CER Could Lead To $10 Bil. Per Year Drop In R&D – Think Tank Analysis
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Investments in drug and medical device research and development will decrease as comparative effectiveness research conducted under the Patient-Centered Outcomes Research Institute begins to gain traction, Benjamin Zycher, senior fellow at Pacific Research Institute, predicts. Under conservative assumptions, “R&D investment in new and improved pharmaceuticals and devices and equipment would be reduced by about $10 billion per year over the period 2014 through 2025, or about 10-12%,” Zycher, who served as a senior staff economist on President Reagan’s Council of Economic Advisors, says in a recently released analysis. PRI is a San Francisco-based organization that describes itself as a “free market think tank.” “This reduction in the advance of medical technology would impose an expected loss of about 5 million life-years annually, with a conservative economic value of $500 billion, an amount substantially greater than the entire U.S. market for pharmaceuticals and devices and equipment.” Zycher identifies four areas in the report – “Comparative Effectiveness Reviews: Quantitative Analysis of Research and Development Investment Effects” – in which CER conducted at a high level through an organization like PCORI could lead to a reduced expected return on investment, and ultimately a reduction in R&D investments:
In putting a dollar figure on conducting more CER in the context of R&D, Zycher equates it to additional Phase II trials. “One highly conservative assumption might be that the cost of such additional analysis would be about the same as the cost of the Phase II clinical trials that currently are required for new investigational drugs,” he says in the analysis. Zycher cites a figure putting the average Phase II cost for a drug at around $93.7 million in year 2010 dollars and total R&D cost per approved drug at about $1 billion. “We assume here that tax deductions and credits would reduce the perceived cost of the additional clinical trials by 25% for pharmaceutical and device producers,” he writes. “Accordingly, this perceived requirement would increase R&D costs by about $70.3 million, or about 7%.” Unequal Distribution Of Reduced R&D Effects The analysis also notes that the adverse effects of the reduction in R&D investment resulting from top-level CER activities would not be distributed equally across the population. It “would be concentrated upon specific population subgroups the identity of which would depend on how much the investment cutbacks were to be implemented,” Zycher says. “In particular, the adverse investment effects are likely to be concentrated on R&D efforts that otherwise would yield technologies serving smaller populations, riskier treatments, and drugs expected to prove relatively less profitable.” Zycher’s analysis is built on the concept that research from PCORI will impact coverage and reimbursement decisions as the federal government looks for ways to curb health care spending. Federal policy makers “have powerful incentives to impose constraints on federal health care outlays, whether directly or indirectly, and CER findings are likely to provide one vehicle (or rationale) for doing so,” Zycher writes. “This means there is substantial likelihood that new and improved medical technologies will have to satisfy regulatory criteria even more stringent than the traditional safety and efficacy standards, if only implicitly, or may face pricing constraints heavier than is the case now for federal programs.” CER already plays a role in coverage decisions at CMS and approval decisions at FDA, as recent research reveals (Also see "CER Has Been A Part Of CMS Coverage Decisions In Recent Years – Avalere" - Pink Sheet, 9 May, 2011.). However, Zycher sees the start up of PCORI as potentially creating an environment where CER will play a greater role in the development process. “It is plausible at a minimum that producers will find it necessary to conduct their own tests of comparative effectiveness regardless of whether such analysis is required formally, so as to estimate at a preliminary level the likelihood that future government approvals or favorable reimbursement decisions will be forthcoming,” the report states. “The chance that approvals might not be given would increase investment risks, and a longer evaluation process would reduce the effective length of patent protection and also shift expected sales revenues further into the future.” Venture capitalists already are looking at a future product’s plan for addressing comparative effectiveness when making investment decisions (Also see "Venture Capitalists Have A Growing Interest In Comparative Effectiveness" - Pink Sheet, 21 Jun, 2010.). A Fear Of Averages Although Zycher acknowledges the usefulness of information that could result from CER, a key concern he expresses is that the results will focus on averages. “Conclusions derived from large CER statistical analyses are likely to be driven by average (or median) findings for a clinical trial,” he writes. “Variations in responses among patients (or population subgroups) are more difficult to estimate in aggregated analyses because such subpopulations within a given clinical trial may be too small to yield findings that are statistically significant.” Zycher also raises the point that findings are driven by the design of trials, and experts could differ on conclusions. A similar point was recently made at the Biotechnology Industry Organization’s International Convention (Also see "CER Credibility Lies In Methodology For Studies, Physician Tells BIO" - Pink Sheet, 11 Jul, 2011.). It is the use of averages that leads Zycher to caution against top-level government use of CER. The government “as a buyer of medical goods and services is likely to have some incentives to opt for lower-priced alternatives over higher-priced ones in ways that do not reflect the incremental advantages of the latter, if any,” Zycher writes. “In short, some incentives of federal policy makers in the context of a given health coverage program are likely to be inherently biased (at the margin) to some degree in favor of current budget savings at the expense of benefits enjoyed by the beneficiaries of that program.” Zycher continues: “In the context of CER, this bias is likely to reveal itself as an emphasis on cost (that is, outlay) savings greater than would be the case if patients made such decisions even if confronted with the full costs of their choices.” He argues that the current CER process “provides incentives to favor current budget savings over R&D investment disproportionately. … This problem of reduced long-run incentives for research and development inherent in the application of the findings from an expanded CER process is one dimension of the short time horizon environment confronting federal policy makers.” However, Harlen Weisman, member of the PCORI board of governors, said in an interview that PCORI’s overall intent is not about producing research that pits treatment A versus treatment B to find out which one is the winner. Weisman is also chief science and technology officer, medical devices and diagnostics, at Johnson & Johnson. The institute’s research “is not intended in any way to reduce options,” Weisman said. “It is not about arriving at a single answer that is right because the reality is there is no single answer right for individuals in general.” Rather, PCORI is looking to generate data aimed primarily at physicians and patients that will allow them to make informed decisions on treatment based on the patient’s unique needs. To that end, PCORI is making a concerted effort to engage a wide range of stakeholders, including those who are not traditionally included in research circles, to ensure that the widest perspective is taken into consideration in every stage of research (Also see "Patient Engagement A Key Part Of PCORI’s “Tier 1” Grants" - Pink Sheet, 23 May, 2011.). PCORI An Innovation Driver While Zycher sees PCORI as potentially creating an environment where research and development spending will go down, Weisman sees the activities of the institute as something that will drive innovation. One of the early areas of focus for the institute will be to identify gaps in evidence through its horizon scanning activities, including in areas where little is known about how to treat a given condition. Weisman said this could actually spur innovation because it could help industry focus its research and development efforts. “That’s a target,” Weisman said. “It helps us be more efficient in focusing research and development in areas of high unmet need.” Weisman also pointed to the work of the institute’s Methodology Committee as a potential source of R&D savings and another way in which PCORI would be helping to foster innovation rather than stunt it. The committee is working on a report aimed at identifying research methods that will be applied to future PCORI activities. Weisman suggested that these tools could set a standard for research and provide alternatives to generating high quality data when conducting randomized controlled trials might be cost-prohibitive. |