On Friday, I mentioned that last week the Congressional Budget Office issued a report entitled "Research and Development in the Pharmaceutical Industry". Over the weekend, I got to read the 65-page report in detail and found it quite interesting. The report covers trends in R&D spending and output, the costs associated with developing a drug, whether or not federal spending actually stimulates drug development and examines whether the innovative performance of the drug industry has declined.
The report sheds light on just how complicated the pharmaceutical industry really is and one reason for that complexity is intensive effort that has to be made in R&D and the length of time it takes to achieve success. If one manufactures a clock, there is the cost that goes into building and marketing the clock. But if you are making an innovative drug your actual expenditures to develop the drug are only approximately half of the cost. The other half "represents the financial cost of tying up investment capital in multi-year drug-development projects." There is no payback unless the project succeeds. According to the Tufts Center for the Sutdy of Drug Development, if you look at all Phase I trials for NMEs, only 71% will survive to Phase II. Of Phase II drugs, only 31.4% survive to Phase III. Of those in Phase III, only 21.5% of the original lot make it to FDA approval.
The report also addresses the costs associated with drug development. The often quoted $800 million to bring a new drug to market is true if we are talking about a New Molecular Entity (NME), but if we are talking about new drugs that are incremental modifications of old drugs, the costs can be 66-75% less.
Another complex aspect addressed is the fact that since 1990, the investment in research and development has skyrocketed. But the output of NMEs has declined. Does that signal a failure? But, the report states, the number of NMEs is only one way to consider success – another way to consider it is to look at the quality of the drugs that are coming out of the pipeline. For example, a drug that cures a pandemic might be a bigger payoff than one that addresses a non-lethal, non-chronic condition. Yet there is no real method to measure quality.
Another success or quality factor is related to the fact that firms have been shifting R&D away from research on acute illnesses, which are easier to research, onto drugs that address chronic conditions, which are more expensive, requiring bigger and longer clinical trials.
It is impossible to relay the value of a 65 page report in a few short paragraphs, but the report is worthy of a careful read, and should be required reading for new staff.