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Joseph A. DiMasi, Ph.D. Director of Economic Analysis Tufts Center for the Study of Drug Development Tufts University SLA Pharmaceutical & Health Technology.

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Presentation on theme: "Joseph A. DiMasi, Ph.D. Director of Economic Analysis Tufts Center for the Study of Drug Development Tufts University SLA Pharmaceutical & Health Technology."— Presentation transcript:

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

2 Agenda u New Drug development times u Risks in new drug development u R&D costs and returns for new drugs u Pace of competitive development u Impact of improvements to the R&D process u Trends in new drug pipelines

3 New Drug Development Times

4 Total Phase IND Phase Approval Phase Points are 3-year moving averages Mean U.S. Approval and Clinical Phases for U.S. New Drug Approvals, Source: Tufts CSDD, 2006

5 Clinical and Approval Times Vary Across Therapeutic Classes, Source: Tufts CSDD,

6 New Drug Development Risk

7 Approval Success Rates for NCEs Also Vary by Therapeutic Class Source: Tufts CSDD Impact Report, 8(3): May/June 2006

8 Pharmaceutical R&D Productivity

9 New Drug Approvals Are Not Keeping Pace with Rising R&D Spending Source: Tufts CSDD Approved NCE Database, PhRMA, 2005 R&D expenditures are adjusted for inflation R&D Expenditures New Drug Approvals

10 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, 87 th Congress, 1 st Session, Study of Administered Prices in the Drug Industry, June 27, 1961, p.136

11 Pharmaceutical R&D Costs and Returns

12 Opportunity Cost for Investments u Consider two investment projects, A and B u Both projects require the same out-of- pocket expenditure (say, $400 million) u However, returns to A are realized immediately, but investors must wait 10 years before returns to B are realized u Rational investors would conclude that B is effectively much costlier than A

13 Out-of-Pocket and Capitalized Costs per Approved Drug Source: DiMasi et al., J Health Economics 2003;22(2):

14 Pre-approval and Post-approval R&D Costs per Approved Drug Source: DiMasi et al., J Health Economics 2003;22(2):

15 Annual Growth Rates for Out-of-Pocket R&D Costs Source: DiMasi et al., J Health Economics 2003;22(2):

16 Mean Number of Subjects in NDAs for NMEs Sources: Boston Consulting Group, 1993; Peck, Food and Drug Law J, 1997; PAREXEL, 2002

17 Clinical Trial Complexity Index (Phases I-III) Source: DataEdge, 2002

18 Summary for R&D Costs u R&D costs have grown substantially, even in inflation-adjusted terms u The growth rate for discovery and preclinical development costs has decreased substantially u Conversely, clinical costs have grown at a much more rapid rate u 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)

19 Summary for R&D Costs (cont.) u 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

20 Returns to New Drug Development

21 Present Values of Net Sales and R&D Cost for New Drugs by Sales Decile (millions of 2000 $) Source: Grabowski et al., PharmacoEconomics 2002; 20(Suppl 3):11-29

22 Biopharmaceutical R&D Costs

23 Transition Probabilities for Clinical Phases Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press

24 Clinical Development and Approval Times Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press

25 ** All R&D costs (basic research and preclinical development) prior to initiation of clinical testing Pre-Approval Out-of-Pocket (cash outlay) and Time Costs per Approved New Biopharmaceutical* * Based on a 30.2% clinical approval success rate Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press

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

27 Biopharmaceutical and Pharma R&D Costs Compared

28 * All R&D costs (basic research and preclinical development) prior to initiation of clinical testing Pre-Approval Out-of-Pocket Cost per Approved New Molecule ** 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

29 * All R&D costs (basic research and preclinical development) prior to initiation of clinical testing Pre-Approval Capitalized Cost per Approved New Molecule ** 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

30 The Pace of Competitive Development

31 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

32 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

33 Follow-on Approvals Create Competition Resulting in Price Discounts Source: DiMasi, 2000 [http://aspe.hhs.gov/health/reports/drug- papers/dimassi/dimasi-final.htm] * Analysis based on FYs

34 Impact of Improvements in Drug Development Productivity

35 Cost Reductions from Higher Clinical Success Rates Source: DiMasi, PharmacoEconomics 2002; 20(Suppl 3):1-10

36 Cost Reductions from Simultaneous Percentage Decreases in All Phase Lengths Source: DiMasi, PharmacoEconomics 2002; 20(Suppl 3):1-10

37 Trends in Drug Development Pipelines

38 Clinical Testing Pipelines for Large Pharmaceutical Firms* Have Grown in Recent Years (Phase I Starts per year) Source: Tufts CSDD Impact Report, 8(3): May/June 2006 * Ten largest pharmaceutical firms

39 Trends in New Drug Development Pipelines* by Therapeutic Class Source: Tufts CSDD Impact Report, 8(3): May/June 2006 * Ten largest pharmaceutical firms

40 Large Pharmaceutical Firms* are Increasingly Licensing-in New Drugs Source: Tufts CSDD Impact Report, 8(3): May/June 2006 * Ten largest pharmaceutical firms

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


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