Analytical Framework for Examining the Value of Antibacterial Products. 3.2.2 Pre-clinical R&D Cost


A direct link between pre-clinical expenditures and the specific drug that ends up being commercialized is difficult to establish.  For biopharmaceuticals, DiMasi and Grabowski (2007) estimate the average out-of-pocket cost of pre-clinical development that includes expenditures for both basic research and pre-clinical development at $59.9 million in 2005 dollars.  The authors’ figures are based on a sample of 17 compounds from a biotechnology company and are not specific to antibacterials.          

Table 4: Private ENPV Model Parameters and Assumptions (Point Estimates)

Real Opportunity Cost of Capital 11.0%
Pre-clinical R&D Time (in Years) 5.5
Pre-clinical R&D Cost $21,084,405
Pre-clinical R&D Success Probability 35.2%
Phase 1 Clinical Trial Time (in Years) 0.9
Phase 1 Clinical Trial Cost $9,652,500
Phase 1 Clinical Trial Success Probability 33.0%
Phase 2 Clinical Trial Time (in Years) 1.3 0.8 1.3 0.9 0.9 1.5
Phase 2 Clinical Trial Cost $9,164,533 $8,852,794 $9,129,191 $9,588,073 $9,088,073 $15,635,029
Phase 2 Clinical Trial Success Probability 50.0%
Phase 3 Clinical Trial Time (in Years) 2.0 1.0 1.0 1.8 1.8 3.3
Phase 3 Clinical Trial Cost $41,699,750 $33,640,993 $38,840,993 $50,558,507 $43,758,507 $101,375,897
Phase 3 Clinical Trial Success Probability 67.0%
FDA New Drug Application (NDA) Review Time (in Years) 0.8
NDA/BLA Submission Cost $1,958,800
NDA/BLA Success Probability 85.0%
Sample preparation for animal/human studies $2,676,066
Process research/development/design $26,760,658
Plant design $13,380,329
Plant build $82,958,039
Non-clinical Work Time (in Years) 4.0 2.6 3.0 3.5 3.5 5.5
Non-clinical Work Cost $3,700,000
Post-approval Pediatric Trial Time (in Years) 3.0
Post-approval Pediatric Trial Cost $10,000,000
Time to generic entry upon FDA Approval (in Years) 12
Percentage Reduction in Revenues due to Generic Competition 50.0%
Total Product Life (in Years) 20
Total Market Size (in $ million) $2,950 $6,590 $7,970 $4,660 $6,540 $3,470
Product Success Probability 60%

More recently, using data from Eli Lilly and Company along with industry benchmarks, Paul et al (2010) estimate the average out-of-pocket pre-clinical expenditures at $18.5 million in 2008 dollars for the pharmaceutical industry overall, which is the sum of expenditures associated with target-to-hit ($1 million), hit-to-lead ($2.5 million), lead optimization ($10 million) and pre-clinical ($5 million) stages.  In contrast to the DiMasi et al (2004) figure, Paul et al.’s (2010) estimate excludes costs associated with the earliest phase of discovery research prior to target selection.

While some experts contend that drug sponsors only include the pre-clinical stage expenditures but not those incurred prior to this stage in their private ENPV calculations, others argue that all early stage R&D expenditures enter into the decision making process.  Given that the research required to identify and validate a given target is highly variable and difficult to quantify, we only consider the cash outlays needed for target-to-hit, hit-to-lead, lead optimization, and pre-clinical development in this model.  Using figures provided by Paul et al (2010), we estimate the total cost of pre-clinical research at $21.1 million in 2012 dollars.  For sensitivity analysis, we assume that the pre-clinical cost parameter follows a triangular probability distribution with a lower limit of $19.0 million, an upper limit of $23.2 million, and a mean of $21.1 million (see Table 5).

Table 5: Pre-clinical R&D Cost Estimates (in 2012 $ million)

Source [a] Min Mean Max Comments
DiMasi & Grabowski, 2007 N/A $76.9 N/A Includes basic research and all costs associated with stages prior to clinical
Paul et al., 2010 N/A $21.1 N/A Includes costs associated with target-to-hit, hit-to-lead, lead optimization, and pre-clinical stages
ERG $19.0 $21.1 $23.2 Includes costs for the target-to-hit, hit-to-lead, lead optimization, and pre-clinical stages (screening to IND) but not very early stage R&D

N/A = Not available

[a] The figures are inflated to 2012 dollars using the CPI inflator.

[b] Italics indicate that the estimate is extrapolated based on the provided range estimate.

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