By Dean A. Haycock
Special To BioWorld Financial Watch
The Washington-based Pharmaceutical Research and Manufacturers of America (PhRMA) says in its PhRMA Industry Profile that, despite recent efforts to reduce the time required to gain regulatory approval for new drugs for example, the FDA Modernization Act (FDAMA) of 1997 the drug discovery and development process remains "time-consuming, complex, and highly risky."
A survey of cost estimates by industry and private groups indicates it is not getting any cheaper.
"One reason could be that the clinical trial process is becoming more complex," said Joseph DiMasi, director of economic analysis at the Tufts Center for the Study of Drug Development, an independent, nonprofit academic research group in Boston.
"Some have argued that regulatory burdens have increased," DiMasi told BioWorld Financial Watch. "It's hard to pin that down. Firms may be also shooting for tougher targets. They may be focusing development more on drugs for treating chronic conditions as opposed to acute conditions, which tend to have lower costs."
Even slicing a year off the time required to gain approval for a new drug, as FDAMA is expected to do, will not likely produce a very significant cut in the cost of developing new drugs. Researchers at the Tufts center have documented the increasing amount of time that drugs are tested in the clinic before being approved by the FDA.
Between 1990 and 1996, the clinical development time was 6.7 years. In the 1980s, it was 5.5 years. In the 1970s, it was 4.4 years.
Alan Holmer, a spokesman for PhRMA, estimated each drug costs an average of $500 million to develop, and takes between 12 and 15 years to reach the marketplace from the time it is discovered in the laboratory.
DiMasi said, "If you understand it to mean the full cost estimate, including the cost of failures and the cost of having funds tied up for a period of time, it may even be higher depending on what you assume about interest and discount rates."
Holmer estimated the industry is investing $24 billion in research and development this year. PhRMA member firms invested an estimated $15.6 billion on research and development in 1996, up from $8.4 billion six years earlier. In 1985, the figure was $4.1 billion, and in 1970, $2 billion.
PhRMA claims that between 5,000 and 10,000 compounds must be synthesized and screened to produce one FDA-approved drug. First, animal studies of the drug candidate's biological effects and toxicological profile are done. Clinical trials may begin a month after an investigational new drug application is filed with the FDA, if the federal agency does not require further data to satisfy its concerns about safety or other issues surrounding the proposed trials.
A significant portion of the time and complexity involved in getting the drug from lab to marketplace can be attributed to the various phases of the clinical trial process that each prospective drug must pass. All three phases of the clinical trial process must be completed before a new drug application can be submitted to the FDA. According to information provided by DataEdge, a research firm in Ft. Washington, Pa., the total cost per patient in the U.S. for testing a new drug in the clinic is nearly $21,000. This cost, according to DiMasi, includes investigator fees and laboratory costs.
"[That number] doesn't include some of the monitoring costs within the firm, the infrastructure that they apply to the clinical trials, and it probably doesn't include the cost of clinical supplies," DiMasi said.
Phase I clinical trials involve safety studies, which are conducted on a small number of usually healthy volunteers normally between 20 and 80 of them. These early human experiments are monitored for side effects and are used to identify the best doses of the drug that will be incorporated in the next phase of clinical testing.
The total cost per patient for Phase I trials is $7,700, DataEdge says.
DiMasi has published extensively on the economics of pharmaceutical drug research and development. He told BioWorld Financial Watch that the mean cost for new chemical entities (NCE) entering Phase I testing in 1997 dollars was $2.3 million for small firms, $3.2 million for medium-sized firms and $3.3 million for large firms. These figures apply to drugs developed in-house, not to drugs licensed from other companies. DiMasi and his colleagues defined small, medium and large firms as "those that had average annual sales [in 1993 dollars] during the period of 1970 to 1974 of less than $500 million, $500 million to $600 million, and more than $600 million, respectively."
These firms have been estimated to have mean U.S. pharmaceutical sales (expressed in 1993 dollars) during the period from 1970 to 1974 of $261 million, $560 million and $894 million, respectively.
Phase II typically involves 100 to 300 test subjects. Here, the primary goal is to document preliminary indications of the drug's efficacy. The appearance of side effects, of course, are still closely monitored. The total cost per patient in Phase II trials, according to DataEdge, is $7,000. DiMasi's figures for this phase of human testing are $4.2 million for small firms, $6.6 million for medium-sized firms and $6.6 million for large firms.
Phase III studies typically include 1,000 to 3,000 patients in more than one center. These larger-scale trials are used to confirm the positive indications from the Phase II trials, and to look for side effects in a larger population of patients. The significantly larger sample size increases the chances of recognizing infrequent side effects. DataEdge says the cost per patient in Phase III is $6,200.
In Phase III, DiMasi finds wide variations in mean costs by firm size, with small firms paying $6.1 million, medium firms $19.3 million and large firms $28.3 million to reach this stage in the development process.
DiMasi and his co-authors found that clinical cost per tested NCE increased with respect to firm size. They estimate the out-of-pocket cost per NCE in clinical trials to be $16.6 million for large firms 12 percent higher than the cost for medium firms and 45% higher than for small firms. The economists suggest that either small firms are more efficient at developing new drugs, or they are aiming for less innovative drug development targets.
"It is important for investors to understand what goes into the full cost figures," DiMasi said. "They have to realize that these large research programs are going to have successes and failures, and the failures have to be paid for. Those are legitimate costs of doing business in this area. Of course, they also have to realize that the drug development process is lengthy. They will be making an investment that won't pay off for some time." *