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The Value of Improving the Productivity of the Drug Development Process

Faster Times and Better Decisions

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Objectives: This study examines the financial benefits that can accrue to drug developers from improvements in the drug development process. The effect on drug development costs from faster development, earlier decisions on project failures, and higher approval success rates are quantified.

Data and Methods: The results from a recent study of research and development (R&D) costs for new drugs are used as a benchmark against which improvements in the discovery and development processes are simulated. The cost results in the benchmark study were based on a sample of 68 randomly selected investigational drugs from 10 pharmaceutical firms.

Results: Simultaneous 25% reductions in phase lengths lower capitalised total cost per approved drug by 16%, or $US129 million; 50% reductions in time lower cost by 29%, or $US235 million. Earlier decisions to terminate research on drugs that will ultimately fail significantly reduce clinical costs. For example, shifting 5% of all clinical failures from phase III/regulatory review to phase I reduces out-of-pocket clinical costs by 5.5 to 7.1%; and capitalised clinical cost is lowered by 5.1 to 6.3%. If more productive discovery programmes or better preclinical screens increase success rates from 21.5% to one in three, firms can reduce capitalised total cost per approved drug by $US221 million to $US242 million.

Conclusions: Whether faster development times, quicker termination decisions or higher success rates derive from public policy initiatives, better management, or new technologies, the impact on R&D costs can be substantial. Ultimately, the increased efficiency could result in more innovation and new therapies reaching patients sooner.

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  1. Assuming proportionately higher or lower values for phase out-of-pocket costs would change the absolute amount of cost savings for the simulated process improvements, but it would not affect the reductions in percentage terms. The changes in absolute savings are easily determined since they vary in the same proportion as phase costs.

  2. Reductions in time also provide the benefit of getting drugs to the market sooner. This can increase the amount of time that a drug is on themarket without generic competition (effective patent lifetime). However, it would be likely that this impact would be fairly limited since the effective patent lifetimes of many drugs are constrained by the Hatch-Waxman legislation in the United States that limits patent restoration time to 5 years and constrains the total effective patent lifetime with restoration to 14 years. However, to the extent that individual firms are more effective at reducing development times than their competitors, then those firms will reap the potentially substantial benefit of having their drugs spend a longer period on the market with no or few substitutes in their product class.


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The author would like to thank the two referees for helpful comments. No external financial support was provided to conduct this study. The author has no conflicts of interest with regard to the content of this manuscript.

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Correspondence to Joseph A. DiMasi.

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DiMasi, J.A. The Value of Improving the Productivity of the Drug Development Process. Pharmacoeconomics 20 (Suppl 3), 1–10 (2002).

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