[Ip-health] How Joe got to $802, in his 2003 paper

Jamie Love james.love at keionline.org
Sat Nov 15 10:04:54 PST 2014

I wanted to share some of the details of Joe’s 2003 paper, and he can
comment if there are any mistakes here.

1.  His 2003 sample was "representative" data provided by "ten
multinational pharmaceutical firms." "Licensed-in compounds were excluded"
[page 156].  Some other studies, such as recent one by OHE, found
significantly lower costs for licensed in compounds.  He generally excluded
smaller firms, which had lower costs, and under sampled orphan drugs.

2.  The 2003 study drugs had a mean of 5303 patients in the Phase I-III
trials, and a cost per patient of $23,571 (which included liberal overhead
costs), and which was pretty high for the time.

3.  The mean cost of human clinical trials in 2003, was estimated at $125
million.   The median cost of human clinical trials were $92.9. When adding
animal studies, the totals were $130.2 and $96 million, respective.

4.  The mean costs of the clinical trials were increased $151.8 million, to
account for the costs of failures, so trials (human and animal) were $282
million, together.

5.  Joe assume $121 million in pre-clinical costs, just because he thought
pre-clinical costs should be 30 percent of the combined clinical and
pre-clinical outlays.

6.  This brought the number up to $403 million.

4.  The base cost of capital assumption in the 2003 paper was inflation
plus 11 percent, and this nearly doubled the number, to $802.

5.  The fundamentals were (with rounding):

$125 in human use trials, on average for the 68 drugs, based upon 5303
patients and $23,571 per patient costs.

$5 million in animal trials.

$152 million assigned to cost of failed trials.

$121  million for pre-clinical research (including costs of failures).

$399 million for capital costs/interest on the $403 million invested).

That is how he got to $802 million.

James Love.  Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love

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