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The Economics of Follow-On Drug Research and Development Trends in Entry Rates and the Timing of Development

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The Economics of Follow-On Drug Research and Development Trends in Entry Rates and the Timing of Development 14719_Follow-on_drugs.qxd 10/12/04 11:27 PM Page 1 ORIGINAL RESEARCH ARTICLE Pharmacoeconomics 2004; 22 Suppl. 2: 1-14 1170-7690/04/0002-0001/$31.00/0 © Adis Data Information BV 2004. All rights reserved. The Economics of Follow-on Drug Research and Development Trends in Entry Rates and the Timing of Development Joseph A. DiMasi and Cherie Paquette Tufts Center for the Study of Drug Development, Tufts University, Boston, Massachusetts, USA Abstract Objectives: The development of so-called ‘me-too’, or ‘follow-on’, drugs by the pharmaceutical industry has been viewed by some as duplicative and wasteful, while others have argued that these drugs often provide needed therapeutic options and inject some price competition into the marketplace. This study examines data on the trends in the speed with which competitive entry has occurred in the pharmaceutical marketplace and the competitive nature of the industry’s development of these drugs. Data and methods: We examined data on the entry rates of drugs in a large number of therapeutic classes over time, as well as detailed survey information on the rela- tive timing of the development of drugs in the classes. Classes were defined accord- ing to chemical structure or pharmacologic mode of action and similarity of clinical use. We determined average times to initial and subsequent entry in drug classes by period and examined the timing of development milestones achieved by what have turned out to be follow-on drugs in relation to the development and approval of the first drug in a class to be approved. Results: We found that the period of marketing exclusivity that the breakthrough drug in a new class enjoys has fallen dramatically over time (a median of 10.2 years in the 1970s to 1.2 years for the late 1990s). Approximately one-third of follow-on new drugs received a priority rating from the US FDA. The vast majority of the fol- low-on drugs for drug classes that were created in the last decade were in clinical development prior to the approval of the class breakthrough drug. Conclusions: The data suggest that entry barriers have fallen over time for new drug introductions. The increased competitiveness of the pharmaceutical marketplace was likely fueled by changes over time on both the supply and demand sides. The devel- opment histories of entrants to new drug classes suggest that development races bet- ter characterise new drug development than does a model of post hoc imitation. Thus, the usual distinctions drawn between breakthrough and ‘me-too’ drugs may not be very meaningful. 14719_Follow-on_drugs.qxd 10/12/04 11:27 PM Page 2 2 DiMasi & Paquette Critics of the pharmaceutical industry have companies do not set out to develop drugs of no faulted it for developing and marketing many ‘me- added value, and that, in any event, follow-on too’ drugs. The term ‘me-too’ drug has been dated at drugs provide better therapeutic options at the least as far back as the 1960s[1] following increasing individual patient or patient subgroup level, and concerns over ‘molecular modification’ of approved that they inject some price competition into the drugs that were expressed in US Senate hearings on marketplace. The clinical and economic benefits of pricing and monopoly power in the pharmaceutical follow-on drugs have been discussed in some detail industry in the late 1950s and early 1960s (the so- elsewhere.[3-7] We offer some new indirect evidence called ‘Kefauver hearings’). Although the term ‘me- of the clinical benefit of follow-on drugs in this too’ has come to be used in different ways, histori- paper, but we mainly focus on data that can illumi- cally it has most often referred to a new drug entity nate how the competitiveness of pharmaceutical with a similar chemical structure or the same mech- R&D has changed over time. anism of action as that of a drug already on the mar- The period of marketing exclusivity that first ket. That is, a me-too drug is a new entrant to a ther- movers enjoy after introduction of an innovation apeutic class that had already been defined by a sep- is an indicator of the degree to which entry barri- arate drug entity that was the first in the class (some- ers in an industry exist and their consequent times referred to as the breakthrough drug) to obtain impact on competitiveness. Agarwal and Gort[8] regulatory approval for marketing. Me-too drugs examined this issue for innovation generally in have also been characterised in a more value-neutral the United States over a very lengthy period. They way as follow-on drugs,[2] and that is how we term found that the speed of entry following launch of the concept here. a sample of 46 innovations across a wide array of Industry critics maintain that research and industries increased dramatically over time. The development (R&D) expenditures on follow-on mean time to entry fell from approximately 33 drugs are largely duplicative and wasteful. They years for a period at the turn of the 20th century argue that the resources used to develop them to a little less than 3.5 years for the period should instead be directed at developing more 1967–86 (figure 1). As for potential explanations, innovative treatments. Others, however, argue that the authors begin by citing Bain’s[9] seminal clas- Fig. 1. Mean time to initial competitive entry for a sample of 46 innovations. © Adis Data Information BV 2004. All rights reserved. Pharmacoeconomics 2004; 22 Suppl. 2 14719_Follow-on_drugs.qxd 10/12/04 11:27 PM Page 3 Follow-on Drug Development 3 sification of entry barriers: economies of scale of therapeutic significance that the US FDA gave to and high sunk costs, absolute cost advantages and new follow-on drugs at the time of marketing product differentiation advantages, as well as approval. Finally, we investigate the development extensions that other scholars have noted such as histories of follow-on drugs in a new drug class and advertising, control of scarce resources, the speed compare them to the approval and development his- at which information disseminates, and technolo- tories of their corresponding first-in-class drugs. gy lock-ins. They conclude that, overall, the increases in the speed of entry were due primari- Data and Methods ly to increased mobility of skilled labor, more rapid diffusion of scientific and technical infor- The Tufts Center for the Study of Drug mation, more potential entrants (foreign firms) Development (CSDD) maintains databases of new and expanding markets. The extent to which there drugs and biopharmaceuticals approved in the US. have been changes in barriers to entry for individ- We utilised these databases to provide a list of new ual industries and what explains those changes, chemical entities and new biopharmaceuticals however, can vary in nature and degree by indus- approved in the US from 1960 onward.1 We refer try. Thus, it is worth examining these issues in to both types of compounds as new drugs. To allow detail for the pharmaceutical industry. for a reasonable amount of time for competitive The literature on speed to entry in pharmaceu- entry to occur, we restricted the search for first-in- tical markets is not extensive. Kettler[10] notes data class compounds to new drugs approved through on the time to a first follow-on drug compiled by a 1998. The follow-on new drug approvals in each consulting firm. The speed to entry falls from 10 class that we examined were approved through years in the 1960s to 0.25 years in the 1990s. 2003. However, only ten first-in-class drugs are exam- Approval dates for first-in-class and follow-on ined covering a nearly 30-year period with no indi- new drugs were taken from the CSDD databases. A cation that steps were taken to be comprehensive, therapeutic class was defined to consist of new or even random. Towse and Leighton[5] examined drugs that had a similar chemical structure or the the time to entry for 19 drug classes from 1961 to same pharmacological mode of action and that 1997 for the UK. The mean time to first entry fell were used primarily for the same indications. We from 6.5 years in the 1960s to 2.5 years for the established classes and investigated development 1970s (although there were only two classes from histories by examining information from a wide the 1970s). The mean time to entry was lowest for variety of sources, including CSDD databases, the 1990s (2.0 years). It is worth examining Physicians Desk References (PDRs), various issues whether these downward trends hold with a larger of The Medical Letter, The Merck Index, the US sample and for the US market. The US has histori- FDA and various clinical pharmacology Web sites, cally been the largest national market for pharma- pharmacopeoias (USP DI and American Hospital ceutical sales, with its share of global sales increas- Formulary Service), and commercial investigation- ing in the 1990s.[11] The US has also been an even al drug databases (iDdb3, The NDA Pipeline, more important source of industry profits. PharmaProjects and R&D Focus).2 From an eco- In this study, we develop as comprehensive a nomic perspective, our definition of a drug class is list of new drug classes as we can to examine trends conservative since drugs in one class will often since the 1960s in the speed of competitive entry for compete to some extent in the marketplace with new therapeutic drug introductions in the US phar- drugs from other classes that are used to treat the maceutical marketplace.
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