The Changing Economics of Clinical Development

The Changing Economics of Clinical Development Pierre Azoulay pa2009@columbia.edu Columbia University Graduate School of Business Earth Institute May 20th, 2004 Agenda  Basics of Clinical Development What sets apart “development” from “discovery”?   Understanding changes in the organization of drug development – – – The Rise of “for-profit” experimental medicine Causes and consequences of outsourcing to Contract Research Organizations Globalization of clinical trial activities  What are the public policy issues that arise as a consequence of these changes? What are possible solutions? Developing New Drugs File IND Phase I Phase II Phase III File NDA Discovery Research Preclinical Research Clinical Development Approval Phase $ 802 M 3.5 years 33.37% of R&D Budget 1.5 years 7.41% of R&D Budget 5 years 42.35% of R&D Budget 2 years 4.70% of R&D Budget Source: PhRMA & Tufts CSDD. Developing new drugs is risky, costly, and lengthy General Approach to Drug Development  Phase I: Maximal Tolerated Dose – Linking pharmacodynamics with pharmacokinetics  Phase II: Building and testing a human model of the disease – – Dose determination Often using a surrogate endpoint  Phase III: Definitive randomized study – Precise entry criteria and clinical endpoint assessments Drug development: Organizational Actors Pharmaceutical Firm Clinical Study Internal Monitors M.D. (Clinical Investigator) Team I Clinical Study CRO Monitors M.D. (Clinical Investigator) Team II Drug Development as Data Production  Routine manipulation, storage, and transfer of symbolic information within established categories “…The work has been fragmentized by a few excellent brains at the top on the assumption that near morons will be responsible for each fragments.” Herman Wouk, The Caine Mutiny, 1952. Increasing Burden of Data Production: Mean Number of Pages per NDA 90,650 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 56,349 45,353 38,044 1977-80 1981-84 1985-88 1989-92 Source: BCG & CDDS, Georgetown University Hypothesis  Medical therapeutics is generally based on a biomedical hypothesis: – If you block a receptor or an enzyme, Or – If you induce a receptor or an enzyme, Or – If you bind in some fashion to an important molecule… Then – …this action will be translated into clinical benefit Fundamental Inference Problem of Drug Development  Why does a drug not show clinical efficacy? – Is this a failure of your biochemical hypothesis? Or – Did you fail to achieve your biochemical objective? Or – Your hypothesis is correct, the drug does what it’s supposed to do, but the implementation did not let the drug “show its true colors”  Drug development is as much a scientific challenge than it is an organizational challenge Drug Development as Knowledge Production  Establishment of novel conceptual categories, hypotheses, and causal associations Many drugs find their application in the clinic! –  – – – – Viagra (angina pectoris  ED) Ipronazid (tuberculosis  depression) Enbrel (sepsis  rheumatoid arthritis) ACE Inhibitors (hypertension  heart failure) … What’s different about development?  Two thirds of expenditures are incurred outside the boundaries of the firm – – – Incentive alignment Conflicts of interest Coordination problems  Managing the tension between data production and knowledge production – – For insiders For third parties Total number of research contracts for clinical trials, by investigator type 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1991 1992 Non Academic 1993 1994 1995 Academic 1996 1997 1998 Total 1999 The Rise of For-profit Experimental Medicine  Puzzle: During the 1990s, academia lost its monopoly on clinical trials sponsored by pharmaceutical firms. Why? – Demand-side explanations   Preferences of pharma firms Changing product portfolios – Supply-side explanations    Diffusion of RCT technology IND/NDA Rewrite of 1987 Managed care fosters physician entrepreneurialism “For-profit” Experimental Centers  One activity, High-powered incentives Low overhead Central IRB Faster enrollment    Academic Medicine and Drug Development    Higher indirect costs Slow and Bureaucratic Competing incentives But…    Marquee value Scientific expertise Institutional reforms in AMCs RCTs have “crossed the Chasm” Proportion of Potential Adopters Lead Users Early Adopters Early Majority Late Majority Laggards “The Chasm” Degree of “Innovativeness” Proportion of Academic Sites, by Phase 80% 70% 60% 50% 40% 30% 20% 10% 0% Global Phase I Other Phase I Cancer Phase II US Phase III Phase IV Proportion of Academic Sites, by Therapeutic Indication Kidney transplant failure Parkinson's disease Diabetes mellitus Unspecified carcinoma/ malignancy … Hypertension Menopause/ postmenopause HRT Migraine headache Allergic rhinitis 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Health care Financing and Managed Care Academic 3.500 Non-Academic 3.000 Clinical Trial Revenues ($ Millions) 2.500 2.000 1.500 1.000 0.500 0.000 0%-14% 14%-20% 20%-25% 26%-36% 36%-68% The Rise of Clinical Development Outsourcing 25% 22.90% 20% 19.70% 17.30% 15% 10% 8.50% 7.70% 5% 0% 1995 1996 1997 1998 1999 Three Rationales for Outsourcing  Adjustment Costs – Subcontracing can be used as a buffer against shocks when adjustment is associated with sunk costs of hiring and firing employees  Heterogeneous firm capabilities – Experience, idiosyncratic firm expertise, and access to complementary assets influence outsourcing intensity at the firm level  Balanced incentives for data and knowledge production Proportion of Clinical Sites in Outsourced Trials, 1995-1999 75 Number of Firm-year Observations 50 25 0% 25% 50% 75% 100% Mean Firm-level Outsourcing Propensity, 1995-1999 5 4 Number of Firms 3 2 1 0% 25% 50% 75% 100% Pipeline Variability Number of Firm-Year Observations 50 40 30 20 10 0 -1,000 -500 0 500 Change in Number of Clinical Sites 1,000 Distribution of Pipeline Shocks, 1993-1999 Outsourcing Distorts Incentives  Different objective functions – Pharma firm’s project leader: produce information to take effective continuation decisions for the drug, subject to budget constraint – CRO Manager: minimize time-to-project completion, subject to data quality and billable hours constraint  Implications for assignment decision right: – – Inside the firm, monitors specialize therapeutically Outsiders are drawn from a common pool Globalization of Clinical Research 16,000 14,000 12,000 US + Canada 10,000 8,000 W. Europe + Australia + NZ 6,000 4,000 2,000 Rest of the World 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Drivers and Consequences of the Globalization of Clinical Research  Decreasing the costs of development – – Direct effect Indirect effect because of “parallel processing” enabled by regulatory harmonization  Impact on data quality ambiguous – – – Lack of proper oversight? Raises coordination costs But more able investigators/monitors (on average)?  Unknown: impact on the trade-off between Type I and Type II error Public Policy Challenges  Should the federal government fund more clinical trials? – Which kind?   New uses for old drugs Cost-effectiveness (e.g., Prilosec vs. Nexium) – Using what kind of organization?    NIH? Only academic investigators? CROs? – Should this information be used for decision-making in federal programs?  Explicitly banned in the new Medicare prescription-drug benefit  Patient protection across the globe – – Are global ethical standards necessary a good thing? Should study subjects be provided with the drug post-approval?  Clinical development process is shrouded with secrecy – – Do organizational factors influence the results if clinical studies? Identity of investigators, payments, bonuses, and clinical data should be made public for all INDs after some reasonable lag