Market Barriers to the Development of Pharmacotherapies for the Treatment of Cocaine Abuse and Addiction: Final Report. Scenarios of Company Decision Making


This report presents several scenarios of pharmaceutical company decision making regarding whether to undertake projects to develop pharmacotherapies for cocaine addiction under various sets of market conditions. Using a quantitative model developed by The Lewin Group, the market conditions were translated into financial and other parameters to generate projected PAR and NPV for each scenario and for certain variations of these scenarios. Modeling these scenarios illustrates some of the key barriers and other limitations to development of medications for cocaine abuse, as well as how certain types of financial and policy options might reduce such barriers. Policy options to lower barriers that are used in these scenarios include some that already exist and some that have been posed by the IOM (1995).

The "Big Pharm Cold Start" scenario indicates that 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 and an optimistic target market (i.e., 50 percent of the estimated 250,000 people currently enrolled in treatment for cocaine abuse). In order to achieve financial indicators that are more in line with traditional targets of large companies (e.g., PAR of $300 million) in this scenario, a considerable increase in price and/or market penetration would have to be realized. On the other hand, a modest and perhaps more realistic penetration of this market of 30,000 to 40,000 patients per day could also yield an acceptable PAR if a cocaine medication were priced at the premium levels (e.g., $25 - $30 per day) that are afforded triple pharmacotherapy for HIV/AIDS.

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. This scenario considers the impact of three 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. In this scenario (in which orphan-like status accords R&D tax breaks but no additional market protection because of existing patent protection), the regulatory reform and market protection have modest impacts compared to the expansion of treatment and financing capabilities that effectively doubles market size in this scenario. However, for this and other scenarios, financial prospects for drugs are poor when market penetration is assumed to be at levels comparable to those of LAAM and naltrexone.

The "Guaranteed Handoff" scenario considers the decision facing a company when the government is offering the rights to a drug that is well along in development in exchange for the company's finishing the development process and securing marketing 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, the risk-reward tradeoff is improved by effectively decreasing a company's investment and shortening the time to product launch. Even so, this scenario indicates that some combination of other incentives, such as extended orphan-like protection and a wider or more assured market in the form of guaranteed purchases of a set volume of the drug at an attractive price, may be required to make the arrangement sufficiently attractive to a company. The PAR and NPV generated by such a scenario may be more in line with the thresholds of smaller companies rather than larger ones.

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). As in the "Guaranteed Handoff" scenario, this involves initial government development of the medication and an offer early in development to transfer rights to a company to bring the product to market. In this scenario, aside from extended generic protection, the government provides for a substantial, assured market in the form of guaranteed purchases at a premium price for a number of users that is twice the current number of daily enrollees in treatment for cocaine abuse. 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 decision about whether to pursue a cocaine abuse indication for a drug if doing so might jeopardize a currently successful market for the drug for another indication. Here, it is assumed that the additional development costs required to secure approval for the second indication would be relatively small, and that orphan-like status could be secured for the cocaine abuse indication. Under a base scenario with a moderate price and 50 percent market penetration, the drug would yield a positive NPV and a modest PAR that falls below large company standards but that might be more palatable to smaller companies. Higher prices could push the PAR over the higher thresholds, but such prices would exceed those for LAAM and naltrexone. This scenario illustrates how conservatism regarding expectations for price and market penetration alone can stall 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.