Clinical trials expenditures

Randomized, controlled clinical trials reduce bias and variability by a process of selection, randomization and standardization of treatment, and often take place under artificial conditions isolated from those of routine clinical practice (Freemande et al, 1993 Simon et al, 1995b). Yet it is the uncontrolled interactions of a dmg technology with patients, health-care workers and the system of health care that ultimately lead to much of the variability in outcomes and expenditures in clinical practice. Thus the value of RCTs in evaluating cost-effectiveness in clinical practice maybe limited (Reeder, 1995 Simon et al, 1995b Hotopf et al, 1996). 

Figure 30.1 shows a breakdown of total R D costs per approved drug incurred during the preclinical and clinical R D phases. Expenditures in the clinical period account for roughly 70% of the total out-of-pocket expenditures. This reflects the fact that clinical trials are very expensive on a per patient basis many dmgs must be tested for every one... 

The annual R D expenditure for biopharmaceuticals is around US 19-20 billion. There are estimated to be 2500 biopharmaceuticals in the discovery phase, 900 in preclinical trials, and 1600 in clinical trials. This represents 44% of all drugs in the development phase and 27% of all drugs in both preclinical and clinical trials. The most common target is cancer and monoclonal antibodies and vaccines have the largest amount of R D activities. 

Even a modest new drug application will require a substantial investment of money and time. The financial expenditure includes the outlay for clinical trials to collect the data and to assemble the application. Time is also a crucial variable, because the only way to justify the expenditure is through sales of the product, making the remaining patent life an important variable in such a decision. If it is short, then the patent may expire before the new drug application can be assembled, submitted, and reviewed to receive labeling for that indication. 

While expenditure owing to expensive clinical trials grow more quickly for the accelerated pace, introduction to the market is reached more quickly (the goal is eight years in comparison to 12 years traditionally). Importantly, however, cumulative revenues between market introduction in, let us say, year 8 and patent expiration in year 18 to 20 tend to be considerably higher, as (i) more years under patent protection are available, and (ii) the initial market penetration and build-up phase is not as significant. 

Annual expenditure (current or previous year) for clinical trial investigations. 

The financial aspects of clinical trials are wide ranging. The clinical studies, whether managed by in- or out-of-house personnel, represent 30-50% of the total development expenditure on any particular drug. Clinical scientists and research physicians will need much support from their qualified business and financial colleagues in order to manage these complex activities successfully. 

There is only sketchy information on trends in the allocation of new-product R D between discovery research and clinical trials. DiMasi and colleagues asked 12 U.S. companies to estimate R D expenditures for clinical and preclinical research on self-originated NCEs for the period 1970-86 ( 107). Over the entire period, 66.1 percent of research on self-originated drugs was reported as devoted to the preclinical phase. No clear trends were evident in the ratio over time (106), suggesting the allocation of R D dollars has remained stable over time. 

The third tax credit designed to promote R D is specific to the pharmaceutical industry. It is one of several incentives included in the 1983 Orphan Drug Act (Public Law 97-414) to encourage firms to develop new treatments for commercially unviable therapies in the United States.14 Firms are entitled to a tax credit equal to 50 percent of qualified R D expenditures for human clinical trials on therapies that have received official orphan drug status by the FDA. Firms can receive such status for drugs that treat diseases or conditions affecting less than 200,000 people in the United States.15... 

The organizations that actually pay for medicines — governments, insurers and so on—have only recently started to use the power conferred by their expenditure. A consequence is that a drug company has not only to show that its new product is safe and works, but also that it is cost-effective. In Australia, this has been spelled out in legislation. Since 1993, any drug submitted for approval there must be accompanied not only by the results of clinical trials but also by an economic impact analysis. In 1999 the UK set up a National Institute for Clinical Excellence (NICE) to advise the National Health Service on the cost-effectiveness of health care technologies. Other countries ask formally or informally for pharmacoeconomic analysis. Economic impacts can be measured in a variety of ways, for example, cost-effectiveness, cost-utility or fuU cost-benefit studies. 

Clinical trials are major budget items in drug development. The total costs vary according to therapeutic area, indication, duration of the study, and numbers of subjects. Even for rapidly acting drugs in acute conditions (e.g. infections), the cost is unlikely to be below 50 million, while for a slow-acting drug for a chronic condition (e.g., osteoporosis), expenditure of 300 million is possible. 

OTA was unable to obtain much information about the structure of such accounting systems hence, the ability of firms to identify expenditures by clinical phase is unclear. All companies would have an accurate picture of monthly charges to individual project accounts, however, and the dates at which phase I, phase II, and phase III trials began are available to companies, so allocation of costs by date is a reasonable approach to estimating the distribution of costs by phase. If companies responded to survey questions with this approach, the phase-specific estimates would be reasonably accurate. 

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