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DRUG DEVELOPMENT COSTS MAY INCREASE BY $ 100 MIL. IN U.S. DUE TO LENGTHY APPROVAL PROCESS, PMA ESTIMATES FOR PRESIDENT's COMPETITIVENESS COUNCIL

Executive Summary

The extended length of the U.S. drug approval process vis-a- vis other developed world drug reviews could add as much as $ 100 mil. to the cost of the development of successful drug projects, the Pharmaceutical Manufacturers Association estimates. Using data on 45 drugs approved in the U.S. and abroad during the period 1986-1990, PMA calculates that it takes 3-1/2 years longer for a product to go through clinical trials and regulatory review in the U.S. than it does to go through the same stages in the country of its first approval. The average development time in the U.S. for the 45 new molecular entities reviewed by PMA was 8-1/2 years: 5.7 years in clinical trials and 2.8 years for FDA review. The average development time in the first major market of approval was five years: 3.9 years in clinical trials and 1.1 years during regulatory review. PMA collected the comparative data on approval times in response to a question raised by the President's Council on Competitiveness. At a mid-April meeting with a working group of the council, PMA representatives were asked by HHS Undersecretary Constance Horner to quantify the impact of the time of U.S. drug approvals. PMA President Gerald Mossinghoff estimated the overall effects of the longer development time, declaring: "The suspicion is that you would save a full $ 100 mil. if the FDA did not lay on so many requirements for clinical trials and then did not take so long in their approval decisions." Mossinghoff noted that using the estimates developed in 1990 by Tufts professor J. A. DiMasi for the lost opportunity costs of drug development, the approvals abroad would save sponsors almost $ 50 mil. in capital costs. He added that the two extra years of clinical trials also would have to add significantly to the expense of developing a drug. PMA expects the subject of R&D cost estimates to get a thorough going over in the upcoming Office of Technology Assessment (OTA) report. A first draft of the report has been prepared for review at an open public meeting scheduled for May 7. The meeting is designed preimarily to address OTA's analysis of current literature. Previews of the OTA report indicate that several types of costs used in previous estimates are questioned: FDA review delays; dry holes (failed projects); and lost alternative investment opportunities. Mossinghoff told the PMA annual meeting that the association is ready to defend the lost opportunity costs of drug development. The time-value of money is recognized "by every economist," Mossinghoff asserted. "You cannot invest money over a period and not take into account the opportunity cost of that investment," he added. PMA believes that the OTA report may argue "that there is no basis for saying time-value of money enters into the cost of a new drug," Mossinghoff told the annual meeting. "If that is what they are saying then that is a debate in Washington that we are not going to lose," he declared. Mossinghoff said he was "anxious to get back to Washington and start working on this little mini- problem." While the cost of drug R&D was the timely topic in speeches at the PMA annual meeting, Nobel laureate James Black, MD, raised the longer term issue of the structure and organization of biomedical R&D efforts. Black, chairman of the James Black Foundation affiliated with Kings College and funded by Johnson & Johnson, questioned the traditional practice of lumping research and development functions into the same organizational structure. "We all make the distinction between research and development as though the distinction were useful and then we immediately blur that distinction by putting them together in R&D departments under the thumb of an R&D director." The confusion between research and development "is understandable," Black noted. Both efforts "need, among other things, high tech instruments, computers, chemists, animal facilities, libraries and so on." Those similarities, however, mask essential differences between the two functions, Black argued. "I believe that any institution which blurs and obfuscates the difference between R&D, whether in organization, in financial control or accountability, is likely to emasculate or suffocate one or other of them," Black declared. Black contrasted the organizational, goal-oriented skills of the development scientists with the creative focus of industrial researchers. "The people who are skilled in development are essentially technological executives. Give them a problem and they bring a marshaling yard mentality to the task," Black said. Describing development scientists as "highly organized," Black said, "this crowd needs to control its environment. They work best in narrow, authoritarian, hierarchical organizations where delegation is the name of the game. Give them a problem; they get switched on by knowing not only that they will solve it but also by knowing how to produce a game plan to get there. Once the plan is charted on the wall, they can be relied upon to stick to it." Because the development process can be plotted, phased and costed in advance, Black said, "tight control of budget and expectations is possible." The development area of industrial work is well suited to economies of scale. The industrial research organization, by contrast, should be less hierarchical, Black suggested. The Nobel laureate used a soccer/hockey analogy to describe the industrial research organization: "The team tries to score a goal by maximizing every player's . . . skills. The free flow of play occurs without hierarchical control. Yet, there is no mayhem because the individuals voluntarily submit themselves to a rehearsed and understood strategy. The team's patrons cannot expect goals all of the time, but the players know that if they don't score goals, they will lose the patronage." In recent years, Black noted "there have been a plague of symposia (organized often in association with your industry) to discuss and analyze creativity in biomedical research. The best conclusion that we can come to, I think, is that creativity is not a technique or a method which can be learned and taught. Our brains seem to be organized to make random comparisons of the contents of our memories: daydreaming allows the process to go into freefall." Black suggested "competition performed by small groups" for industrial research. He warned that some "industrial researchers, flush with money, are being encouraged to go it alone, to do their own thing, to be virtuosos." He said he viewed that trend as a "role reversal" in science, "and role reversal is usually dangerous." Noting the difficulties of picking the appropriate managers for the research and development functions, Black said that the "home-grown" managers "are invariably chosen for their management skills." He said they usually come from development backgrounds. "Under them, the research activities and therefore the input into development tend to be efficient but uninspired -- more or less suffocated by the bureaucratic exercises." Imported R&D directors, Black observed, usually come from academic careers. "To industrial businessmen," the most "dazzling and bewildering" of these R&D directors are the ones who preach about science and the great guiding policies: 'We are only going to do first-class science here.'"
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