In 2000 the global pharmaceutical industry was estimated to have spent US$58billion on R&D, with around 40percent of this being devoted to clinical trials.
The cost of new drug development has been rising steadily since the 1970s,“ says Faiz Kermani, who works in business development for leading independent clinical research organisation Chiltern International. "In 2001, the Tufts Centre for the Study of Drug Development estimated the cost of successfully getting a drug to market was approximately US$802million; a second report issued in 2003 suggested that this figure had increased to US$897million. Conversely, the consulting company Bain & Company recently proposed a figure of US$1.7billion as the actual cost of successfully launching a new drug. A major difference between these two analyses is that Bain & Company factor in the expense of commercialising a new drug, whereas the Tufts CSDD figure focuses chiefly on R&D expenses,“ he added.
A variety of studies, including those by Tufts CSDD and Bain & Company, have demonstrated that expenditure on clinical development does account for a growing portion of total R&D investment. Tufts CSDD estimates that although total average (preclinical plus clinical) costs increased 5.8times between the 1970s and 1990s, the corresponding clinical costs increased 8.6times.
Companies involved in novel drug development frequently experience a heavy increase in expenditure when their compounds reach clinical trials. In its 2002 survey of its US-based member companies, the Pharmaceutical Research and Manufacturers of America (PhRMA) noted that the inflation-adjusted increases in clinical R&D costs were more than fivetimes greater than the costs for preclinical work.
"The key lesson from this is one of selection,“ added Kermani. "Project selection and prioritisation, before entry into the development process, is therefore an important decision point.“
He also believes the rising costs of clinical trials are affecting R&D strategies and the manner in which companies operate: "A good example of this would be the number of Japanese companies that have sought to carry out their clinical studies abroad, taking advantage of the lower costs and larger market size. If this becomes an industry trend, it would have significant implications for Japan as an R&D base since Japanese companies have shown a strong commitment to clinical research.“
Drug discovery technologies such as combinatorial chemistry, high throughput screening and genomics are resulting in an increasing number of new compounds with the potential to enter clinical development. Much will therefore depend on the decision-making process used to evaluate what compounds progress to clinical trials. Inevitably, the rising costs of clinical development are an important factor in this assessment.
"Outsourcing is one obvious solution,“ explained Kermani. "As clinical development is expensive and risk-intensive, companies involved in drug development have genuinely improved their options for success by outsourcing to clinical research organisations (CROs).“
Market figures show that pharmaceutical and biotech companies are continuing to outsource projects to CROs in order to better manage their R&D investment. In 1993 the global outsourcing market for all
R&D-related functions was valued by Centerwatch at US$1.6billion but by 2003 this had risen to US$9.3billion. Technomark estimated that clinical services accounted for 58percent of the outsourcing market in 2003 and valued this portion at US$6.05billion.
The growing popularity of outsourcing is best illustrated in an analysis of the US pharmaceutical industry by UBS Warburg.
It revealed that of the US$30billion that the US pharmaceutical industry invested in R&D in 2001, around 20-25percent of this was spent on outsourcing.
Given time, cost, and pipeline pressures in pharmaceutical manufacturers, together with the increased regulatory requirements, UBS Warburg predicted that this outsourced portion of pharmaceutical R&D spend would expand by onepercent per year throughout 2005.
The US pharmaceutical industry remains the most successful in the world, with its companies marketing around 20 of the world's best-selling drugs.
The continuing success of the US pharmaceutical industry demonstrates that outsourcing can contribute to R&D productivity.
"Outsourcing allows a company to concentrate on its core competencies and to utilise its R&D expenditure effectively. An established outsourcing strategy is now an important feature of clinical development in most pharmaceutical companies. Nevertheless, for the relationship between biopharmaceutical companies and CROs to be successful and effective, it must be considered as a partnership. From a small biotech in search of specialist advice, to a multinational pharmaceutical corporation requiring a global strategy for their clinical trials all companies will seek a CRO that can provide honest and objective advice, and whose approach to drug development best complements their own goals,“ concluded Kermani.
