Examination of Clinical Trial Costs and Barriers for Drug Development. 4.1 High Financial Cost

07/25/2014

The largest barrier to conducting clinical research—and the one into which most other barriers feed—is the high cost. Studies estimate that it now costs somewhere between $161 million and $2 billion to bring a new drug to market (DiMasi, Hansen, & Grabowski, 2003; Adams & Brantner, 2006; Morgan, Grootendorst, Lexchin, Cunningham, & Greyson, 2011). One particularly well-known and often-cited paper by DiMasi, Hansen, & Grabowski (2003) arrives at a total pre-approval cost estimate of $802 million in 2000 dollars to develop a single drug (inflated to 2012 dollars, this estimate is $1.07 billion) (DiMasi, Hansen, & Grabowski, 2003; U.S. Bureau of Labor Statistics, 2012). More recent estimates of drug development costs are around $1.3 billion to $1.7 billion (Collier, 2009). It is important to note that the DiMasi, Hansen, & Grabowski (2003) estimate and many others in the literature represent fully capitalized costs and are inclusive of failures.

The DiMasi, Hansen, & Grabowski (2003) research on this topic is sponsored by the Tufts Center for the Study of Drug Development (CSDD) and has been the subject of much debate among researchers. Light & Warburton (2005) contend that the $802 million figure is far too high due to “problems with the data and sampling,” specifically small sample size, differences in cost allocation methods over time and across companies, upward biases in industry-reported costs, the types of drugs included, and failure to adjust for government subsidies or tax deductions/credits. Light and Warburton (2005) are also critical of the authors’ use of proprietary and confidential data which precludes independent verification (Light & Warburton, 2005). DiMasi et al. (2003) address these concerns in replies, stating that the accuracy of their results is bolstered by cross-checks against other sources and validation by the U.S. Office of Technology Assessment (DiMasi, Hansen, & Grabowski, 2005). Adams & Brantner (2006) also sought to replicate the findings of DiMasi, et al. (2003) using publicly available data. They arrived at a cost estimate of $868 million, suggesting that $802 million might actually be an underestimate. The authors caution, however, that estimated costs vary widely, depending on drug type, therapeutic area, regulatory policies, and strategic decision-making by drug sponsors. Thus, policymakers should be careful about using a single number to characterize drug development costs (Adams & Brantner, 2006).

Although experts debate the accuracy of various cost estimates, there is widespread agreement that clinical trial costs are substantial and rising. According to a 2007 article, the average cost of developing a drug had risen at a rate 7.4 percent higher than inflation over the past two decades, mostly due to rising clinical trial costs (Collier, 2009). Costs also tend to increase as a drug progresses through each phase of the pipeline, and, as the Institute of Medicine (IOM) notes, Phase 3 clinical trials have become “extraordinarily expensive” (English, Lebovitz, & Giffin, 2010). DiMasi, Hansen, & Grabowski (2003) report that the mean costs per investigational drug entering a phase are $15.2 million for Phase 1, $23.5 million for Phase 2, and $86.3 million for Phase 3. Using publicly available data and a larger sample size than DiMasi, et al., (2003), Adams & Brantner (2010) estimate the average expenditure per drug in human clinical trials at around $27 million per year, with $17 million per year on drugs in Phase 1, $34 million per year on drugs in Phase 2, and $27 million per year on drugs in Phase 3 of the trials. Note that DiMasi, et al. (2003) present costs for the average drug over the entire length of each phase, while Adams & Brantner (2010) present expenditures for one year. Multiplying the latter by average phase durations yields estimates of $24 million, $86 million, and $61 million for Phases 1, 2, and 3, respectively (Adams & Brantner, Spending on new drug development, 2010).

While the reasons for these high costs are manifold, a few key macro-level trends stand out. One contributing factor is the productivity of the drug industry in past years. High levels of investment in research and development have yielded so many drugs that companies are now finding it difficult to develop truly innovative pharmaceuticals. As a result, most new drugs are actually just variations of existing drugs, intended to be only incrementally more effective or safer than those already on the market. Detection of such small, incremental improvements requires studies with large numbers of patients (Collier, 2009), and with greater numbers of participants comes greater expenditure on recruitment efforts, data collection, compliance with administrative requirements, and other trial components.

In addition, there has been a shift in the biopharmaceutical industry toward chronic and degenerative disease research, which, given the aging of a large segment of the population, has the potential to secure steady and sizeable revenue streams for companies who can capture a share of these markets (Collier, 2009; DiMasi, Hansen, & Grabowski, 2003). On the other hand, however, clinical trials for these chronic conditions (such as arthritis, dementia, and cardiac diseases) tend to involve complex and expensive testing, large numbers of patients, and long timeframes, as extended drug exposure is required in order to identify potential long-term effects. Multiplying these long-term data requirements by large numbers of patients yields enormous volumes of data that must be collected, processed, analyzed, and reported, all at great cost to the sponsor.

Another significant trend contributing to higher clinical trial costs is the increased use of health care cost containment strategies, such as tiered formularies and cost-effectiveness data requirements, in the United States and other countries. In response to these measures, drug sponsors might choose to devote more of their clinical research budgets to trials that compare their drug to a competitor drug, as opposed to trials that compare their drug to a placebo. As discussed above, this can lead to increased expenses, as larger trial sizes are needed to demonstrate statistical significance in comparisons of multiple drugs (DiMasi, Hansen, & Grabowski, 2003).

Other cost drivers, which are discussed in more detail in subsequent sections, include increasingly complex clinical trial protocols, conservative approaches to data and site monitoring, and delays caused by differing interpretations of requirements by different parties involved in multicenter trials (Collier, 2009).

The increasing cost of clinical research has significant implications for public health, as it affects drug companies’ willingness to undertake clinical trials. Many companies are taking their trial operations—and their research dollars—to other countries, such as India and China, where trial costs can be up to 60 percent lower (Collier, 2009). Some researchers argue that rising clinical trial costs have made the industry as a whole more risk averse; with such large sums of money at stake, sponsors are less willing to take chances on novel drugs (Collier, 2009). Clinical research centers are also more closely scrutinizing the types of clinical trials they will take on, out of concern that certain projects will fail to be profitable and put them in a deficit (e.g., due to complicated protocols or low per-patient grant amounts) (Collier, 2009; Getz K. A., 2010a).

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