Kenneth I Kaitin, Ph.D.

1
Current Environment for Pharmaceutical
InnovationDrug Development Trends and the Value
of Follow-On Innovation
Kenneth I Kaitin, Ph.D. Director, Tufts Center
for the Study of Drug Development, Tufts
University EFPIA Forum Workshop on
Therapeutic Reference Pricing Ljubljana,
Slovenia, March 10, 2006
2
The Current Environment for Innovation
3
Major Threats to Pharmaceutical Innovation

• Industry productivity and output
• Rapidly rising RD costs
• Increasing size of clinical trials
• Increasing regulatory pressure
• Political threat of price controls in US
• Rising global healthcare costs
• Global price disparities
• Public discontent
• Safety of prescription drugs
• Regulatory agency accountability
• Industry Rx marketing practices

4
New Drug Approvals Are Not Keeping Pace with
Rising RD Spending
RD Expenditures
NCE Approvals
RD expenditures are adjusted for inflation
Source Tufts CSDD Approved NCE Database, PhRMA,
2005
5
Pharma Industry Sales are Generally Keeping Pace
with RD Spending
RD Expenditures
Pharma Sales
Source PhRMA, Tufts CSDD Analysis, 2005
6
NME Approvals are Declining Biologics are
Filling the Void
Source FDA
7
Growing Percentage of NME Approvals are from
Small/Mid-Tier Pharma Firms
31
24
21
17
Source Ventiv Health, 2005
8
Current Drug Development Metrics
9
Clinical and Approval Times over Two Decades
PDUFA Enacted
Source Tufts CSDD Approved NCE Database, 2005
10
Clinical and Approval Times Vary Across
Therapeutic Classes, 2002-04
12.6
10.2
8.5
7.6
6.9
9.6
7.5
6.3
Source Tufts CSDD, 2005
11
Approval Success Rates for NCEs Also Vary by
Therapeutic Class
Source DiMasi, Clin Pharm Ther, 200169297-307
12
Capitalized Costs have Increased 481 from the
1970s to the 1990s
802
318
138
Source DiMasi et al., J Health Econ,
200322151-185
13
Drivers of Rising Clinical Costs

• Chronic and complex indications
• Clinical trial size
• Patient recruitment/retention
• Regulatory demands
• RD inefficiency
• Market oriented studies

14
Opportunities and Challenges for Research Based
Pharma Industry

• Opportunities
• Positive regulatory climate in US and EU
• Rapid expansion of scientific knowledge
• Move to smaller niche markets
• Collaborative relationships with small tier
  pharma and biotech firms
• Challenges
• Rapidly rising RD costs
• Declining market exclusivity periods
• MAs and industry consolidation
• Public/political pressure to stem healthcare costs

15
The Economics of Follow-on Drugs
16
Me-Too Drug Questions to Consider

• Do follow-on-drugs raise or lower drug prices?
• Are follow-ons the result of duplicative and
  after-the-fact research (sequential development),
  or are they mainly the result of a multi-firm
  race (parallel development) for clinical
  advances?
• Are follow-ons perfect substitutes, or do they
  offer product differentiation and choice from
  diverse product profiles and varying individual
  responses?
• Is the first-in-class the best-in-class?
• Are follow-on drugs less safe?

17
Follow-on Approvals Create Competition Resulting
in Price Discounts
Analysis based on FYs 1995-1999.
Source DiMasi, 2000 http//aspe.hhs.gov/health/r
eports/drug-papers/dimassi/dimasi-final.htm
18
Tufts CSDD examined development timelines and
approval dates for follow-on drugs in relation to
first-in-class approvals for 72 classes and 307
approvals.
19
Percent of Follow-on Drugs Reaching Milestone at
Time of First-in-Class Approval
Source DiMasi, Paquette, Pharmacoeconomics
200422(Suppl 2)1-14
20
Market Exclusivity for First-in-Class has
Declined Mean Time to First Follow-on Approval
Source DiMasi, Paquette, Pharmacoeconomics
200422(Suppl 2)1-14
21
Clinical Options Safety, Efficacy, and
Convenience Trade-offs

• Example interferons to treat multiple sclerosis
  (Betaseron, Avonex, and Rebif)
• Therapies differ in relapse rates, injection site
  reactions, elevated liver function tests,
  leukopenia, rates at which neutralizing
  antibodies are developed, and frequency of
  injections
• Diversity in outcomes offers choices that can be
  made by individual patients in consultation with
  their physicians

22
Is First-in-Class the Best-in-Class FDA
Therapeutic Ratings for Follow-on Drugs
Analysis based on 235 follow-on drugs in 72
subclasses, approved through 2003. Ratings not
available for 7 drugs.
Source DiMasi, Paquette, PharmacoEconomics
200422(Suppl 2)1-14
23
Are Follow-on Drugs Riskier? Safety Withdrawals

• Examined our 72 classes for safety withdrawals
  for first-in-class and follow-on approvals
• 2 first-in-class and 7 follow-on drugs withdrawn
  (7 drug classes with 43 drugs)
• Considering all 72 classes, 2.8 of
  first-in-class and 3.0 of follow-on drugs
  withdrawn
• Difference is not statistically significant

24
In Summary

• Follow-on drugs create competition resulting in
  lower drug prices
• Development of follow-on drugs often occurs
  contemporaneously with that of first-in-class
  drug
• Market exclusivity periods for first-in-class
  drugs are shrinking, speeding price competition
• Follow-on drugs can provide clinical benefits by
  enabling individualized therapy or offering
  improved safety/efficacy/convenience profiles
• Follow-on drugs do not appear to be riskier

25
Conclusions
26
Conclusions

• Research-based pharma firms must meet the demand
  for innovative new drugs in the face of rising
  RD costs and growing cost containment pressure.
• Government must work to create an environment
  that provides incentives to innovate while
  controlling health care spending and ensuring
  patient access to new medicines.
• Industry and government must work together to
  meet the challenge.

27
Tufts Center for the Study of Drug
Development Tufts University, Boston,
Massachusetts, USA Kenneth I Kaitin, Ph.D.,
Director Website http//csdd.tufts.edu email k
enneth.kaitin_at_tufts.edu