The Innovation Landscape
These are remarkable and challenging times for the research-based pharmaceutical and biotechnology industry. Rarely have political, economic, regulatory, and scientific forces converged on the industry to the degree we are seeing today, forcing companies to re-evaluate outdated R&D strategies and practices, and adopt new systems to bring innovative products to market in an efficient and cost-effective manner. These forces include increased market expectations, near-term patent expirations for many top-selling drugs, new and more stringent regulatory hurdles, loss of public confidence and support, and the onerous time, cost, and risk inherent in new drug development. Let’s look at some of these factors more closely.
The current worldwide focus on containing healthcare costs and restrictive price control policies in many industrialized countries mean that it is no longer sufficient for companies to simply demonstrate that their products are safe and effective; they must also show that their products provide “value,” both therapeutic and economic. In the United Kingdom, for example, the National Institute for Health and Clinical Excellence (NICE), which makes reimbursement recommendations to the National Health Service, recently determined that reimbursement should be restricted or denied for a host of cutting-edge biological products, including Humira (adalimumab) for psoriatic arthritis, Rituxan (riduximab) for rheumatoid arthritis, Fludara (fludarabine) for chronic lymphocytic leukemia, Gemzar (gemcitabine) for breast cancer, and Avastin (bevacizumab) and Erbitux (cetuximab) for colorectal cancer. The situation is not much better in the United States, where third party payers and health plans have become increasingly restrictive in terms of what level of coverage they are providing for many new pharmaceutical and biopharmaceutical products. Moreover, current efforts to make standards for conducting comparative effectiveness research (CER), suggests that the focus on product value is likely to escalate in coming years.
Pending expirations, within the next few years, of patents on a substantial number of blockbuster drugs pose a significant concern for the research-based industry. Many companies, even some of the large pharmaceutical firms, rely on very few products in their sales portfolio to generate high revenues and profits sufficient to sustain growth. Within the next four years, the top-selling drugs Prevacid (lansoprazole) (with over $3.9 billion in sales), Singulair (montelukast) ($4.3 billion), Enbrel (etanercept), Plavix (clopidogrel) ($8.1 billion), and Lipitor (atorvastatin) ($13.7 billion), to name a few, will be coming off patent. There is little doubt that patent expirations are behind some of the dramatic merger and acquisition announcements that have occurred over the past few months.
In the regulatory arena, heightened public concern about drug safety, much in response to the highly publicized withdrawal from the market in 2004 of the arthritis drug Vioxx (rofecoxib), and safety questions surrounding COX-2 inhibitors in general, has led to more stringent regulations and raised the regulatory hurdles for obtaining new drug approval. With passage in the United States of the Food and Drug Administration Amendments Act of 2007 (FDAAA), FDA was given new authorities to demand submission of risk evaluation and mitigation strategies (REMS) to accompany submission for regulatory approval, require post-market clinical studies on approved products if safety questions arise, mandate changes to a drug’s approved labeling, and impose new distribution and use restrictions on marketed drugs. Moreover, some drug sponsors report anecdotally that, in the current risk averse environment, FDA is asking for larger and longer safety studies to support new drug applications.
In a political environment where many pharmaceutical products are deemed by the public to be too expensive and unsafe, it is not surprising that public hostility toward the research-based industry is high. This is fueled by the public’s restiveness over the drug industry’s perceived profitability and unsavory marketing practices. These negative views about the industry pose a very real threat to developers. Public enmity has a direct bearing on federal funding of initiatives in support of pharmaceutical and biopharmaceutical R&D and increases congressional pressure on the FDA to impose further restrictive regulatory policies on the industry.
Perhaps the greatest challenge to the research-based industry, however, is the substantial length, risk, and cost of pharmaceutical and biopharmaceutical development. After nearly two decades of focusing on R&D efficiency, the industry has made little headway in shortening time-to-market, raising clinical success rates, and lowering the overall cost to bring new products to market.
Drug Development Metrics: Time, Risk, and Cost
R&D spending on new drugs in the United States continues its relentless upward spiral, exceeding $50 billion in 2008. At the same time, the number of new molecular and biological entities (NMEs and NBEs, respectively) approved by the FDA has dropped considerably since the mid-1990s, to levels similar to those seen in the mid-1980s. In fact, the 16 NMEs approved by the FDA in 2007 was the lowest level since 1983, when there were 14 approved. For the research-based industry, fewer products reaching the marketplace means less opportunity to generate revenues to sustain growth and support the ever-increasing cost of pharmaceutical R&D.
Based on a Tufts Center for the Study of Drug Development (CSDD) analysis of NMEs and NBEs recently approved by the FDA, the average time to bring a product from the start of clinical testing to regulatory approval is 7.2 years. This average, however, masks substantial differences among different therapeutic areas. For example, clinical development times ranged from 5.2 years for AIDS antiviral drugs, to 7.9 years for antineoplastic agents. Neuropharmacologic agents took the longest to go from the start of human testing to approval, averaging 8.8 years (7.1 years in the clinical testing phase and 1.7 years in the FDA review phase).
In addition to long development times, drug sponsors must deal with high attrition rates in the clinical development process. Clinical success rates – that is, the probability that a candidate beginning clinical testing will eventually reach the marketplace – is currently 16% for pharmaceutical products. Again, this mean masks variability across different therapeutic areas. For example, neuropharmacologic agents, with their very long development times, have some of the lowest clinical success rates among therapeutic classes, averaging a dismal 8.2%.
Ultimately, long development times coupled with low success rates translate into high overall R&D costs. Based on recently published Tufts CSDD data, the average capitalized cost to bring one new biopharmaceutical product to market, including the cost of failures, is $1.24 billion, in 2005 dollars. For traditional pharmaceutical products, that figure is $1.32 billion.
Explaining the Time, Risk, and Cost of Drug Development
The reasons for the long length, low success, and high cost of drug development are complex, varied, and interrelated. For example, the industry’s focus on drugs to treat chronic and complex indications, such as those for psychiatric and neurologic disorders and for cancer, has led to greater size, length, and complexity of clinical trials. Larger clinical trials mean that more subjects must be enrolled in clinical studies; however, patient recruitment and retention is a major bottleneck in the drug development process, resulting in delays in study initiation and higher costs.
Tufts CSDD documented the increase in protocol complexity in new drug development in a 2008 published study. The main findings were that, in clinical studies conducted between 1999 and 2005, there were substantial increases in the number of unique procedures, the overall frequency of procedures, the eligibility criteria for enrollment, and the investigative site work burden over the six-year period. As a result, there was an observed increase in clinical development cycle times, patient enrollment and retention rates declined, grant funding per procedure per protocol fell, and the overall number of case report form pages more than tripled.
Other factors that have led to long drug development times, low success, and high costs include growing regulatory demands on sponsors, as well as the need to conduct more pre-approval market-oriented studies. These studies are necessary to ensure a competitive drug label and to increase the likelihood of obtaining formulary coverage and reimbursement by health plans and other third party payers.
Unquestionably, “blockbuster R&D strategies,” or strategies that focus on large patient populations with high sales potential, have also contributed to high development costs, by increasing the likelihood of late-stage clinical failures. These models, which many firms adopted in the 1990s, typically focus on chronic disease areas, such as hypertension, arthritis, hypercholesterolemia, and depression. Unfortunately, these often represent crowded pharmaceutical markets, and thus the likelihood of clinical failure due to commercial reasons is greater. Tufts CSDD analyses have shown that these commercial failures tend to occur late in the clinical development process, an average of 3.7 years after the start of clinical studies, when R&D costs and resource demands are at their peak.
With its high development costs and low success rates, the research-based industry finds itself in a parlous state. Despite enjoying large cash reserves and low debt, many of the larger pharmaceutical and biotechnology companies are posting very low earnings. In fact, market capitalization (i.e., the aggregate value of a company, obtained by multiplying the number of outstanding shares by the current price per share) for a sample of nine top-tier pharma companies has dropped over half of a trillion dollars since 2001. As one chief investment officer of a major European investment firm stated in 2007, “A cheap stock is no argument to buy when there’s no growth on the horizon. I don’t see pharmaceutical shares outperforming. Buying a drug stock is buying a pretty big risk these days.”
Changing R&D Strategies and Practices: The Search for Cost-Effective Clinical Research
Current economic and political pressures are leading many research-based pharmaceutical and biopharmaceutical companies to re-assess decades old R&D strategies and focus their efforts on improving efficiency, boosting output, and meeting unmet patient needs. The changing focus of drug discovery and development and the use of new technologies for identifying and screening candidates for drug development have created new opportunities for the industry to target a host of persistent, degenerative, and life-threatening diseases that have not been targeted in the past. This changing focus toward targeted medicines, often addressing the needs of relatively small patient populations, is enabled by advances in genomics, proteomics, and other tools that allow researchers to better understand disease mechanisms and identify patient subpopulations.
Changing R&D strategy alone, however, is not enough to help the industry remain competitive in today’s challenging pharmaceutical marketplace. Companies must also address the cumbersome, expensive, and inefficient drug development process itself. In response, many drug firms have established specific performance goals. These include increasing the number of products in the pipeline, cutting discovery and development times, reducing the time to go/no-go decision making, and identifying and eliminating waste in the development process. In a comparative analysis across a spectrum of pharma companies, Tufts CSDD found that those companies that consistently bested industry averages on a series of performance measures, reported several approaches to the drug development process that were common across all top performing companies. These “best practices” included the following: (1) a focus on core competencies, and a higher level of strategic outsourcing, which allowed the company to better allocate and prioritize its resources; (2) active collaboration with global regulatory agencies, to ensure that the pre-market studies conducted will meet regulatory demands; (3) enhanced utilization of e-data management technologies, such as electronic data capture, to improve the collection and analysis of clinical data; and (4) an increasing conduct of studies in lower-cost and emerging markets, i.e., offshoring.
Offshoring and the Drive Toward Cost-Effective Clinical Research
In today’s highly competitive environment, nearly every major pharmaceutical company has identified offshoring as a means to enhance clinical trial efficiency. Some companies are currently conducting over 50% of their ongoing clinical studies in lower-cost and emerging markets. And recent estimates suggest that that number will increase to 65% within the next three years. This growth has fueled an explosion in the number of clinical investigators who are registered to conduct FDA-regulated clinical trials in these countries. In a recent analysis of FDA’s Bioresearch Monitoring Information System (BMIS), Tufts CSDD found that the number of registered clinical investigators in China and Russia increased by 379% between 2000 and 2006. During the same period, the number in India increased by a staggering 433%.
Initially, many US- and Western European-based pharmaceutical companies began conducting clinical studies in emerging markets solely in an effort to reduce costs. Clinical trials done in countries such as Brazil, Russia, India, and China (the so-called BRIC countries), could be done at a fraction of the cost of doing the same studies in the United States or one of the western Europe nations. Similar savings could be obtained by doing studies in a number of Latin and South American countries, as well as in Central and Eastern Europe.
Cost, as a primary inducement for offshoring, however, recently has been supplanted by other factors. Chief among these is the opportunity for rapid enrollment of patients in clinical trials, with the resultant benefit of gaining faster access to the marketplace. Rapid patient enrollment also allows companies to establish proof-of-concept more quickly, which means that costly and unnecessary Phase III trials on candidates that are destined to fail in development can be avoided. Another advantage is that, by tapping into very large potential patient populations and disease-specific clinics, companies can facilitate the development of targeted, genetics-based medicines – i.e., medicines intended to treat patient and disease-related subgroups. Finally, by establishing research and manufacturing facilities and distribution networks in emerging markets, research-based Western companies are creating a foothold in countries that are likely to be the economic drivers of the world’s economy within the coming decades.
From the perspective of the emerging markets, offshoring offers a plethora of opportunities and challenges. In terms of opportunities, Western investment in offshoring has provided needed revenues to improve training and increase resources in hospitals, medical schools, and research centers. It has also, in some cases, stimulated the local life sciences industry, boosted local government investment in infrastructure, and helped struggling economies. Western investment has also led to improved manufacturing standards, more consistent regulatory oversight, and expansion of domestic capabilities beyond clinical studies and into the areas of research and discovery. On the other hand, unreasonable bureaucratic hurdles, inadequately trained local investigators, and insufficient ethical oversight remain critical challenges for emerging economies as they seek to attract investment by Western pharmaceutical companies. Resolving these issues will provide benefits to all major stakeholders involved in drug development: research-based companies, developing countries, and patients eagerly awaiting newer and better medicines.
Conclusions
Unprecedented challenges confront pharmaceutical and biopharmaceutical companies in their quest to bring innovative new medicines to market. Rapidly growing R&D costs, increasing competitive pressures, new regulatory hurdles, and a highly volatile public and political climate represent significant threats to the research-based industry.
We are in a period of dynamic change in the landscape for pharmaceutical innovation. In today’s challenging marketplace, drug companies must work to improve efficiency, lower expenses, and increase output. Firms should take advantage of outsourcing and offshoring opportunities, e-technologies, and regulatory advice to achieve their goals.
The Tufts Center for the Study of Drug Development, a nonprofit, academic research center at Tufts University, is funded in part by unrestricted grants from pharmaceutical and biotechnology firms, as well as companies that provide related services (e.g., contract research, consulting, and technology firms) to the research-based industry. Dr. Kaitin is supported in part by Grant Number UL1 RR025752 from the National Center for Research Resources. No potential conflict of interest relevant to this article is reported.
Dr. Kaitin is the Director of the Tufts Center for the Study of Drug Development at Tufts University. He is also Professor of Medicine and Professor of Pharmacology and Experimental Therapeutics at Tufts University School of Medicine. He writes and speaks frequently on factors that contribute to the slow pace and high cost of pharmaceutical R&D and the impact of efforts to speed the process, and he has provided public testimony before the U.S. Congress on drug development, regulation, and policy issues. An internationally recognized expert on the science of drug development, Dr. Kaitin is regularly quoted in the business and trade press on R&D trends in the research-based pharmaceutical and biotechnology industries. He is a former President of the Drug Information Association and Editor-in-Chief of the Drug Information Journal. He currently serves on the Board of Directors of two public companies and one private company. Dr. Kaitin received a B.S. from Cornell University and a Ph.D. in pharmacology from the University of Rochester.
Readers may contact the author directly at [email protected]
This article was printed in the May/June 2010 issue of Pharmaceutical Outsourcing, Volume 11, Issue 3. Copyright rests with the publisher. For more information about Pharmaceutical Outsourcing and to read similar articles, visit www.pharmoutsourcing.com and subscribe for free.