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Spending on New Drug Development

Spending on New Drug Development. Christopher P. Adams Federal Trade Commission. Disclaimer: This presentation does not necessarily represent the views of the FTC or any individual Commissioners. Saturday, January 26, 2008 (Joyeux Anniversaire à Australie) Toulouse. Industry Background.

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Spending on New Drug Development

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  1. Spending on New Drug Development Christopher P. Adams Federal Trade Commission Disclaimer: This presentation does not necessarily represent the views of the FTC or any individual Commissioners. Saturday, January 26, 2008 (Joyeux Anniversaire à Australie) Toulouse

  2. Industry Background • $16b or 9% of all industry R&D expenditure (NSF 2003). • Medical care expenditure $1,589b or 17% of total personal consumption (BEA 2006). • Saves lives. Spending on Drug Development

  3. Spending on Drug Development

  4. Spending on Drug Development Duggan & Evans 2007

  5. Overview • Drug Development Process • Cost of Drug Development • Vaccines vs. Drugs • Incentives to Develop New Drugs • Summary Spending on Drug Development

  6. Overview • Drug Development Process • Cost of Drug Development • Vaccines vs. Drugs • Incentives to Develop New Drugs • Summary Spending on Drug Development

  7. Spending on Drug Development

  8. Drugs Development Process: Summary • Preclinical Testing - arrays and animal models. • Investigational New Drug (IND) filed with FDA. • Phase I – Safety tests with 20-30 healthy patients. • Phase II – Safety and efficacy with 200-300 patients. • Phase III – Efficacy with 2000-3000 patients. • New Drug Application (NDA) filed with FDA. • FDA marketing approval. Spending on Drug Development

  9. Overview • Drug Development Process • Cost of Drug Development • Vaccines vs. Drugs • Incentives to Develop New Drugs • Summary Spending on Drug Development

  10. Spending on Drug Development

  11. Spending on Drug Development

  12. Cost of Drug Development • June 16 2005 Economist • “In most industries such figures on the cost of product development are of purely internal interest. In the pharmaceuticals business, however, they have become the subject of public debate because they are (incorrectly) linked to drug prices.” Spending on Drug Development

  13. Cost of Drug Development • DiMasi et al (2003): • $802m per New Molecular Entity • Two parts to the estimation • Actual expenditure on drugs in development. • Probability of success and successful durations. Spending on Drug Development

  14. Spending on Drug Development

  15. Spending on Drug Development

  16. Cost of Drug Development • Expenditure on Drug Development • Match number of drugs in development per firm per year with data on annual expenditure on pharmaceutical R&D. • Development data: Pharmaprojects • R&D expenditure: CompuStat and Global Vantage Spending on Drug Development

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  22. Cost of Drug Development • Expenditure on Drug Development • $25m per drug per year in Clinical Trials. • $17m in Phase I (DiMasi et al $15m) • $32m in Phase II (DiMasi et al $25m) • $19m in Phase III (DiMasi et al $86m) Spending on Drug Development

  23. Abrantes et al (2005) Spending on Drug Development

  24. Cost of Drug Development • Probability of Success and Durations Spending on Drug Development

  25. Spending on Drug Development

  26. Spending on Drug Development

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  28. Spending on Drug Development

  29. Spending on Drug Development

  30. Cost by Firm Spending on Drug Development

  31. Cost by Indication Spending on Drug Development

  32. Cost of Drug Development: What does it mean? • Does not determine price. • Not a measure of expenditure. • $21m to $25m per drug per year in human clinical trials. • An investment hurdle Spending on Drug Development

  33. Overview • Drug Development Process • Cost of Drug Development • Vaccines vs. Drugs • Incentives to Develop New Drugs • Summary Spending on Drug Development

  34. Vaccines vs. Drugs: Success Rates and Durations Spending on Drug Development

  35. Vaccines vs. Drugs: AIDS Success Rates and Durations Spending on Drug Development

  36. Vaccines vs. Drugs:AIDS Vaccines in Development Spending on Drug Development

  37. Vaccines vs. Drugs: Cost of Drug Development Spending on Drug Development

  38. Overview • Drug Development Process • Cost of Drug Development • Vaccines vs. Drugs • Incentives to Develop New Drugs • Summary Spending on Drug Development

  39. Incentives to Develop New Drugs:Deciles of Drug Revenue $800m Grabowski et al., 2002 Spending on Drug Development

  40. Incentives to Develop New Drugs:Empirical evidence • 1% increase in market size leads to 6 new drugs entering the market (mostly generic drugs) (Acemoglu and Lynn (2004)). • Change in government vaccine policies increase the number of vaccine trials by 2.5 times (Finkelstein (2004)). • For vaccines a $1 increase in market size leads to a $0.06 increase in investment (Finkelstein (2004)). Spending on Drug Development

  41. Summary • Cost of Drug Development • $25m per drug per year • $500m to $2,000m. • Vaccines are more “costly”. • Market size matters, but how much? Spending on Drug Development

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