Market Barriers to the Development of Pharmacotherapies for the Treatment of Cocaine Abuse and Addiction: Final Report. Discussion


As illustrated in the "Big Pharm Cold Start" scenario, the prospects of developing a new medication for cocaine abuse and taking it through a full product development cycle do not appear favorable given a moderate wholesale price comparable to LAAM ($2.50 per patient per day) and what amounts to an optimistic target market of 125,000 patients (i.e., 50 percent of the estimated 250,000 people currently enrolled in treatment for cocaine abuse). Although the R&D tax breaks of orphan status can provide modest improvements in NPV, orphan status affords no additional protection for products whose patents have yet to expire. The prospects of delayed competition, in the form of orphan status or delayed entry of a non-generic competitor, can make modest improvements in financial outlook, although its effect on NPV may appear small from the standpoint of a decision maker who is discounting cash flow that will occur 13 or more years in the future.

The Big Pharm scenario does illustrate that, in order to achieve financial indicators that are more in line with traditional targets of large companies, a considerable improvement in price and/or market penetration must be realized. Even assuming the 50 percent penetration of current patients, a wholesale price of $6.60 per patient per day, which is half again as high as naltrexone and two-to-three times the price of LAAM, would be required to achieve a PAR of $300 million. On the other hand, a modest and perhaps more realistic penetration of this market of 12 to 16 percent (i.e., 30,000 to 40,000 patients) could yield a PAR in the neighborhood of $300 million if a cocaine medication were priced at the premium levels that are afforded triple pharmacotherapy for HIV/AIDS, i.e., $10,000 per patient per year (equivalent to $27.40 per patient per day with perfect compliance all year.) More conservative analysis assuming a price equivalent to LAAM ($2.50 per day), a 10 percent penetration of the 250,000 current daily patients, no assurance of orphan status, and the appearance of a competing drug sometime soon after launch would yield a PAR of $20 million and an NPV of a loss of $71 million.

The "Biotech Gets Help" scenario suggests that, even for a company that is confident that it can develop a highly promising molecule with a relatively modest level of R&D expenditures and somewhat lower targets for financial performance, some combination of additional incentives may be needed. In this scenario, three main assumptions are made about government interventions: (a) regulatory reform that would shorten the time to launch by 1 year, (b) provision of market protection similar to orphan drug status, and (c) a significant commitment to expand treatment and financing capabilities at the state level. The expansion of treatment and financing at the state level are assumed to enable the drug to reach a peak market of 250,000 daily enrollees. Given these assumptions and a wholesale price of $2.50 per day, the scenario yields a PAR of $228 million and an NPV of $36 million, both acceptable to the company. Removing each of the government interventions lowers the financial indicators by varying levels. Removing the regulatory reform that shortens time to launch by a year decreases NPV modestly. Removing orphan status also decreases NPV modestly, and does not affect revenue because orphan protection from generic competition would not apply for a drug that will not be off patent. In contrast removal of provisions to expand treatment and financing that could reduce the market size substantially, here down from 250,000 to 125,000 daily enrollees (still an optimistic figure), would reduce PAR by half and push NPV closer to break-even. The drop in these figures would be likely to reduce significantly the number of small companies that would be willing to pursue such a project. Finally, a more pessimistic assumption of market penetration (though realistic in light of the experience of LAAM and naltrexone) of 25,000 (10 percent of current enrollees) would yield unacceptable figures of a PAR of only $23 million with a loss of $18 million for NPV.

In the "Guaranteed Handoff" scenario, the government is offering the rights to a drug that is well along in development (i.e., well into phase III trials) to a company in exchange for the company's finishing the development process and securing market approval. In addition, the government would (a) award orphan drug (or similar) status, (b) provide additional years of market protection from generics, and (c) guarantee purchases for up to 125,000 daily users for the years in which market protection, i.e., (a) and (b), apply. In this scenario, effectively decreasing a company's investment and shortening the time to product launch shifts the risk-reward tradeoff.

Under the government's proposed arrangement, the PAR would be $114 and the NPV would be $142 million. Although the PAR would not be particularly attractive to most large companies under typical circumstances, it may be to smaller companies. In this scenario, where orphan status confers both market protection and R&D tax breaks, removal of the extended orphan status and guaranteed market in the out-years (i.e., after the initial 7 years post-launch) lowers NPV by about 20 percent. Removing the orphan status and guaranteed market in the initial 7 years (in which losses are less cushioned by discounting than in later years) reduced both indicators substantially, i.e., PAR to $91 million and NPV to $39 million. In this instance, PAR is affected directly by the decreased market penetration due to loss of orphan protection from generics, and NPV is afforded less cushioning of revenue decreases by discounting in these early post-launch years. Even so, given the positive NPV, a smaller company might take on the project or, as described in this scenario, a larger company with a corporate mission for public service might still be willing to take on the project.

The "Vaccine" scenario poses more of an outlier set of market conditions involving a promising medication that could be taken just once a year (e.g., vaccine with annual boosters), which may help to obviate compliance problems. As in the "guaranteed handoff" scenario, this involves initial government development of the medication and an offer (earlier in development) to transfer rights to a company to take the product through the balance of development and onto the market. In this scenario, the government provides extended generic protection. Further, the government provides for a substantial, assured market in the form of guaranteed purchases at a premium price ($1,000 per patient per year, equal to $2.74 per day all year) for a number of users rising to 500,000, i.e., twice the current number of daily enrollees in treatment for cocaine abuse, and remaining at that market size through 10 years post-launch. Under these conditions, the PAR would be $500 million and the NPV would be $254 million. This scenario helps to illustrate that extraordinary conditions may be required to bring PAR and NPV over the thresholds sought by the larger pharmaceutical companies.

The "Second Indication" scenario portrays a variation on the risk-reward tradeoff that involves a decision about whether to pursue a market if doing so might jeopardize a currently successful market. In this scenario, a company has a commercially successful product for a CNS indication in a large market that also shows promise for treatment of cocaine addiction. Given previous research and experience with the drug, the company considers that the additional development costs required to secure approval for the second indication would be relatively small. Further, the company expects orphan protection for this indication. Under a base scenario with a moderate price and 50 percent market penetration, the PAR would be $137 million and the NPV would be $83 million. In order to achieve a more palatable PAR of $250 million with the same market penetration, the price would have to be raised to $5.50, which exceeds that of naltrexone. Without orphan status, the price would have to increase to $6.10 to achieve a PAR of $250 million. With more conservative assumptions of a market penetration of 25,000 daily users (10 percent of current daily enrollees) and back to $3.00 per daily dose, the PAR and NPV would drop to $27 million and $7 million, respectively. This scenario illustrates how conservatism regarding expectations for price and market penetration alone can stanch a project. Aversion to the prospects of substance abuse stigma transferring to an already successful product may be secondary, but it could contribute to outweighing any perceived financial returns of a second indication strategy. Under a scenario where the original indication for the product had failed (e.g., if the drug had not reached the market or had been a commercial failure), there may be less down-side risk of pursuing a cocaine abuse indication; however, the challenges to price and market size would remain.