annual state of clinical development costs

January 10, 2012 | Philadelphia, PA

The Annual State of Clinical Development Costs

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Harold Glass PhD

Research Professor, University of the Sciences

Visiting Professor, Kings College London

President, TTC

I. The detail of the industry challenge may be more severe than we appreciate

II. Drug development cost management is increasingly more important:

A. CROs and site costs B. Use of CROs C. Use of new geographies D. Use of Standard of Care payment

Agenda

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I. The Industry Challenge

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• R&D productivity and relative sales generation have declined, while spending has increased

Eras of Scarcity and Abundance

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• Cheaper genetics, now 78% of volume • More aggressive payers, e.g. the German AMMOG law • Rarer science • The average 5th year sales for an individual drug (in

constant 2010 dollars) fell from $575 million in the Era of Abundance to $430 million in the Era of Scarcity, a decline of more than 15%

The Old Model is Under Stress

5

Hewitt, Jeff, David Campell, and Jerry Cacciotti. "Beyond the

Shadow of a Drought." Oliver Wyman. (2011): 1-16. Print.

• Whatever the details of the industry challenge, the demand for prescription drugs will inexorably grow.

• The industry’s basic business model is different: Coke, Tide, Ivory Soap, Harley Davidson, et. al.

• A study noted in a 2011 Oliver Wyman analysis that in 62 of the 127 diseases studied, representing 57% of global pharma sales, headroom for new drugs was limited.

Standard of Care in Disease is High and Rising

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II. Drug Development Cost Management: Costs

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• Companies are looking for new ways to achieve better incremental value for money spent on clinical trials • Use of CROs • Greater use of sites in new geographies • Use of Standard of Care to increase

payments to sites but reduce sponsor company costs

Cost Management

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II. A. Drug Development Cost Management: CROs

and Site Costs

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• According to TTC estimates CRO spending reached $11.5 billion in 2010.

• Frost and Sullivan estimates that the spending will exceed $20 billion by 2017.

• Some early phase project spending slow downs by affect CRO spending.

• Our data show that there is much room for CRO growth.

CRO Outsourcing

10

In Recent News…

Global clinical grant spending totaled $13.1 billion in 2010, with the US

representing 58% of the total

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Breakdown: Phase I $0.7 billion Phase II $2.4 billion Phase III $9.2 billion Phase IV $.8 billion

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0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

United States

United Kingdom

Germany France Poland China India

1.00

0.82

0.69 0.62

0.50

0.36 0.32

Index of Cost Per Visit in Clinical Trials by Country (All TAs, Phase I-IV, Year 2009-2011)

Comparative Cost Per Visit

• The cost in new geographies are increasing the most quickly

Cost Trends

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0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

6%

9%

11% 12%

17%

• Overhead rates remain an issue for many professionals managing clinical studies

US Overhead Rates

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0%

5%

10%

15%

20%

25%

30%

25th

50th

75th

20% 23% 25%

25% 26% 30%

Actual Overhead

Officially Reported Overhead

• Overhead rates are sometimes a concern in other countries as well, for instance the UK

UK Overhead Rates

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0%

5%

10%

15%

20%

25%

30%

35%

40%

25th

50th

75th

21% 25%

30%

20%

30%

40%

Actual Overhead

Officially Reported Overhead

Global Clinical Grant Spending

Top Areas of Spending

Top 5 TAs (Phase 1-3) Top 5 TAs (Phase 4)

Oncology 23% Central Nervous System

and Mental Disorders 40%

Central Nervous System and Mental Disorders

22% Cardiovascular Diseases 20%

Cardiovascular Diseases 18% Endocrine 10%

Endocrine 10% Infectious Diseases 7%

Infectious Diseases 7% Genitourinary Diseases 4%

…

Oncology 3% 16

• Generalized linear model with gamma distribution and log link

• GrantPlan® database with 73,174 domestic grants and 44,651 foreign grants from 2009 through present

• Represents 43 CROs and sponsors • Dependent variable – cost per patient • Primary independent variable – whether or not a CRO

negotiated the grant costs • Control variables – number of visits, therapeutic area,

phase, study type, and patient type

CRO vs. Sponsor Grant Spending

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Methodology

• Gamma distribution • Independence of

observations • Correct link function • Lack of influential

outliers

CRO vs. Sponsor Grant Spending

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Assumptions

• CRO and Sponsor Company practices differ.

CRO vs. Sponsor Grant Spending

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Asia Eastern Europe

Latin America

United States

Western Europe

Relative Costs of CRO negotiated budgets

132.9% 106.0% 107.6% 93.4% -

P-Value <0.001 <.002 <0.001 <0.001

Site Startup Admin Costs

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Percent of Startup Costs Itemized

Phase II 35%

Phase III 35%

Phase II-III 35%

• How often are site startup costs itemized by phase?

Site Startup Admin Costs

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• How often are site startup costs itemized by TA? Percent of Startup Costs Itemized

Blood Disorders 50% Cardiovascular 39% Central Nervous System 41% Dermatology 46% Digestive System 17% Endocrine and Metabolic Diseases 31% Genitourinary System 32% Infectious Disease 36% Musculoskeletal System and Connective Tissue 53%

Oncology 33% Ophthalmology 3% Pain 54% Respiratory 33% Transplantation 0% All 35%

II. B. Drug Development Cost Management: Use of

CROs

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• Marketing makes extensive use of advertising agencies

• One hears many of the same criticisms about agency turnover

• Agencies themselves often have relationships with the sponsor with durations no longer than CROs with pharmaceutical companies

Commercial Outsourcing

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• Yet agency staff are more often a part of the brand team than CROs are with the sponsor company project team

• The agency is measured on increased brand sales

• Making money is an accepted motive

Commercial Outsourcing

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• Two dimensions of outsourcing • Scope of work

• What will a company be asked to do ranging from a part of one study to a complete study, to a functional area, to major portions of all outsourcing

• Degree of Exclusivity • How many companies will be asked to bid

ranging from

CRO Usage

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• As with other studies done examining the use of outsourcing, participants in this study thought CRO usage would increase

CRO Usage

Expected Use of CROs in the Next Five Years

Increase

77%

Remain the

Same 19%

Decrease

4%

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• The “better” companies tend to be smaller and located in Europe, but do not spend more on project oversight

Outsourcing Management

Ability to Manage the CRO Relationship

27

9%

36%

9%

45%

Somewhat

poorer

About the

same

Somewhat

better

Clearly

better

CRO Usage

Percentage of Outsourced/In-Sourced Usage by Clinical Trial Activity

Patient

Enrollment On-Site

Monitoring Data

Management Biometrics Report Writing

Percentage with Some Element of Outsourcing 32 34 38 23 21

Average Percentage Outsourcing Across all studies 32 34 39 23 21 28

CRO Usage

Percentage of Outsourced Usage for Each Clinical Trial Activity by Size of R&D Operations

Patient

Enrollment On-Site

Monitoring Data

Management Bioetrics Report Writing

Major Company R&D Expenditures Equal to or over US $2 billion 21 24 32 12 12

Medium R&D expenditures equal to or over US $7-to less than US $2 billion 50 60 49 45 43

Small R&D expenditures under US $7 billion 70 70 59 42 43 29

US Site Preferences • What type of organization do you prefer to run your

trials? Many sites are indifferent. This is even more true outside the US.

Total Office Based Academic

Medical Center Hospital

Pharmaceutical Company

34% 32% 39% 36%

No Preference 43% 44% 40% 39%

CRO 23% 23% 21% 25%

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II. C. Drug Development Cost Management: Use of

New Geographies

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• Factor analysis results • Medical innovation

• Financial considerations

• Study specific issues

Reasons for Participating in a Clinical Trial

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Medical Innovation

Investigator Survey Results – Medical Innovation

US Investigators LA Investigators

Asia Pacific Investigators

Individual survey items Rated very important

Rated very important

Rated very important

The opportunity to work with a potential new therapeutic option for subjects who have not responded to available treatment, or for whom there are no approved treatments 87% 85% 74%

The chance to take part in innovation research, whether or not the research specifically relates to my patients 59% 79% 54%

The opportunity to share with other physicians outside the clinical trial what is learned from my participation in the clinical trial 49% 71% 49%

The opportunity to interact with other physicians involved in the clinical trial 38% 70% 52%

• Investigators around the world take part in medical innovation

Financial Considerations

• Finance is important but second to innovation

Investigator Survey Results - Financial Considerations

US Investigators

LA Investigators

Asia Pacific Investigators

Individual survey items Rated very important

Rated very important

Rated very important

The prospect of additional studies from the sponsoring pharmaceutical company 47% 53% 29%

To supplement the revenues/income of my practice/institutions/department 43% 45% 26%

The amount of money required by my site to start the study until we receive payment from the organization running the study 30% 34% 23%

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Study Specific Considerations

• These considerations vary by geography Investigator Survey Results - Study Specific Considerations

US Investigators LA Investigators

Asia Pacific Investigators

Individual survey items Rated very important

Rated very important

Rated very important

My own site experience working in the specific indication of the potential study 70% 82% 61%

My experience with the sponsoring company or CRO on previous work I have done with that company or CRO 43% 34% 37%

My level of confidence in other drugs already on the market from that company 28% 55% 34%

The sponsoring pharmaceutical company, rather than a CRO, is actually running the day-to-day operations of the study 19% 61% 23%

A large, multinational pharmaceutical company is sponsoring the study 19% 47% 28%

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II. D. Drug Development Cost Management:

Standard of Care

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• Based upon a global study of 2,300 sites, there is no evidence that paying above the industry median improves data quality, reduces study completion time or improves site performance • This is true at the study level

• And with one exception at the site level

Payment Practices

37

• We conducted a web-based survey of active US sites, supplimented by follow-up telephone and on-site interviews

SOC Site Survey

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0 50 100 150 200 250 300 350 400

Other

Academic Institution

Hospital

Clinic

Private Practice

Respondent Site Type

Non-Dedicated Research Site

Dedicated Research Site

• These are sites which conduct a large number of clinical trials

SOC Site Survey

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0

50

100

150

200

250

0 - 5 6 - 10

11 - 15 16 - 20

21 or more

Within the past two years, how many clinical trials did your organization take part in?

• Many sites are regularly using coverage analysis for clinical trial budgets

SOC Site Survey

40

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

All Sites

Dedicated Clinical Research Sites Academic Institutions

79 82 86

Percent of sites that conduct coverage analyses

• Many sites already submit claims for patients in clinical trials

SOC Site Survey

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0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

All Sites

Dedicated Clinical Research Sites Academic Institutions

65 65 70

Percent of sites that regularly bill 3rd party payers for clinical trials

• Sites routinely perform coverage analysis in many therapeutic areas

SOC Site Survey

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0% 10%

20% 30%

40% 50%

60% 70%

80% 90%

Digestive Systems

Genitourinary System

Dermatology

Pharmacokinetics

Respiratory

CNS

Devices and Diagnostics

Ophthalmology

Musculoskeletal and …

Infectious Disease

Blood Disorders

Cardiovascular

Transplantation

Oncology

For investigators working in specific TAs, how often do they routinely perform coverage analyses in that TA?

• The main reason sites do not do a coverage analysis is because they are not asked.

SOC Site Survey

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0% 10%

20% 30%

40% 50%

It will inhibit patient recruitment

The potential saving do not …

It is too time consuming

It will delay the negotiation …

It is too difficult to determine …

The sponsor does not require it

What is the main reason a site does not conduct coverage analyses?

• Third party payers pay faster than pharmaceutical companies

SOC Site Survey

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Average Number of Weeks Until Payment

Pharmaceutical Companies

Third Party Payers

16.2 10.8

• Outside of oncology some companies are reluctant to achieve the cost savings possible through the incorporation of Standard of Care • Some worry about slower site start-up times,

although there is no evidence of this. • Nearly two-thirds of respondents feel the

process is too time-consuming • Most express the need for more data.

SOC Usage

45

• There is confusion about Standard of Care from a scientific perspective and from a clinical grant management point of view

• An analysis of industry protocols demonstrated that over 20% of grant payments can still be covered by Standard of Care

SOC Usage

46

• Many of the research sites are used to applying Standard of Care • NIH – requires SOC • Many states require 3rd party payments for

some or all of FDA approved clinical trials • Virtually every clinical site routinelly processes

claims with 3rd party insurers • Resistance is often greater within the sponsor

company than at the sites

Already in Place…

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SOC Analysis – Type II Diabetes Study

28431754DIA3004_8DEC09 Study Duration 66 Weeks

Number of Visits 17

Number of Patients ~500

Number of Procedures 17

Number of SOC Procedures 8

Number of Expensive Procedures 0

Total Cost for Procedures Per Patient before SOC (w/ overhead) $6,060 USD

Total Cost for Procedures Per Patient after SOC (w/ overhead) $4,276 USD

Total SOC Savings Per Patient $1,785 USD

Total SOC Savings for All Patients $892,500 USD

Total % of SOC Savings 29% 48

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Thank You For Your Participation!

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