Spending on New Drug Development

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Spending on New Drug Development
Christopher P. Adams Federal Trade Commission
Saturday, January 26, 2008 (Joyeux Anniversaire
à Australie) Toulouse

• Disclaimer This presentation does not
  necessarily represent the views of the FTC or any
  individual Commissioners.

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Industry Background

• 16b or 9 of all industry RD expenditure (NSF
  2003).
• Medical care expenditure 1,589b or 17 of total
  personal consumption (BEA 2006).
• Saves lives.

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Duggan Evans 2007
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Overview

• Drug Development Process
• Cost of Drug Development
• Vaccines vs. Drugs
• Incentives to Develop New Drugs
• Summary

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Overview

• Drug Development Process
• Cost of Drug Development
• Vaccines vs. Drugs
• Incentives to Develop New Drugs
• Summary

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Drugs Development Process Summary

• Preclinical Testing - arrays and animal models.
• Investigational New Drug (IND) filed with FDA.
• Phase I Safety tests with 20-30 healthy
  patients.
• Phase II Safety and efficacy with 200-300
  patients.
• Phase III Efficacy with 2000-3000 patients.
• New Drug Application (NDA) filed with FDA.
• FDA marketing approval.

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Overview

• Drug Development Process
• Cost of Drug Development
• Vaccines vs. Drugs
• Incentives to Develop New Drugs
• Summary

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Cost of Drug Development

• June 16 2005 Economist
• In most industries such figures on the cost of
  product development are of purely internal
  interest. In the pharmaceuticals business,
  however, they have become the subject of public
  debate because they are (incorrectly) linked to
  drug prices.

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Cost of Drug Development

• DiMasi et al (2003)
• 802m per New Molecular Entity
• Two parts to the estimation
• Actual expenditure on drugs in development.
• Probability of success and successful durations.

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Cost of Drug Development

• Expenditure on Drug Development
• Match number of drugs in development per firm per
  year with data on annual expenditure on
  pharmaceutical RD.
• Development data Pharmaprojects
• RD expenditure CompuStat and Global Vantage

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Cost of Drug Development

• Expenditure on Drug Development
• 25m per drug per year in Clinical Trials.
• 17m in Phase I (DiMasi et al 15m)
• 32m in Phase II (DiMasi et al 25m)
• 19m in Phase III (DiMasi et al 86m)

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Abrantes et al (2005)
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Cost of Drug Development

• Probability of Success and Durations

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Cost by Firm
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Cost by Indication
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Cost of Drug Development What does it mean?

• Does not determine price.
• Not a measure of expenditure.
• 21m to 25m per drug per year in human clinical
  trials.
• An investment hurdle

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Overview

• Drug Development Process
• Cost of Drug Development
• Vaccines vs. Drugs
• Incentives to Develop New Drugs
• Summary

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Vaccines vs. Drugs Success Rates and Durations
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Vaccines vs. Drugs AIDS Success Rates and
Durations
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Vaccines vs. DrugsAIDS Vaccines in Development
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Vaccines vs. Drugs Cost of Drug Development
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Overview

• Drug Development Process
• Cost of Drug Development
• Vaccines vs. Drugs
• Incentives to Develop New Drugs
• Summary

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Incentives to Develop New DrugsDeciles of Drug
Revenue
800m
Grabowski et al., 2002
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Incentives to Develop New DrugsEmpirical
evidence

• 1 increase in market size leads to 6 new drugs
  entering the market (mostly generic drugs)
  (Acemoglu and Lynn (2004)).
• Change in government vaccine policies increase
  the number of vaccine trials by 2.5 times
  (Finkelstein (2004)).
• For vaccines a 1 increase in market size leads
  to a 0.06 increase in investment (Finkelstein
  (2004)).

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Summary

• Cost of Drug Development
• 25m per drug per year
• 500m to 2,000m.
• Vaccines are more costly.
• Market size matters, but how much?