clinical and approval times vary across therapeutic classes 2002 04
Clinical and Approval Times Vary Across Therapeutic Classes, 2002-04

12.1

9.8

8.5

7.6

6.9

7.5

8.0

6.3

Source: Tufts CSDD, 2006

approval success rates for nces also vary by therapeutic class
Approval Success Rates for NCEs Also Vary by Therapeutic Class

Source: Tufts CSDD Impact Report, 8(3): May/June 2006

new drug approvals are not keeping pace with rising r d spending
New Drug Approvals Are Not Keeping Pace with Rising R&D Spending

R&D Expenditures

New Drug Approvals

R&D expenditures are adjusted for inflation

Source: Tufts CSDD Approved NCE Database, PhRMA, 2005

recent productivity decline in the drug industry is this a unique phenomenon
Recent Productivity Decline in the Drug Industry: Is this a Unique Phenomenon?

“In 1960 the trade press of the U.S. drug industry began to refer to the last few years as constituting a “research gap,” commenting that the flow of important new drug discoveries has for some inexplicable reason diminished.”

Source: U.S. Senate, Report of the Subcommittee on Antitrust and Monopoly, 87th Congress,

1st Session, “Study of Administered Prices in the Drug Industry,” June 27, 1961, p.136

opportunity cost for investments
Opportunity Cost for Investments
  • Consider two investment projects, A and B
  • Both projects require the same out-of-pocket expenditure (say, $400 million)
  • However, returns to A are realized immediately, but investors must wait 10 years before returns to B are realized
  • Rational investors would conclude that B is effectively much costlier than A
out of pocket and capitalized costs per approved drug
Out-of-Pocket and Capitalized Costs per Approved Drug

Source: DiMasi et al., J Health Economics 2003;22(2):151-185

pre approval and post approval r d costs per approved drug
Pre-approval and Post-approvalR&D Costs per Approved Drug

Source: DiMasi et al., J Health Economics 2003;22(2):151-185

annual growth rates for out of pocket r d costs
Annual Growth Ratesfor Out-of-Pocket R&D Costs

Source: DiMasi et al., J Health Economics 2003;22(2):151-185

slide16

Mean Number of Subjects in NDAs for NMEs

Sources: Boston Consulting Group, 1993; Peck,

Food and Drug Law J, 1997; PAREXEL, 2002

summary for r d costs
Summary for R&D Costs
  • R&D costs have grown substantially, even in inflation-adjusted terms
  • The growth rate for discovery and preclinical development costs has decreased substantially
  • Conversely, clinical costs have grown at a much more rapid rate
  • New discovery and development technologies (e.g., genomics) hold the promise of lower costs in the long-run (but perhaps higher costs in the short-run)
summary for r d costs cont
Summary for R&D Costs (cont.)
  • Evidence and conjectures regarding factors affecting growth in clinical costs
    • More clinical trial subjects
    • Increased complexity: more procedures per patient
    • Patient recruitment and retention
    • Treatments associated with chronic and degenerative diseases
    • Testing against comparator drugs
present values of net sales and r d cost for new drugs by sales decile millions of 2000
Present Values of Net Sales and R&D Costfor New Drugs by Sales Decile (millions of 2000 $)

Source: Grabowski et al., PharmacoEconomics 2002; 20(Suppl 3):11-29

slide23

Transition Probabilities for Clinical Phases

Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press

clinical development and approval times
Clinical Development and Approval Times

97.7

90.3

Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press

slide25

Pre-Approval Out-of-Pocket (cash outlay) and Time Costs per Approved New Biopharmaceutical*

* Based on a 30.2% clinical approval success rate

** All R&D costs (basic research and preclinical development) prior to initiation of clinical testing

Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press

why might biopharma cost differ
Why Might Biopharma Cost Differ?
  • Biotech firms may be more nimble and creative (different corporate culture)
  • Replacement therapies may confront fewer safety issues (more relevant to early biotech era development)
  • However, biotech firms have less experience in clinical development and in interacting with regulatory authorities
  • Manufacturing process R&D and production of clinical supplies much more expensive for biopharmaceuticals
slide28

Pre-Approval Out-of-Pocket Cost

per Approved New Molecule

* All R&D costs (basic research and preclinical development) prior to initiation of clinical testing

** Based on a 5-year shift and prior growth rates for the preclinical and clinical periods

Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press

slide29

Pre-Approval Capitalized Cost

per Approved New Molecule

* All R&D costs (basic research and preclinical development) prior to initiation of clinical testing

** Based on a 5-year shift and prior growth rates for the preclinical and clinical periods

Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press

market exclusivity for first in class has declined mean time to first follow on approval
Market Exclusivity for First-in-Class has Declined: Mean Time to First Follow-on Approval

Source: DiMasi and Paquette, PharmacoEconomics 2004;22(Suppl 2):1-14

slide32
Percent of Follow-on Drugs Reaching Clinical Milestone Prior to First-in-Class Drug Reaching Same Milestone

Source: DiMasi, Paquette, PharmacoEconomics 2004;22(Suppl 2):1-14

follow on approvals create competition resulting in price discounts
Follow-on Approvals Create Competition Resulting in Price Discounts

* Analysis based on FYs 1995-1999.

Source: DiMasi, 2000 [http://aspe.hhs.gov/health/reports/drug-papers/dimassi/dimasi-final.htm]

slide34

Impact of Improvements in Drug

Development Productivity

slide35

Cost Reductions from Higher Clinical Success Rates

Source: DiMasi, PharmacoEconomics 2002; 20(Suppl 3):1-10

slide36

Cost Reductions from Simultaneous Percentage Decreases in All Phase Lengths

Source: DiMasi, PharmacoEconomics 2002; 20(Suppl 3):1-10

slide38

Clinical Testing Pipelines for Large Pharmaceutical Firms* Have Grown in Recent Years (Phase I Starts per year)

* Ten largest pharmaceutical firms

Source: Tufts CSDD Impact Report, 8(3): May/June 2006

trends in new drug development pipelines by therapeutic class
Trends in New Drug Development Pipelines* by Therapeutic Class

* Ten largest pharmaceutical firms

Source: Tufts CSDD Impact Report, 8(3): May/June 2006

large pharmaceutical firms are increasingly licensing in new drugs
Large Pharmaceutical Firms* are Increasingly Licensing-in New Drugs

* Ten largest pharmaceutical firms

Source: Tufts CSDD Impact Report, 8(3): May/June 2006

conclusions
Conclusions
  • Drug development has been and still is costly, risky, and lengthy
  • Periods of market exclusivity have shrunk for first-in-class drugs
  • The potential payoffs for improvements in the development process are substantial
  • After a period of decline, more new drugs are now entering clinical testing pipelines