The Changing Economics of Medical Technology (1991) / Chapter Skim
Currently Skimming:
3. The Changing Economics of Pharmaceutical Research and Development
3. The Changing Economics of Pharmaceutical Research and Development
Pages 35-52
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 35... ...
The following section examines current trends in R&D opportunities, R&D costs, product life cycles, effective patent life, and prescription prices. The second section discusses some of the main results from a recently completed study of returns on past new drug introductions (1~.
|
From page 36... ...
dollars using the GNP price deflator. Source: Compiled from sales audit data from IMS America Inc.
|
From page 37... ...
They have lost much of their share of the market to several products that were not even present during the 1970s. Newer product categories, such as the ACE inhibitors, the calcium channel blockers, and the cholesterol reducers, now account for a significant and rapidly growing share of the cardiovascular drug market.
|
From page 38... ...
This total R&D time has been trending inevitably upward.3 The bar graph in Figure 3.3 shows annual industry R&D expenditures, expressed in constant dollars.4 The solid line shows the annual number of new drug introductions. This figure indicates that R&D expenditures have increased several fold, even after adjustment for economy-wide inflation.
|
From page 39... ...
(Source: data on new drug introductions from the FDA and pharmaceutical R&D expenditures data from annual surveys of the Pharmaceutical Manufacturers Association.)
|
From page 40... ...
A second factor associated with longer R&D times and higher costs per new drug introduction is the shift in research focus toward therapeutics to treat chronic clinical conditions such as cardiovascular disease and cancer. Chronic disease drugs require more long-term testing and greater overall resource investments prior to commercial introduction.8 A third factor accounting for higher R&D costs is the rapid escalation in the out-of-pocket costs of clinical trials and the greater capital equipment requirements associated with current R&D activities in the pharmaceutical industry.
|
From page 41... ...
Effective Patent Life Mindful that the 1984 act would result in greater generic competition and shorter times to recover R&D costs, legislators sought to grant brand manufacturers some relief by providing partial restoration of patent time lost during the clinical development and regulatory approval periods for new product introductions. Given this other objective of the 1984 act, what can be said about the effective patent life for current new drug introductions?
|
From page 42... ...
These analyses indicate that the average drug will probably have 10 to 12 years of effective patent life when the full patent restoration benefits from the 1984 act are implemented. The patent life may even be less if average development times continue to increase.
|
From page 43... ...
Both indices are valued at 100 in 1970 for comparative purposes. The GNP series advances faster during the 1970s, but the PPPI, with its faster growth in the 1980s, has a higher value than the GNP deflator by the end of this period.~4 Increasing drug prices above the rate of general inflation has been one of the main strategic responses of the industry to higher R&D costs, shorter product life cycles, and increased generic competition.
|
From page 44... ...
for the mean compound is negative in the early years of product life owing to the large upfront capital investment and to market launch expenditures. It becomes positive by the
|
From page 45... ...
This is in line with our estimates of returns for investments of comparable riskiness over this period.76 Another major finding is that the higher real drug prices in the 1980s had an important effect on the returns to the 1970s introductions. A sensitivity analysis indicates that if no real price increases had occurred in the 1980s, the cumulative present value of after-tax cash flows for the average drug in Figure 3.8 would have been reduced by 16 percent.
|
From page 46... ...
New drugs introduced during the 1970s had an average patent life of 15 years and a gradual loss of sales over the assumed market life of 25 years. Current new drugs, whose patents expire in the 1990s or beyond, can expect an effective patent life of 10 to 12 years and a very rapid loss of sales in the post-patent period because of aggressive generic competition.
|
From page 47... ...
In sum, current economic trends will place a greater economic burden on the industry to achieve higher sales levels and more breakthrough products than in the past. This will be true given the present environment of expanding R&D costs, shorter product life cycles, and increased generic competition.
|
From page 48... ...
average delays range from 11.6 months in Washington state to over 40 months in Kentucky and California. These delays in giving approval result in lost revenue and lower expected returns to new drug introductions.
|
From page 49... ...
If left unchecked, this is likely to result in a downward pressure on both private and societal R&D opportunities in the 1990s. A vigorous public sector program in biomedical R&D is necessary to ensure that the search process for new medicines remains highly productive throughout this decade and that the United States remains at the forefront of this effort.
|
From page 50... ...
11. The full patent term benefits apply to drugs that were not yet in the clinical development stage or not yet patented when the 1984 act was passed.
|
From page 51... ...
Implementation of the drug price competition and patent term restoration act of 1984: a progress report. Journal of Clinical Research and Drug Development 1987;1:263-275.
|
From page 52... ...
The eUminabon of selected drug products Tom the Michigan Formulary: a case study. Hospital Formulary 1984;19:366.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.