How the FDA Stifles New Cures, Part I: The Rising Cost of Clinical Trials

How the FDA Stifles New Cures, Part I: The Rising Cost of Clinical Trials

April 25th, 2012 // 12:18 pm @

Today, the Manhattan Institute released a study I authored, entitled “Stifling New Cures: The True Cost of Lengthy Clinical Drug Trials.” (You can read the full report here.) The paper discusses how outdated FDA policies are making drug development too expensive and too risky. In this excerpt, I describe the factors that are driving up the cost of clinical trials.

The rising cost of drug development

In 1975, the pharmaceuticals industry spent the equivalent of $100 million in today’s dollars for research and development of the average drug approved by the U.S. Food and Drug Administration, according to the Tufts Center for the Study of Drug Development. By 1987, that figure had tripled, to $300 million. By 2005, this figure had more than quadrupled, to $1.3 billion.

The true amount that companies spend per drug approved is almost certainly even larger today. My Forbes colleague Matthew Herper recently totaled R&D spending from the 12 leading pharmaceutical companies from 1997 to 2011, and found that they had spent $802 billion to gain approval for just 139 drugs: a staggering $5.8 billion per drug.

The biggest driver of this phenomenal increase has been the regulatory process governing Phase III clinical trials of new pharmaceuticals on human volunteers. One reason: Phase III clinical trials have become far larger and more complex than they were in the past. From 1999 to 2005, as the Tufts group has shown, the average length of a clinical trial increased by 70 percent; the average number of routine procedures per trial increased by 65 percent; and the average clinical trial staff work burden increased by 67 percent. On top of that, increasingly stringent enrollment criteria and trial protocols resulted in 21 percent fewer volunteers being admitted into trials and 30 percent more enrollees dropping out before completion of the tests.

Overall, Phase III trials now represent about 40 percent of pharmaceutical companies’ R&D expenditures. But this often-cited statistic actually understates the gravity of the burden. This is because overall R&D expenditures include all pharmaceutical candidates that a company tests—including hundreds that never reach the Phase III trial stage. When we confined our analysis to those drugs that actually get approved, we found that Phase III clinical trials typically represent 90 percent or more of the cost of developing an individual drug all the way from laboratory to pharmacy.

In this paper, we look at four particular areas of public health concern: obesity; diabetes; stroke and heart ailments; and “orphan diseases” (ailments that afflict very small populations and hence lack the normal market incentives to develop treatments). We analyzed the progress of 12 major new pharmaceuticals developed across these four categories and found that in nearly every case, Phase III trials represented at least 90 percent of the entire cost of a drug’s development.

This cost burden creates a system of perverse incentives for researchers and industry, which discourages the rational allocation of resources for drug development. After all, only one in 12 drugs that enter human clinical trials end up gaining approval from the FDA. This risk profile has led smaller companies to go bankrupt when they have faced setbacks in clinical studies. Many private investors are withdrawing venture capital support for start-up drug companies, fearing that their investments will vanish if there is the slightest hiccup in the development process.

The consequences for Americans are higher-than-necessary health spending and poorer health outcomes. Pharmaceutical companies charge more for their products, in order to recoup their costly and risky investments. And fewer beneficial drugs reach doctors and patients.

What Is a Phase III Trial?

Federal law requires that medications proposed for human use go through “adequate and well-conducted clinical trials.” Around this statutory language, regulations and standardized practices have built a three-phase system for any compound that, having emerged from basic research and animal testing, is deemed a candidate for pharmaceutical use. These three stages (paid for, of course, by the medicine’s developer) begin with Phase I trials, involving perhaps 100 people at most, to assess the proposed drug’s safety and whether it works in treating a particular condition, symptom, or illness. If the medication “passes” these tests, it moves on to Phase II trials, which assess how well the drug works as well as how safe it is, and they involve a larger number of people (100–300).

Only after these stages does a drug candidate move on to Phase III trials, which test the drug against placebos, as well as currently available treatments, on thousands of people. The large sample size is essential to uncovering potential side effects that may affect small percentages of people and therefore may be missed in the smaller trials. Large-scale trials also protect against statistical accidents that often occur in small samples and thus provide a more complete and reliable portrait of the drug’s benefits and risks.

The importance of Phase III trials stems from the statutory language in the Federal Food, Drug, and Cosmetic (FD&C) Act. Under Section 505(d) of the act, sponsors of new drug applications must demonstrate “substantial evidence” of the drug’s clinical benefit, with “substantial evidence” being defined as “adequate and well-controlled investigations … by [qualified] experts.”

Under the FD&C Act, the FDA has considerable discretion to determine what constitutes “substantial evidence.” The agency has interpreted the plural form of the word “investigation” in the statute to mean that companies must sponsor at least two such studies, and those studies are usually large, multiyear Phase III trials—the ones that swallow up so much private capital. By tradition, each of these trials is expected to show, with 95 percent statistical certainty, that a drug meets its tested aims of clinical benefit.

Phase III Trials Are the Biggest Driver of the Rising Cost of Innovation

In order to more accurately estimate the contribution of Phase III studies to the cost of drug development, we reviewed public filings and records for companies developing medicines in four areas: GLP-1 inhibitors for diabetes; factor Xa inhibitors for cardiovascular disease; several new drugs for reducing obesity; and medications for several rare disorders such as Hodgkin’s lymphoma.

We calculated the number of patients studied in every clinical trial that the selected companies sponsored. We then cross-referenced these data with the average per-patient cost of clinical trials, as reported by a 2011 survey by the medical management consulting firm Cutting Edge Information. These are the data that show that, in most cases, companies spent more than 90 percent of their development money per drug on Phase III clinical trials. In the field of obesity, the average was 91 percent; in diabetes, it was 93 percent; in cardiology, it was 94 percent. Only among rare disorders were there exceptions to the general rule because in that field, some companies can take advantage of the FDA’s accelerated approval process and forgo Phase III studies.


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