www.mbainfoline.com

Source: E-mail dt. 31.5.2012

 

Reverse insurance for clinical trials

 

G. Karthik

Project Leader employed with MNC Pharmaceutical Company, Bangalore

 

Dr. K. Mohan

Professor & Head, Department of International Business, Pondicherry University, Pondicherry-14.

 

Abstract

 

Analysis of why drug discovery and development costs so high and is it that something can be done to reduce it. Some deeper insights into it resulted in evolution of an idea under which costs can be reduced. Cost reduction was also looked from cost sharing perspective in order to make all stakeholders participate in the search of new medicines and also to benefit from new medicines. Shared costs can further be invested in research for finding new drugs. Underlining threads that runs through following words are that good science should not be halted due to dearth of funds.

 

Keyword: Insurance

 

Full Paper:

 

Pharmaceutical industry is under constant pressure to deliver new drugs time and again. This is not only to keep respective companies sales numbers in tact but also to sustain the business. Parameters that often keep new drugs traffic under control are dynamic regulatory environment, patient needs, amplifying costs and return on investment. I would like to take up a deeper insight into costs and return on investment aspects as these two parameters are directly linked to business. It is often said that wise businesses make wise investments and hence make sustainable business. Mathematically, return on investment can be computed by knowing numbers of investment gain and total investment. Time as one more component can be attached to return on investment in order to effectively find by when all investments made would be completely realized.

New drug development costs can be calculated and called in several ways but personally would like to categorize the costs in following ways:

 

a)      Cost of theory (discovery and preclinical costs)

b)      Cost of testing drugs (toxicological and clinical trials)

 

Why costs are important during drug development process?

 

There are other factors that influence drug development costs apart from fact that it is very high in number. And these factors would contribute significantly to decision making process of the innovator companies to conduct clinical trials so that they can get right value for the investments made.

 

a)      Nearing end for blockbuster (annual sales of one drug that exceeds $1b) era: This one factor really make high claims when it comes to return on investment. Innovator companies really face stiff challenge to replaces some of the present drugs going off patent in near future.

b)       Demand for more specific targets: All stakeholders demand for more specific target oriented medicines rather than medicines act on multiple paths.

c)      Increased emphasis on safety: This becomes very much challenging task when it comes to chronic ailments where safety is paid utmost importance and with absolutely no side effects. This is very clearly surfaces patient’s change in mind set to look for how medicines can help in improving the quality of life apart from being medicines for cure.

 

Reverse insurance for drugs testing:

 

Normally insurance is done on anticipation of unforeseen events (natural calamities like floods, heavy winds/rains, volcanoes) and hence reduce its impact. We can draw some parallels between natural calamities and clinical trials to some extent. Though both can be predicted by science in advance, but actual impact of it can be realized only after its occurrence. This is where we can try to use insurance in reverse way. In usual circumstances, insurance is paid to victims who had been badly affected. But concept of reverse insurance as

 

Name suggests for people who had actually been benefitted due to positive clinical trial outcome.

 

Hypothetically considering a Phase 3 clinical trial, which had met both primary and secondary end points with statistical significance, would cost ~ $95,000 per patient (computed based on Figure 1), the actual a phase 3 clinical trial would cost the sponsoring company close to $190 million assuming 2000 patients for the trial.

 

USFDA (USA was chosen as it is biggest pharmaceutical market) approved close to 30 new drugs in the year 2011. So if we take each of these 30 drugs would have undergone Phase 3 clinical trials that had met significant statistical primary and secondary end points would have resulted in spending close to $5.7 bn ($190mn x 30).

 

Reverse insurance throws up a simple question on whether this $5.7 bn cost can be shared between patients (who had actually got benefitted) and health insurers. Can the sponsoring company be reimbursed with cost of Phase 3 clinical trial? The numbers can always be challenged and need not be 100% funding. It would have significant impact if only even 50% (say trial investigator’s cost alone) is reimbursed to sponsoring company.

 

This can be developed along with following riders:

 

a)      Cost can be reimbursed to trial sponsoring company only post agency’s (USFDA) marketing approval

b)      Life time supply of new medicine at generic (when new product goes off patent) price to patients who had been recruited as subjects during clinical trials

c)      Reimbursed cost should be invested in further research only by sponsoring company and cannot be diverted to other purposes

 

Potential benefits that can be realized due to reverse insurance are:

 

a)      New medicine available for patients for life time at affordable cost

b)      Sponsoring company would be encouraged to invest further money in research in new and neglected disease areas

c)      Both risk and benefits are mutually shared between all relevant stakeholders

 

Summary

 

With change being only constant thing in the world that we operate it becomes apparent and imperative that change is welcomed across all streams of business rather than only to certain verticals. Ultimately it calls for more cohesive working across all stakeholders with single objective of bringing best medicines to patients quickly and safely at affordable cost. Thus together we can bring Right medicines to Right patients at Right time with Right cost.

 

References

 

1)      The price of innovation: new estimates of drug development costs - article published in Journal of Health Economics 22 (2003) 151 – 185

2)      How to improve R&D productivity: the pharmaceutical industry’s grand challenge – article published in NATURE REVIEWS/DRUG DISCOVERY Volume 9 March 2010

3)      www.elsevier.com/locate/econbase

4)      http://www.cuttingedgeinfo.com/research/clinical-development/trial-operations

 

Disclaimer: The contents expressed in this paper are purely based on author’s personal views and does not represent the organization with which they are associated with.