According to a 2014 study by the Tufts Center for the Study of Drug Development (TCSDD), the cost of developing a new drug, from research and development (R&D) to marketing approval, is approximately $2.9 billion. This includes actual out-of-pocket costs averaging $1.4 billion, opportunity costs of nearly $1.2 billion, and the cost of post-approval studies amounting to $312 million.
Because drug development return on investment (ROI) is declining, pharmaceutical companies are under pressure to either improve their success rates or reduce their cost of failure. On one hand, more and more pharmaceutical companies are forming public and private consortia to share in the research and development costs and also to increase their success rates. On the other hand, some pharmaceutical companies are reducing their drug development costs by finding and eliminating inefficiencies in their R&D and data management processes.
However, can pharmaceutical companies really reduce the costs of drug development?
The Cost of Drug Development
Drug development has two main cost components: the actual costs of drug development (60% of total costs) and the opportunity cost for time and capital (40%).
Costs of Research, Development, and Approval Processes
The US Food and Drug Administration (FDA) provides a specific standard for drug development. This standard outlines the five steps for the drug development process. Bruce Booth, an experienced scientist in the life sciences turned venture capitalist, broke down the estimated cost and duration of each step to recreate the study conducted by the TCSDD and arrived at almost the same figures:
Discovery and Development
This is when research for a new drug begins. Researchers in pharmaceutical companies discover new drugs by diving deeper into a disease process, allowing them to design a product that can reverse or stop its progress. They also test compounds that can combat the effects of large numbers of diseases. At the end of this stage, researchers are provided with thousands of compounds which are candidates for drug development. After identifying potential compounds for drug development, researchers conduct experiments to gather necessary information such as: how compounds are absorbed, distributed, metabolized, and excreted, their optimal dosage, the best delivery method (whether oral or injected), and their toxicity. This stage usually costs $196 million spent in 1.5 years.
Preclinical testing ensures that developed drugs have no potential harmful effects and can be tested on people. During preclinical testing, researchers conduct studies to provide detailed information on toxicity levels and optimal dosages. Preclinical research is highly regulated by the FDA. The average cost for this stage is $122 million in 1.5 years.
Clinical Trial Design, IND Application, and FDA Approval
Clinical research, also referred to as a clinical trial, aims to find out how the drugs will interact with the human body. It consists of several stages, including clinical trial design, Investigative New Drug (IND) application, and FDA approval.
Clinical trial design. In this stage, researchers establish a protocol or a plan for the trial. They determine the objectives of the trial and define the study parameters such as the participation selection criteria, the desired number of people in the trial, the duration of the trial, establishment of a control group, how drugs will be given to patients, how patients will be assessed, and what data will be collected, reviewed, and analyzed.
Investigative New Drug (IND) Application. In this stage, drug developers, sponsors, or pharmaceutical companies submit an IND application to the FDA before they begin clinical research. In the IND application, sponsors must indicate the results of the animal study and toxicity data, their manufacturing information, protocols to be conducted, data from any prior clinical trials, and information about the sponsors.
FDA Approval. The FDA aims to protect the volunteers participating in the clinical trial. After reviewing an IND application, the FDA review team can either approve or disapprove of the application by ordering a hold order or stopping the investigation. However, stopping the investigation is unusual. The FDA often provides guidance on how to improve a clinical trial. At this stage a pharmaceutical company can also revise its clinical trial design and submit a revised IND application for FDA approval.
Costs are minimal in these three initial stages of clinical research. FDA also approves IND applications within thirty days.
Clinical Research Phase Studies
Consisting of three main phases, this stage tests for the safety and efficacy of the developed drugs on humans, and their optimal dosage:
Phase 1 involves testing the drug on 20 to 100 volunteers with the disease or condition. The goal is to determine the optimal dosage to be given to patients and ensure patient safety. This phase runs for an average of 1.6 years and costs roughly $169 million.
Phase 2 involves testing the drug on up to several hundred volunteers with the disease or condition. It usually lasts several months to over two years as it tests the drug’s efficacy and possible side effects. The average cost of this second phase is $402 million over an average duration of 2.5 years.
Phase 3 involves testing the drug on 300 to 3,000 volunteers with the two-fold purpose of further testing the drug’s efficacy and monitoring for adverse reactions or side effects that surface only after one to four years of taking the drug. This phase costs approximately $536 million over an average duration of 2.5 years.
As an additional safety procedure, a fourth phase is sometimes conducted on several thousand volunteers to further test the efficacy and safety of the drug. But, all in all, the clinical research phase studies can cost an average of $1.1 billion over 6.6 years.
FDA Review and Registration
After gathering evidence that a drug is effective and safe through clinical research, pharmaceutical companies can then file a New Drug Application (NDA) with the FDA. Prior to actual review, the FDA checks for completeness of reports and requirements. If the requirements are complete, the FDA proceeds with the review which usually takes six to ten months. If the drug passes the review process, the FDA works with the pharmaceutical company to develop the prescribing information, a process called labeling, and then proceed with the actual drug registration. FDA review and registration often take a total of 1.3 years and cost approximately $11 million.
FDA Post-Market Safety Monitoring
Over the life of a drug in the market, the FDA continues to monitor its safety and effectiveness through active surveillance. The FDA scans electronic health databases to find reported problems with drugs. This prompts the FDA to implore pharmaceutical companies to conduct new studies on new indications, formulations, dosage strengths and regimens that can cost the latter an average of $312 million.
Overall, the actual cost of drug development amounts to approximately $1.7 billion over nearly 11 years.
The Opportunity Cost of Drug Development
Aside from the actual costs of drug development, investors also consider the opportunity cost of investing in drug development — that is, the returns they could have gotten if they invested their capital in other projects. Assuming an 11% cost of capital similar to the study, the time-adjusted value of drug development costs will amount to $2.9 billion over 11 years. The increase of $1.2 billion from the actual cost of $1.7 billion corresponds to the opportunity cost of investing in drug development.
Reducing Drug Development Costs with Clinical Data Management
Clinical Data Management (CDM) is the process of collecting, integrating and validating clinical trial data. Its two main objectives are to gather the maximum amount of data for analysis and to ensure that the data is of the highest quality and integrity for statistical analysis by minimizing errors and instances of missing data.
Aside from these objectives, CDM vastly improves the efficiency of clinical trials and other stages of the drug development process. The electronic data capture (EDC) capabilities of CDM solutions is expected to reduce the duration of clinical trials by as much as 30%. This potentially reduces the duration of clinical trials from 6.6 years to 4.6 years, and the duration of the entire drug development process from 11 years to 9 years. Using Bruce Booth’s formula in estimating drug development costs, this also reduces the opportunity cost from $1.7 billion to $1.4 billion. CDM solutions enable time and cost savings by reducing inefficiencies in the data collection process, integrating clinical data coming from various sources and databases, and streamlining data management. CDM also ensures that pharmaceutical companies and life sciences organizations will spend less time gathering data and more time analyzing.
In addition to cost and clinical trial efficiencies, CDM solutions also help secure medical data, which is ten times more expensive than credit card data. CDM solutions are scalable tools that enable pharmaceutical companies to keep track of changing regulatory requirements and ensure compliance in the midst of the increasing complexity of clinical trials and increasing amounts of medical data. Securing medical data also saves pharmaceutical companies and other life sciences organizations from expensive lawsuits that can amount to hundreds of millions of dollars.
Liaison’s ALLOY™ Platform for Healthcare offers pharmaceutical and other life sciences companies a comprehensive cloud-based CDM solution that provides streamlined integration and data mapping, improved data quality, and flexible data management. It is a scalable solution perfect for the massive amounts of complex clinical trial data.
By partnering with Liaison Technologies, pharmaceutical and other life sciences organizations can ensure the high quality of their data, efficiently manage clinical trials to accelerate time-to-market, and secure their clinical data. Learn more about how Liaison Technologies can also help you accelerate your time-to-market with our Clinical Trials data solutions.