Real cost of bringing an NCE to market "may now approach $600 million"
February 15, 1999
Marketletter via NewsEdge Corporation : There have been no recent detailed studies of the actual R&D costs involving in bringing a New Chemical Entity to market, the best estimate to date being J DiMasi et al's inflation-adjusted figure of $312 million, originally produced in 1991 and based on a sample of 93 NCEs that commenced clinical testing during 1970-82. However, according to a new report from the UK pharmaceutical industry- backed Office of Health Economics, the actual average cost of an NCE in the late 1990s may in fact, at 1997 currency values, be approaching $600 million.
The report's author, Hannah Kettler, says that no-one has done a micro-level study to update DiMasi's cost estimate for products entering clinical trials after 1982, adding that these researchers' new estimate, based on a current survey, is not due to be published before the end of the year. However, she notes that, using information supplied by Zeneca, analysts at Lehman Brothers have estimated that total R&D costs per NCE for products entering development in the 1990s is as much as $635 million.
Dr Kettler says the factors which drive R&D costs, influencing success rates, input costs and the time profile, include government regulation, technological change, the size of the company and its organizational structure, plus its therapeutic portfolio. Clearly, she says, costs are not completely out of the manufacturer's control, but additionally there have been sectoral changes over time which have pushed up the average R&D costs per NCE for the industry as a whole.
These changes include: - larger and more complex clinical trials; - shifts in therapeutic product mix towards more expensive treatments for chronic and degenerative illnesses; - increased expenditures in technological and labor inputs; and - longer average development times, at least through the early 1990s.
Development times are based on the market of launch
On the latter point, Dr Kettler comments that development times depend on the market of launch. The Center for Medicines Research International judges this on the time from first synthesis to first launch anywhere in the world, while the Center for the Study of Drug Development at Tufts University, USA, looks at the time to the US launch. CMR's time profiles tend to be shorter and to find times leveling off in the early 1990s, while times to a US launch, in contrast, have continued to increase in the 1990s, she notes.
Manufacturers have increased the number and size of clinical trials, with more patients being involved at each stage and more and different types of procedures being conducted on each patient. In the USA, these changes are in part a function of the stricter and more extensive requirements now demanded by the Food and Drug Administration.
The increased complexity of clinical trials may also reflect a shift in R&D investments towards treatments for chronic and degenerative illnesses, as the markets for treating acute illnesses become more crowded and the opportunities for earning a profitable return there decline, says Dr Kettler. Treatments for these diseases are assumed to require longer and more expensive testing.
Companies have also increased their investments in new technologies and in the skills required to use them. The anticipated longer-term impact of these technologies on R&D cost per NCE is still uncertain; for example, Lehman Bros predicts a decline of as much as 25% as success rates increase and the total time required to bring a product to market falls. However, Morgan Stanley Dean Witter is more pessimistic, pointing to the new added costs of learning and implementation.
The average time from first synthesis to market approval for an NCE in the USA increased from 11.6 years in the 1970s to 15.3 years in the early 1990s. Times to the first market launch anywhere in the world are shorter, but have also increased. Among the factors contributing to these increases are changes in regulation and the shifts in the product mix towards more complex diseases.
More important than the question of the exact R&D cost per NCE launched today, however, is the question of whether the advent of new R&D technologies means that these costs have peaked or if they will continue to increase, says Dr Kettler.
The longer-term net impact on costs resulting from the integration of more new technologies is still uncertain, she notes. In theory, companies now have the capabilities to discover new targets and modify existing products more quickly and with greater success, both of which should lead to a reduction in costs of both opportunity and discovery. In practice, however, their impact will depend in part on what combination of technologies the companies choose to use, and how well they integrate them.
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