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Bringing a medicinal product to market is a lengthy and expensive process associated with high risks and narrow time windows for return on investment:
The costs incurred by the research and development of a new medicinal product are enormous. For example, as reported by Forbes1, one big pharma posted on its company blog in 2012 that the average cost of bringing a new drug to market is $1.3 billion. Spending measured from 1997 to 2011 by major pharmaceutical companies shows that bringing a new drug to the market costs on average $4 billion and can be up to $11 billion.2
From research to market, the average time is 13 to 16 years. The clinical trial phase can take up to 6-8 years for a chronic disease such as cancer (chronic forms of the disease)2. Patient enrollment in clinical trials is shown to represent a good 50% of the time, contributing to lengthened time to market. The authorities now take twice less time than 30 years ago to review a dossier for approval of a new medicinal product3. However, the clinical phase remains very long.
Among the millions of chemical entities or biologics screened or tested each year by the 50 biggest pharmaceutical companies, just an extremely small portion receives market approval: Only 21.5% of all drugs that begin Phase I trials eventually make it to the market. As a consequence, it can be deducted that, assuming spending is spread equally across all drugs, as much as $5.08 billions is spent each year on drugs that will never reach the market4. In 2013, the US FDA granted approval to a total of 27 new medicinal products.
The duration of patent protection worldwide is 20 to 25 years. Research based companies, who invest a lot of money on their research – on average more than 15% of their revenues5, want to secure and protect their discoveries as soon as possible. In addition, the patents they own belong to their intangible assets and contribute to their overall value. Therefore, companies tend to apply for patent protection very early in the development process, prior to pre clinical studies, and try and accelerate time to market, so as to count on a decade’s exclusive revenues post marketing. The longer the time to market, the later a return on investment can be expected and the shorter the return on investment period.
In that context, the only way to remain profitable for pharmaceutical companies has been to reduce time and cost to market, while targeting the broadest patient populations possible. Pharmaceutical companies have therefore gradually outsourced more and more segments of the value chain of a medicinal product and considered bringing mainly potential blockbusters to development - only those medicinal products that would address symptoms of big diseases and bring more than $ 1 billion sales annually.
But the pressure from generic companies since the 80s, the fact that pipelines are not promising enough and the will of governments to reduce health expenditures have pushed for a drastic disruption in innovation in the pharmaceutical industry: improving the historical model by incremental innovation is not sufficient any more.
The study of disruptive innovation in the pharmaceutical industry leans on the study principles of marketing innovation in a highly regulated environment: Business model innovation, technical innovation and new regulations supporting those innovations, as three typical drivers for disruptive innovation.
Business model innovation:
Vertically integrated companies, historically dominating a market, start to outsource the least profitable segment of their value chain to finally outsource the most profitable ones, transforming fixed costs into variable ones, getting rid of fixed assets of their balance sheet, remaining still profitable and focusing on their brand and their sales forces; they dis-integrate and become assembling companies. In parallel, the vendors to whom these activities are outsourced adopt a horizontal business model, working for different clients of the same sector, leveraging the knowledge gained and the synergies between projects. This horizontal business model favors development of key expertise and innovation in offered services: In the pharmaceutical industry, Contract Research Organizations have been innovating in clinical trial services and are able to conduct clinical trials faster than pharmaceutical companies do: according to the independent Tufts Center for the Study of Drug Development6, clinical trials conducted by CROs are completed an average of 30 percent more quickly than those conducted in-house. “This results in (…) time savings of some four to five months, translating into $120 million to $150 million in increased revenue potential” for their customers, as stated by the Association of Clinical Research Organisations7.
Therefore, pharmaceutical companies of all sizes - from big vertically integrated to assembling companies called “virtual pharmas”, together with selected full-services CROs, now tend toward a collaborative approach in drug development, through long-term strategic partnerships. Bringing a new drug to market becomes faster and less expensive. Consequently, pharmaceutical companies have to focus less on developing blockbusters and can also launch to market treatments addressing diseases affecting smaller patient populations.
This is the second parameter driving disruptive innovation. As a general rule, valuable technical innovation takes place at the stage of the value chain where the overall performance of the system is determined. In pharmaceuticals, the overall performance is determined by:
1) Diagnosis: The best treatment can only be chosen after a proper diagnosis.
2) Convincing proof of therapeutic efficacy: Benefits overweighing risks is the only way to get market approval.
The technical enablers supporting innovation in diagnosis are the recent and accelerated discoveries in genomics and biomarkers. Both areas support the emergence of continuously more precise genetic tests and molecular diagnostics for more targeted treatments. The combination of a drug and the molecular (or genetic) diagnostic testing of the very disease the drug treats or protects against is a Companion Diagnostic. A drug candidate developed and used together with a Companion Diagnostic fails less in clinical trials because its clinical trials only enroll patients of the exact population potentially treated by that very drug: a smaller portion of the population affected by a disease, but only those that have been diagnosed as having a subtype of the disease and the propensity to respond to the drug. Additionally, a Companion Diagnostic may identify the population more likely to experience adverse drug reactions; the corresponding patients would not be enrolled in the clinical trials. In fact, the disease is fragmented into smaller parts, potentially treated by different drugs.
An illustration of this is the well-known success story of the development of the breast cancer treatment Herceptin associated with its Companion Diagnostics HER2/neu: Instead of including women diagnosed as “having breast cancer”, in its phase III trials for the candidate drug, Genentech used a molecular diagnostic test to include in the trials only those whose tumors could be characterized by an over-expression of the HER2 protein. Genentech only enrolled 450 patients, compared with an estimated 2,200 that would have been required in a typical cancer trial. Genentech was able to reduce the duration of the trial from the usual 5-10 years to 2! This “pulled an additional $2.5 billion in accelerated income by getting to the market earlier. And 120,000 patients were able to get access to this therapy who otherwise would have been denied it”8. Since then, more than 15 drugs and Companion Diagnostics have been approved by US FDA9.
The technical enablers supporting innovation in proof of therapeutic efficacy are new IT tools, such as electronic forms, smart phones with dedicated applications, cloud computing, huge data-warehouse systems, powerful databases, dedicated information services…; they boost efficiency in the acquisition and processing of clinical trial data, allowing:
- a reliable, consistent and easy acquisition of loads of clinical data
- a reliable and easy transmission of loads of clinical data, even from locations where IT infrastructures are weak
- a robust processing of these loads of data
A huge quantity of data can be collected and processed from clinical trials to deduct and formulate a greater quantity of usable endpoints, or outcomes, so as to better support the demonstration of therapeutic efficacy.
Combining the techniques around molecular diagnostics and IT in clinical trial design brings the promises of higher success rates and reduced durations. Even though the targeted patient population is reduced, profitability is better secured and consequently smaller diseases can be addressed. Here again, pharmaceutical product development benefits from an early collaborative approach between pharmaceutical companies and service providers detaining competences in Companion Diagnostics and clinical trials.
New supporting regulations:
In a highly regulated industry, innovation translates into affordable innovative products for consumers only if the regulatory framework adapts to the changes and supports them. In the pharmaceutical industry, the innovations in business model and technologies described above lead to the emergence of drugs designed for smaller and precisely diagnosed diseases. Diseases are being fragmented. The challenge for regulators is to adapt to the state of the art, ensure availability of innovative treatments, at a reasonable price while ensuring patient safety10. In October 2013, under the guidance of its commissioner Margaret A. Hamburg, the US FDA released a report11 on its role in support of medical product development in the new era of personalized medicine. It describes the efforts made by FDA to “respond to, anticipate and help drive scientific developments in personalized therapeutics and diagnostics. For the first time, it provides a compendium of FDA’s many recent efforts to advance regulatory standards, methods and tools in support of personalized medicine and to further refine critical regulatory processes and policies in order to bring about personalized medical product development.”
Personalized medicine is often defined as “the right treatment for the right person at the right time”. The move toward personalized medicine has started and is inevitable. As companies of the pharmaceutical industry are changing their models, with new technical expertise emerging and regulations adapting, it is crucial for a sustainable success that all stakeholders collaborate closely and early enough in the development process of medical treatments.
NOTES AND REFERENCES
1 Source Matthew Herper, “The Truly Staggering Cost Of Inventing New Drugs”, Forbes 2012.
2 See Clinical Trial Facts & Figures for Health Professionals, CISCRP - Center for Information & Study on Clinical Research Participation, 2012. www.CISCRP.org
3 Hughes J, Rayer E, Wadd J, “Sponsor-CRO collaboration study”. Vantage partners 2013
4 Source FDA, “CDER New Molecular Entity (NME) & New BLA Calendar Year Approvals As of December 31, 2011”, FDA website http://www.fda.gov/
5 See EFPIA Figures 2012 Final, European Federation of Pharmaceutical Industry and Association web site.www.efpia.eu.
6 Cited by Hughes J, Rayer E, Wadd J, “Sponsor-CRO collaboration study”. Vantage partners 2013
7 Source ACROHealth, web site of the Association of Clinical Research Organizations. www.acrohealth.org. Accessed 2013.
8 Analysis adapted from Clayton M. Christensen, Jerome M. Grossman and Jason Hwang. “The Innovator’s prescription, A Disruptive Solution for Health Care”. Mc Graw Hill, 2009 and Christensen, C. M.” The innovator’s dilemma: When new technologies cause great firms to fail”. Harvard Business School Press, Boston, MA, 1997. Christensen is a researcher at Harvard Business School, studying marketing innovation. He and his co-authors have employed their expertise in marketing innovation to analyze and formulate recommendations to solve the problem of expensive inaccessible health care. Christensen is the author of several books on innovation and a consultant in strategy.
9 Source: http://www.firstwordpharma.com/node/1018326#axzz2ebmhHVJU and US FDAhttp://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/InVitroDiagnostics/ucm301431.htm. Accessed 2014 February 25.
10 In the US, Companion Diagnostics are regulated by the FDA as In Vitro Diagnostics. Pre submission interaction with FDA where both the Office of in vitro Diagnostic Device Evaluation and Safety and the Center for Drug Evaluation and Research attend, ensures common understanding of the diagnostics and the potential drug.
In Europe, regulation of Companion Diagnostics is following the In Vitro Diagnostics regulation as well, but still no interaction between Notified Bodies and the European Medicine Agency is currently in place. Significantly more regulation and interaction are expected when the new European Medical Device regulation is implemented in the very near future.
11. Margaret A. Hamburg. “Paving the Way for Personalized Medicine: FDA’s Role in a New Era of Medical Product Development.” US FDA, October 2013.
First published in the regulatory affairs newsletter of FORUM Institut fuer Management GmbH, Germany.
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