Cash outlays clinical period

Because the estimated ratio of preclinical costs to clinical costs was higher in the later study than in the early study, the increase in real cash outlays is somewhat greater for preclinical costs than for clinical period costs, but the annual rates of increase were not very different-10.3 percent per year for preclinical costs compared with 8.3 percent per year for clinical period costs. 

Table 3-4-Confidence Intervals for Clinical Period Cash Outlays in DiMasi Study...

DiMasi did report the sample standard deviation of cash outlays in each phase of the clinical period. Table 3-4 shows the standard deviations, the 95-percent confidence intervals17for the true mean cash outlay in each clinical phase, and the estimated probability that the true mean cash outlay in each phase lies within 10 percent of the estimated mean. The chance that the true mean cost is no more than 10 percent greater or less than the estimated cost of each phase ranges from 17 to 46 percent over the different clinical phases. To have a higher chance of estimating the mean costs with no more than a 10-percent error in either direction, the sample size must be bigger. 

Clinical Period Cash Outlays-OTA s interviews with pharmaceutical company managers indicated that, once projects reach the clinical stage, virtually all companies have project-level cost accounting systems that keep track of funds spent on speckle projects, generally identified by the chemical or biological compound. Therefore, most firms have the ability to report data on overall clinical period outlays. 

The money spent to acquire capital equipment and facilities used in research (referred to as capital expenditures) sometimes is not allocated to project-level management cost accounts. How companies allocated these expenses to specific NCEs for the purpose of the survey is unknown. If a responding company estimated only direct expenditures in its clinical period R D, but included R D capital expenditures in its total R D expenditures, the costs in the clinical period would be underestimated, but the ratio of preclin-ical period costs to total R D costs would be overestimated. Because clinical period costs occur later, the total capitalized cost would appear higher using this method. On the other hand, plant and equipment costs are always accounted for with depreciation formulas, which spread costs out for a number of years subsequent to the actual capital expenditure. 19 Because a proper cost estimate should be based on actual cash outlays, the delay in accounting for capital costs will skew expenditures toward the end of the period and will cause the total costs of R D capitalized to the point of market introduction to be underestimated. 

Occasionally anecdotal data come to light on the cash outlays required for the development of specific NCEs. For example, in depositions filed for a patent infringement lawsuit, Genentech claimed it had spent 45 million to develop Protropin , its human growth hormone product, (494) and Eli Lilly certified that it had spent 16 million between 1980 and 1987 on its effort to develop its version of the drug (495). In another example, a 1980 report of the development cost of an oral systemic drug for chronic use estimated 21 million in outlays in the clinical period (226). Unfortunately, anecdotal estimates of this kind do not help verify industrywide costs, because they are self-selected and do not reflect the cost of failures or basic research. 

The NCEs introduced in the period from 1981 to 1983 began clinical testing roughly 8 years earlier (1973-75), the midpoint of the study years in DiMasi s R D cost study (109). OTA assumed that DiMasi s cash outlays (in constant 1990 dollars), success rates, and development time profile represent the experience of the NCEs approved between 1981 and 1983. 

OTA also examined whether trends in three R D cost drivers-the costs of research personnel, the size of clinical trials, and the cost of animal research-were consistent with the estimated increases in cash R D outlays per successful NCE between the periods that Hansen and DiMasi studied. 

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