Joseph A. DiMasi, Ph.D.

1
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

2
Agenda

• New Drug development times
• Risks in new drug development
• RD costs and returns for new drugs
• Pace of competitive development
• Impact of improvements to the RD process
• Trends in new drug pipelines

3
New Drug Development Times
4
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
5
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
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 RD Productivity
9
New Drug Approvals Are Not Keeping Pace with
Rising RD Spending
RD Expenditures
New Drug Approvals
RD expenditures are adjusted for inflation
Source Tufts CSDD Approved NCE Database, PhRMA,
2005
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, 87th Congress, 1st
Session, Study of Administered Prices in the
Drug Industry, June 27, 1961, p.136
11
Pharmaceutical RD Costs and Returns
12
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

13
Out-of-Pocket and Capitalized Costs per Approved
Drug
Source DiMasi et al., J Health Economics
200322(2)151-185
14
Pre-approval and Post-approvalRD Costs per
Approved Drug
Source DiMasi et al., J Health Economics
200322(2)151-185
15
Annual Growth Ratesfor Out-of-Pocket RD Costs
Source DiMasi et al., J Health Economics
200322(2)151-185
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 RD Costs

• RD 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)

19
Summary for RD 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

20
Returns to New Drug Development
21
Present Values of Net Sales and RD Costfor New
Drugs by Sales Decile (millions of 2000 )
Source Grabowski et al., PharmacoEconomics 2002
20(Suppl 3)11-29
22
Biopharmaceutical RD Costs
23
Transition Probabilities for Clinical Phases
Source DiMasi and Grabowski, Managerial and Dec
Econ 2007, in press
24
Clinical Development and Approval Times
97.7
90.3
Source DiMasi and Grabowski, Managerial and Dec
Econ 2007, in press
25
Pre-Approval Out-of-Pocket (cash outlay) and Time
Costs per Approved New Biopharmaceutical
Based on a 30.2 clinical approval success rate
All RD costs (basic research and preclinical
development) prior to initiation of clinical
testing
Source DiMasi and Grabowski, Managerial and Dec
Econ 2007, in press
26
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 RD and production of
  clinical supplies much more expensive for
  biopharmaceuticals

27
Biopharmaceutical and Pharma RD Costs Compared
28
Pre-Approval Out-of-Pocket Cost per Approved New
Molecule
All RD 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
29
Pre-Approval Capitalized Cost per Approved New
Molecule
All RD 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
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
200422(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
200422(Suppl 2)1-14
33
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
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)
Ten largest pharmaceutical firms
Source Tufts CSDD Impact Report, 8(3) May/June
2006
39
Trends in New Drug Development Pipelines by
Therapeutic Class
Ten largest pharmaceutical firms
Source Tufts CSDD Impact Report, 8(3) May/June
2006
40
Large Pharmaceutical Firms are Increasingly
Licensing-in New Drugs
Ten largest pharmaceutical firms
Source Tufts CSDD Impact Report, 8(3) May/June
2006
41
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