[Ip-health] R&D costs for Gleevec

Jamie Love james.love at keionline.org
Thu Apr 4 04:40:07 PDT 2013


Source URL: http://keionline.org/node/1697

R&D costs for Gleevec

April 4

In a bid to generate sympathy for its defeat in the Supreme Court of
India over efforts to evergreen patent protection for the cancer drug
imatinib (trade names Gleevec or Glivec) in developing countries,
Novartis has been making increasingly spectacular claims as regards
its investments in the development of the drug. This blog reviews the
independent evidence regarding these claims, which suggest that
Novartis outlays on early research were relatively small, relative to
investments by the NIH and the Leukemia Society, but that Novartis did
play an important role when the products reached Phase II testing that
led to the FDA approval of the drug on May 10, 2001. Depending upon
the assumptions regarding the per patient costs for the Phase II
trials, Novartis would have spent from $10 to $24 million
out-of-pocket on the three Phase II trials that involved 1028
patients. After adjusting for the risks of failures and the
opportunity cost of capital, the Novartis investments in the Phase II
trials are estimated at $38 to $96 million.

I invite others to suggest better data and estimates, or advise me of errors.

Early research on Gleevec

Much of the early work on the development of Gleevec was done by Brian
Druker of the Oregon Health and Science University and other academic
researchers. Druker's academic lab, working in a partnership with a
scientist working for Novartis, identified the compound STI-571. They
first used the compound to cure cancer in mice. Dr. Drucker oversaw
the first clinical trial, and other early Phase I clinical trials. He
also participated in each of the clinical trials cited in the FDA
approval of the drug for treatment of Chronic Myeloid Leukemia. While
he was developing the drug his laboratory's funding sources were:

50% National Cancer Institute
30% Leukemia and Lymphoma Society
10% Novartis
10% Oregon Health and Science University

In a book review published in JAMA, Dr. Arnold S. Relman from the
Channing Laboratory at the Harvard Medical School wrote:

Novartis was not "the innovative force." Not only was all the basic
research done in academic institutions, but so were the initial
clinical investigations that showed STI 571 to be specifically
effective against CML cells in vitro and in vivo. In fact, it took a
few years for Brian Druker, the investigator most responsible for
these latter studies, to convince Novartis that it should invest in a
crash program to develop Gleevec and to undertake large-scale clinical
trials.

Relman, A. (2003). Book Review: Magic Cancer Bullet: How a Tiny Orange
Pill Is Rewriting. Medical History. JAMA, 290: 2194-2195
http://lists.essential.org/pipermail/ip-health/2003-October/005475.html [2]

The NIH funding specifically associated with the early testing of
Gleevec included grants from the National Cancer Institute (CA65823,
to Dr. Druker, and CA32737, to Dr. Sawyers). As noted above, the
Leukemia Society and others were also supporting this work. Additional
details on the background on the early development of Gleevec are
found in this 2001 NIH Timeline on Gleevec development.
http://www.cancer.gov/newscenter/newsfromnci/2001/gleevectimeline [3]
Druker's NEJM paper reporting the early trials is available here
http://www.nejm.org/doi/full/10.1056/NEJM200104053441401 [3]. There is
a discussion of the NIH role in Gleevec development in this June 21,
2001 NIH testimony: http://www.hhs.gov/asl/testify/t010621a.html [4].
Michael Palmedo's 2002 email exchanges with Druker are reported here:
http://cptech.org/ip/health/gleevec/drucker.html [5].

Bottom line: The NIH and charities like the Leukemia Society supported
most but not all of the early research on Gleevec.

The three Phase II trials cited in the 2001 approval

After Druker established that STI 571 was a promising drug, Novartis
was convinced to invest in further testing, and most importantly, this
included three Phase II trials with a total of 1028 patients.

The outlays on the Phase II trials can be estimated by multiplying the
number of patients by industry averages for per patient costs of
trials.

In his widely cited 2003 paper on drug development costs, DiMasi's
average cost per patient across Phase I-III trials was $23,572 per
patient. (J.A. DiMasi et al. Journal of Health Economics 22 (2003)
151–185). Joe has described that to me as the fully loaded costs
including company overheads and analysis. But let's also look at some
other data points. In 2002, Robert Kramer, the BMS Vice President for
Oncology Drug Discovery and New Business Ventures was quoted as
estimating the average cost of oncology trials to be $10,000 per
patient. (Parexel Pharmaceutical R&D Statistical Sourcebook 2002, page
117). In 1999 the National Institutes of Health reported the costs of
oncology trials funded by the NIH DCP Cooperative Group.

NIH DCP Cooperative Group Treatment Trials: cost per patient, 1993 to 1999
FY93 $ 3,861
FY94 $ 4,384
FY95 $ 4,692
FY96 $ 5,297
FY97 $ 4,919

Bottom line: If you use the per patient cost from the 2003 DiMasi
paper, the Novartis outlays on the Phase II trials are estimated to be
$24 million. If you take the BMS estimate, the cost is $10 million. If
you use the NIH cost numbers, it shrinks further.

Orphan Drug Designation

Novartis has obtained Orphan Drug designations for seven indications,
all of which have received marketing FDA approvals, including for
chronic myelogenous leukemia, for the May 10 , 2001 FDA marketing
approval. The Orphan Drug designation gives Novartis the right to take
a 50 percent tax credit for qualifying trials for that indication,
subject to certain conditions, including that testing occurs after the
date of the Orphan designation and before the FDA approval for that
indication.

Date of Designation and the Orphan Indication

01-31-2001    Treatment of chronic myelogenous leukemia
11-01-2001	Treatment of gastrointestinal stromal tumors
08-25-2005	Treatment of idiopathic hypereosinophilic syndrome
including acute and chronic eosinophilic leukemia
09-09-2005	Treatment of systemic mastocytosis without the D816V c-kit mutation
10-05-2005	Treatment of myeloproliferative disorders/myelodysplastic
syndromes associated with platelet-derived growth factor gene
re-arrangements
10-11-2005	Treatment of Philadelphia-positive acute lymphoblastic leukemia
12-19-2005	Treatment of dermatofibrosarcoma protuberans

Bottom line: Novartis claims that it did not benefit from the credit
in its 2001 approval, and the tax credit does enter into the cost
estimates for the May 10, 2001 approval. The credit has likely been a
major subsidy for Novartis going forward from the initial 2001
approval, for testing following the six subsequent Orphan
designations.

Risks of Failure

One might want to adjust the Novartis outlays for risk. For Orphan
designated products as a whole during the period 1990 to 2000, there
were 687 designations and 159 approvals -- or a rough success rate of
23 percent, compared to designations. (Looking at all designations and
approvals through to the present, that success rate falls to 15.4
percent).

But note that these risks decline as products pass various benchmarks,
and for products that enter Phase II testing, the risks are lower.

In some earlier Tufts estimates, around the time of the Gleevec
approval, slightly more than half the products that enter Phase II
testing fail at that stage.

In DiMasi's 2003 paper, he assumed an overall success rate of 21.5
percent for products that entered clinical testing, and a 71 percent
chance that products entering clinical testing would reach Phase II.

"Although average cost estimates for investigational drugs are
interesting in their own right, we are mainly interested in developing
estimates of cost per approved new drug. To do so, we need an overall
clinical approval success rate. Our statistical analysis of compounds
in the Tufts CSDD database of investigational drugs that met study
criteria yielded a predicted final clinical success rate of 21.5%.
Applying this success rate to our estimates of out-of-pocket and
capitalized costs per investigational drug results in estimates of
cost per approved new drug that link the cost of drug failures to the
successes."

DiMasi estimated the probability that a product that entered clinical
testing would entry Phase II to be 71 percent. From this data, the
chances of FDA approval from Phase II are the overall rate divided by
the chance of entering Phase II, or .215 / .71 = .303. For a Phase III
trial, the odds of success in DiMasi's 2003 paper were .215 / .314 =
.685.

DiMasi's sample was not focused on orphan products, or products that
had received an FDA priority review. By simply using the .303 success
assumption for Phase II trials, the risk adjusted costs of the Phase
II trials would be:

Risk Adjusted Cost for 1028 patents in Phase II trials

Cost per patient Risk adjusted cost @.303 success rate
DiMasi @ $23572 $80 million
BMS: @ $10000 $34 million

Bottom line: The risk adjusted cost of the Phase II trials can be
estimated at somewhere between $80 million and $34 million, with the
higher number inclusive of allocations for hefty overheads and
analysis costs.

Cost of capital

DiMasi and other industry consultants often consider an additional
adjustment for the costs of capital, which is reasonable, assuming
people understand what is going on. In general, you take outlays and
increase them by some rate of return percentage every year, to address
the opportunity cost of capital, since costs are incurred over time.
Unfortunately, many people, including nearly all financial press
journalists have a hard time presenting any of the adjustments (risk
or capital cost) in a way that does not lead to a type of mental
double counting (more than double, actually), since whatever number
you finally get is almost always reconverted in people's minds as
simple out of pocket expenses (which is a big mistake).

To do a cost of capital adjustment, you have to know how many years to
adjust for opportunity costs. In his 2003 paper, DiMasi reports that
"the start of clinical testing to marketing approval in our timeline
for a representative drug averaged 90.3 months." DiMasi reported
"Capitalizing out-of-pocket costs to the point of marketing approval
at a real discount rate of 11%."

Note that Gleevec began testing in the 1998 and was first approved for
marketing on May 10, 2001. If clinical testing started in June 1998,
that is less than three years, or just 35 months, more than 2.5 times
as fast as the "representative drug" in the DiMasi paper. The Phase II
trials were started after 1998. I don't have the start and stop dates
for the trials, it probably makes sense to increase the Phase II
outlays by somewhere between 11 and 20 percent, assuming one uses
DiMasi's 11 percent real return discount rate.

Bottom line: After taking into account both the risk of failures and
the cost of capital at an 11 percent rate rate of return, the adjusted
costs of the Phase II trials can be estimated at somewhere between $96
million and $38 million, with the higher number inclusive of
allocations for hefty overheads and analysis costs and the higher end
of the cost of capital adjustment.

Note that Novartis sales for Gleevec in 2012 were $4.675 billion, or
$390 million per month. In 2012, Novartis realized more than $100
million in Gleevec sales every 13 days.

-------------

Some older references

A Note on Dr. Brian Druker's Involvement in the Research and
Development of Gleevec. 2002.
http://cptech.org/ip/health/gleevec/drucker.html [5]

Norvartis Outlays on R&D R&D For Glivec: Evidence suggests outlays are
substantially below average costs estimated by Tufts University Study,
September 22, 2000
http://cptech.org/ip/health/gleevec/glivec-RND-costs.doc [6]

The 2001 NIH Timeline on Gleevec development
http://www.cancer.gov/newscenter/newsfromnci/2001/gleevectimeline [3]

Relman, A. (2003). Book Review: Magic Cancer Bullet: How a Tiny Orange
Pill Is Rewriting. Medical History. JAMA, 290: 2194-2195
http://lists.essential.org/pipermail/ip-health/2003-October/005475.html [2]

Source URL: http://keionline.org/node/1697
Links:
[1] http://keionline.org/user/4
[2] http://lists.essential.org/pipermail/ip-health/2003-October/005475.html
[3] http://www.cancer.gov/newscenter/newsfromnci/2001/gleevectimeline
[4] http://www.hhs.gov/asl/testify/t010621a.html
[5] http://cptech.org/ip/health/gleevec/drucker.html
[6] http://cptech.org/ip/health/gleevec/glivec-RND-costs.doc



-- 
James Love.  Knowledge Ecology International
http://www.keionline.org, +1.202.332.2670, US Mobile: +1.202.361.3040,
Geneva Mobile: +41.76.413.6584, efax: +1.888.245.3140.
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