Annual State of Clinical Development Costs - Dr. Glass_1-10-12

1. The Annual State of Clinical
Development Costs
January 10, 2012 | Philadelphia, PA
Harold Glass PhD
Research Professor, University of the Sciences
Visiting Professor, Kings College London
President, TTC
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2. Agenda
I. The detail of the industry challenge may be
more severe than we appreciate
II. Drug development cost management is
increasingly more important:
A. CROs and site costs
B. Use of CROs
C. Use of new geographies
D. Use of Standard of Care payment
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3. I. The Industry Challenge
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4. Eras of Scarcity and
Abundance
• R&D productivity and relative sales generation have
declined, while spending has increased
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5. The Old Model is Under
Stress
• Cheaper genetics, now 78% of volume
• More aggressive payers, e.g. the German AMMOG law
• Rarer science
• The average 5th year sales for an individual drug (in
constant 2010 dollars) fell from $575 million in the Era
of Abundance to $430 million in the Era of Scarcity, a
decline of more than 15%
Hewitt, Jeff, David Campell, and Jerry Cacciotti. "Beyond the
Shadow of a Drought." Oliver Wyman. (2011): 1-16. Print.
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6. Standard of Care in Disease
is High and Rising
• Whatever the details of the industry challenge, the
demand for prescription drugs will inexorably grow.
• The industry’s basic business model is different:
Coke, Tide, Ivory Soap, Harley Davidson, et. al.
• A study noted in a 2011 Oliver Wyman analysis that
in 62 of the 127 diseases studied, representing 57%
of global pharma sales, headroom for new drugs
was limited.
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7. II. Drug Development Cost
Management: Costs
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8. Cost Management
• Companies are looking for new ways to
achieve better incremental value for money
spent on clinical trials
• Use of CROs
• Greater use of sites in new geographies
• Use of Standard of Care to increase
payments to sites but reduce sponsor
company costs
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9. II. A. Drug Development
Cost Management: CROs
and Site Costs
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10. CRO Outsourcing
• According to TTC estimates CRO spending
reached $11.5 billion in 2010.
• Frost and Sullivan estimates that the spending
will exceed $20 billion by 2017.
• Some early phase project spending slow
downs by affect CRO spending.
• Our data show that there is much room for
CRO growth.
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11. In Recent News…
Global clinical grant spending totaled
$13.1 billion in 2010, with the US
representing 58% of the total
Breakdown:
Phase I
$0.7 billion
Phase II
$2.4 billion
Phase III
$9.2 billion
Phase IV
$.8 billion 11

12. Comparative Cost Per Visit
Index of Cost Per Visit in Clinical Trials by Country
(All TAs, Phase I-IV, Year 2009-2011)
1.00
1.00 0.82
0.90
0.80 0.69
0.62
0.70
0.60 0.50
0.50 0.36
0.40 0.32
0.30
0.20
0.10
0.00
United United Germany France Poland China India
States Kingdom
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13. Cost Trends
• The cost in new geographies are increasing the most
quickly
18%
16% 17%
14%
12%
11% 12%
10% 9%
8%
6%
6%
4%
2%
0%
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14. US Overhead Rates
• Overhead rates remain an issue for many professionals
managing clinical studies
30% 30%
25% 26%
25% 23% 25%
20%
20%
15% Actual Overhead
10% Officially Reported Overhead
5%
0%
25th
50th
75th
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15. UK Overhead Rates
• Overhead rates are sometimes a concern in other
countries as well, for instance the UK
40% 40%
35%
30% 30%
30%
25%
25% 21% 20%
20%
Actual Overhead
15%
10% Officially Reported Overhead
5%
0%
25th
50th
75th
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16. Global Clinical Grant
Spending
Top Areas of Spending
Top 5 TAs (Phase 1-3) Top 5 TAs (Phase 4)
Central Nervous System
Oncology 23% 40%
and Mental Disorders
Central Nervous System
22% Cardiovascular Diseases 20%
and Mental Disorders
Cardiovascular Diseases 18% Endocrine 10%
Endocrine 10% Infectious Diseases 7%
Infectious Diseases 7% Genitourinary Diseases 4%
…
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Oncology 3%

17. CRO vs. Sponsor Grant
Spending
Methodology
• Generalized linear model with gamma distribution
and log link
• GrantPlan® database with 73,174 domestic grants
and 44,651 foreign grants from 2009 through present
• Represents 43 CROs and sponsors
• Dependent variable – cost per patient
• Primary independent variable – whether or not a CRO
negotiated the grant costs
• Control variables – number of visits, therapeutic area,
phase, study type, and patient type
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18. CRO vs. Sponsor Grant
Spending
Assumptions
• Gamma distribution
• Independence of
observations
• Correct link function
• Lack of influential
outliers
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19. CRO vs. Sponsor Grant
Spending
• CRO and Sponsor Company practices differ.
Eastern Latin United Western
Asia
Europe America States Europe
Relative Costs of
CRO negotiated 132.9% 106.0% 107.6% 93.4% -
budgets
P-Value <0.001 <.002 <0.001 <0.001
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20. Site Startup Admin Costs
• How often are site startup costs itemized by
phase?
Percent of Startup
Costs Itemized
Phase II 35%
Phase III 35%
Phase II-III 35%
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21. Site Startup Admin Costs
• How often are site startup costs itemized by TA?
Percent of Startup
Costs Itemized
Blood Disorders 50%
Cardiovascular 39%
Central Nervous System 41%
Dermatology 46%
Digestive System 17%
Endocrine and Metabolic Diseases 31%
Genitourinary System 32%
Infectious Disease 36%
Musculoskeletal System and Connective
Tissue 53%
Oncology 33%
Ophthalmology 3%
Pain 54%
Respiratory 33%
Transplantation 0%
All 35%
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22. II. B. Drug Development
Cost Management: Use of
CROs
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23. Commercial Outsourcing
• Marketing makes extensive use of advertising
agencies
• One hears many of the same criticisms about
agency turnover
• Agencies themselves often have relationships
with the sponsor with durations no longer
than CROs with pharmaceutical companies
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24. Commercial Outsourcing
• Yet agency staff are more often a part of the
brand team than CROs are with the sponsor
company project team
• The agency is measured on increased brand
sales
• Making money is an accepted motive
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25. CRO Usage
• Two dimensions of outsourcing
• Scope of work
• What will a company be asked to do
ranging from a part of one study to a
complete study, to a functional area, to
major portions of all outsourcing
• Degree of Exclusivity
• How many companies will be asked to bid
ranging from
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26. CRO Usage
• As with other studies done examining the use of
outsourcing, participants in this study thought
CRO usage would increase
Expected Use of CROs in the Next Five Years
Increase
77%
Remain the
Same 19%
Decrease
4%
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27. Outsourcing Management
• The “better” companies tend to be smaller and
located in Europe, but do not spend more on project
oversight
Ability to Manage the CRO Relationship
Clearly
9%
better
Somewhat
36%
better
About the
45%
same
Somewhat
9%
poorer
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28. CRO Usage
Percentage of Outsourced/In-Sourced Usage by Clinical Trial Activity
Patient On-Site Data Report
Enrollment Monitoring Management Biometrics Writing
Percentage with Some
Element of Outsourcing 32 34 38 23 21
Average Percentage
Outsourcing Across all 28
studies 32 34 39 23 21

29. CRO Usage
Percentage of Outsourced Usage for Each Clinical Trial Activity by Size of R&D
Operations
Patient On-Site Data Report
Enrollment Monitoring Management Bioetrics Writing
Major Company
R&D Expenditures Equal to
or over US $2 billion 21 24 32 12 12
Medium
R&D expenditures equal to
or over US $7-to less than
US $2 billion 50 60 49 45 43
Small
R&D expenditures under 29
US $7 billion 70 70 59 42 43

30. US Site Preferences
• What type of organization do you prefer to run your
trials? Many sites are indifferent. This is even more true
outside the US.
Academic
Total Office Based Hospital
Medical Center
Pharmaceutical
Company 34% 32% 39% 36%
No Preference 43% 44% 40% 39%
CRO 23% 23% 21% 25%
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31. II. C. Drug Development
Cost Management: Use of
New Geographies
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32. Reasons for Participating
in a Clinical Trial
• Factor analysis results
• Medical innovation
• Financial considerations
• Study specific issues
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33. Medical Innovation
• Investigators around the world take part in
medical innovation
Investigator Survey Results – Medical Innovation
LA Asia Pacific
US Investigators Investigators Investigators
Rated very Rated very Rated very
Individual survey items important important important
The opportunity to work with a potential new therapeutic
option for subjects who have not responded to available
treatment, or for whom there are no approved treatments 87% 85% 74%
The chance to take part in innovation research, whether or
not the research specifically relates to my patients 59% 79% 54%
The opportunity to share with other physicians outside the
clinical trial what is learned from my participation in the
clinical trial 49% 71% 49%
The opportunity to interact with other physicians involved
in the clinical trial 38% 70% 52%

34. Financial Considerations
• Finance is important but second to innovation
Investigator Survey Results - Financial Considerations
US LA Asia Pacific
Investigators Investigators Investigators
Rated very Rated very Rated very
Individual survey items important important important
The prospect of additional studies from the
sponsoring pharmaceutical company 47% 53% 29%
To supplement the revenues/income of my
practice/institutions/department 43% 45% 26%
The amount of money required by my site to start
the study until we receive payment from the 34
organization running the study 30% 34% 23%

35. Study Specific
Considerations
• These considerations vary by geography
Investigator Survey Results - Study Specific Considerations
LA Asia Pacific
US Investigators Investigators Investigators
Rated very Rated very Rated very
Individual survey items important important important
My own site experience working in the specific indication of
the potential study 70% 82% 61%
My experience with the sponsoring company or CRO on
previous work I have done with that company or CRO 43% 34% 37%
My level of confidence in other drugs already on the
market from that company 28% 55% 34%
The sponsoring pharmaceutical company, rather than a
CRO, is actually running the day-to-day operations of the
study 19% 61% 23%
A large, multinational pharmaceutical company is 35
sponsoring the study 19% 47% 28%

36. II. D. Drug Development
Cost Management:
Standard of Care
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37. Payment Practices
• Based upon a global study of 2,300 sites, there
is no evidence that paying above the industry
median improves data quality, reduces study
completion time or improves site performance
• This is true at the study level
• And with one exception at the site level
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38. SOC Site Survey
• We conducted a web-based survey of active US sites,
supplimented by follow-up telephone and on-site
interviews
Respondent Site Type
Private Practice
Non-Dedicated Research Site
Dedicated Research Site
Clinic
Hospital
Academic Institution
Other
0 50 100 150 200 250 300 350 400
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39. SOC Site Survey
• These are sites which conduct a large number of clinical
trials
Within the past two years, how many clinical trials did your
organization take part in?
250
200
150
100
50
0
0-5
6 - 10
11 - 15
16 - 20
21 or more
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40. SOC Site Survey
• Many sites are regularly using coverage analysis for
clinical trial budgets
Percent of sites that conduct coverage analyses
90.0% 79 82 86
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
All Sites
Dedicated Clinical Research
Sites Academic Institutions
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41. SOC Site Survey
• Many sites already submit claims for patients in clinical
trials
Percent of sites that regularly bill 3rd party payers for clinical trials
80.0%
65 70
70.0% 65
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
All Sites
Dedicated Clinical Research
Sites Academic Institutions
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42. SOC Site Survey
• Sites routinely perform coverage analysis in many therapeutic
areas
For investigators working in specific TAs, how often do they routinely
perform coverage analyses in that TA?
Oncology
Transplantation
Cardiovascular
Blood Disorders
Infectious Disease
Musculoskeletal and…
Ophthalmology
Devices and Diagnostics
CNS
Respiratory
Pharmacokinetics
Dermatology
Genitourinary System
Digestive Systems
0%
10%
20%
30%
40%
50%
60%
70% 42
80%
90%

43. SOC Site Survey
• The main reason sites do not do a coverage analysis is because
they are not asked.
What is the main reason a site does not conduct coverage analyses?
The sponsor does not require it
It is too difficult to determine…
It will delay the negotiation…
It is too time consuming
The potential saving do not…
It will inhibit patient recruitment
0%
10%
20%
30%
40%
50% 43

44. SOC Site Survey
• Third party payers pay faster than pharmaceutical companies
Average Number of Weeks Until Payment
Pharmaceutical
Third Party Payers
Companies
16.2 10.8
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45. SOC Usage
• Outside of oncology some companies are
reluctant to achieve the cost savings possible
through the incorporation of Standard of Care
• Some worry about slower site start-up times,
although there is no evidence of this.
• Nearly two-thirds of respondents feel the
process is too time-consuming
• Most express the need for more data.
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46. SOC Usage
• There is confusion about Standard of Care from a
scientific perspective and from a clinical grant
management point of view
• An analysis of industry protocols demonstrated
that over 20% of grant payments can still be
covered by Standard of Care
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47. Already in Place…
• Many of the research sites are used to applying
Standard of Care
• NIH – requires SOC
• Many states require 3rd party payments for
some or all of FDA approved clinical trials
• Virtually every clinical site routinelly processes
claims with 3rd party insurers
• Resistance is often greater within the sponsor
company than at the sites
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48. SOC Analysis – Type II
Diabetes Study
28431754DIA3004_8DEC09
Study Duration 66 Weeks
Number of Visits 17
Number of Patients ~500
Number of Procedures 17
Number of SOC Procedures 8
Number of Expensive Procedures 0
Total Cost for Procedures Per Patient before SOC (w/ overhead) $6,060 USD
Total Cost for Procedures Per Patient after SOC (w/ overhead) $4,276 USD
Total SOC Savings Per Patient $1,785 USD
Total SOC Savings for All Patients $892,500 USD
Total % of SOC Savings 29%
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49. Thank You For Your
Participation!
TTC Corporate Headquarters TTC European
4548 Market Street Headquarters
Suite M-20 136 Delaware Road
Philadelphia, PA 19139 London, W9 2LL UK
(215) 243-4103 (Tel) 44 (0)7792 145 831 (Tel)
(215) 895-4001 (Fax) 44 (0)2086 584 033 (Fax)
Visit our website @ www.ttc-llc.com
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