Regulatory Dossier ready for submission

Figure 1.3. Strategic Review Milestones.

Since 1995, Directive 2309/93 has provided a decentralized route to obtaining EU marketing approval. Known as the Mutual Recognition Procedure (MRP), an applicant may first obtain approval in one country, call the Reference Member State (RMS), and then have the approval recognized by other regulatory authorities.

National approval of an MAA will take 210 days, plus clock-stops for responses to questions. To progress into MRP, an updated dossier is then submitted by the sponsor to the RMS authority. The RMS will then produce within 90 days an updated authority assessment report to be distributed to the desired Concerned Member States (CMSs). In parallel, the sponsor supplies translations of the product literature and submits the updated dossier to the CMSs. After a further 90-day period for mutual recognition, the CMSs then have 30 days in which to issue local product authorizations.

At 420 days, MRP is more lengthy and complex than the centralized route. However, it offers the advantage that marketing can begin in the RMS immediately on receipt of initial national approval. Nevertheless, it is less predictable for pan-European licensing, since delays can occur if a CMS raises significant questions or objections to recognition. The other side of the coin is that centralized approval is an all-or-nothing gamble with the EMEA. Proposals for modifying both systems are under discussion at the time of going to press. The original directive and subsequent Council directives were consolidated in 2001 into a single text in Directive 2001/83/EC on the Community code relating to medicinal products for human use.

Strategic Decisions

Putting it all together, the Research and Development (R&D) life of a drug follows a preset scheme determined by the regulatory authorities (see Figure 1.2). Lab discovery and animal toxicity/pharmacology tests are followed by clinical escalation through Phases I-III. Simultaneously, long-term non-clinical safety studies and pharmaceutical/formulation activities will be ongoing. The resulting data is then compiled into an NDA/MAA, and submitted to regulatory agencies for review. Figure 1.3 indicates the milestones for a strategic review of data.

At each stage along this path, financial commitment to the drug increases. Thousands of candidate molecules will be discarded in the search for success. This is not so much of an issue during the early screening stages, but the corporate risk associated with New Active Substance (NAS) failure grows dramatically as development progresses into the clinic (see Chapter 5).

In order to manage this accumulation of exposure, the product development team will run several parallel NASs. As the project progresses, the most promising will be advanced, as the weaker either fail or are "weeded out." This is achieved through a series of stop/go decisions at strategic points in the Product Development Plan (PDP).

At each assessment, the product development team will have to justify continued investment in the development of a potential medicine. This decision will be based on the following six criteria:

Figure 1.4. Therapeutic Distribution of NASs.

1. Clinical endpoints for the disease should be well defined and measurable.

2. The NAS should be as effective, and ideally better, at treating the target disease than other candidates or marketed products.

3. The therapeutic index should be high (no observable adverse event level/ minimum effective dose).

4. The NAS should be chemically stable, in a clinically acceptable formulation, with production costs which allow retention of profit margin in a price-sensitive market.

5. The product should fulfill an unmet market need (eg previously untreatable population, reduced side effect profile, oral administration).

6. The patent life remaining after the projected licensing date will be sufficient to obtain an adequate Return On Investment (ROI).

Nevertheless, it is important not to delay rate-determining steps (eg construction of a pilot manufacturing plant) just because the next review milestone has not been reached (eg Phase IIb results not available). Thus a calculated risk is taken with such decisions, assuming success in other areas. This is justified by the financial loss of extending the critical path outweighing the advanced investment required to deliver on time.

INDUSTRY TRENDS Demographic Market Expansion

Throughout the industrialized nations, the "baby boom" of the 1950s, coupled with major advances in healthcare have created an expansion in the elderly population, which is set to continue as life expectancies increase and birth rates fall.

By 2010 one-fifth of Italy's population will be over 65, causing a dramatic expansion of the healthcare market: 80% of an individual's lifetime healthcare costs are incurred after the age of 75. Strategic marketers in the pharmaceutical industry are following this trend with a resultant massive concentration of R&D effort towards the afflictions of this group: depression, dementia/Alzheimer's, Parkinson's, stroke, diabetes, osteoporosis, rheumatoid arthritis, breast cancer, melanoma, ischemic heart disease, incontinence, postural hypotension etc.

Windley reported that in 1998 the NASs in development were distributed by therapeutic category as shown in Figure 1.4.

Increasing Risk

The cost of developing new drugs is constantly and rapidly increasing. In 1987 the cost of bringing a NAS to market was approximately US$ 231 million. By

2001 this had risen to US$ 802 million (Tufts Center for the Study of Drug Development (Tufts CSDD)). Increasing demands from the world's regulatory agencies in recent years (eg ICH GCP Guidelines) means the acceleration of this trend both now and in future years.

The number of clinical studies required by the FDA for a NDA rose from 35 in 1988 to 65 in 1995. Studies are getting longer and more complex — the average number of procedures required by a protocol almost doubled from 100 to 190 in the period 1991-95. This is reflected in a similar rise since the mid-1980s in the cost per clinical study patient.

Although the potential for profit is increasing, so are the financial risks. It is estimated that for every one NAS launched on the market:

• 5-10,000 candidate molecules will be screened

• 250 will be evaluated in preclinical models

• 12 will enter Phase I clinical pharmacology

• Six will progress into Phase II clinical studies and two to three into Phase III.

The further the product progresses, the greater the financial commitment. The losses associated with failure in late Phase III can be devastating for a company (eg flosequinan, lexipafant).

Emphasis on NASs

In order to maximize ROI, the pharmaceutical strategy has shifted from "me too" products and line extensions, to the development of "blockbuster" NASs with added therapeutic value. The Tufts CSDD reported in 2002 that the top 10 percent of newly marketed drugs account for half the financial returns on all new drug development. This has focused attention on the new discovery approaches coming from the emergent biotechnology and genomics laboratories. The major pharmaceutical manufacturers now have licencing deals with, or have acquired, small biopharmaceuticals companies in order to maintain innovative R&D pipelines.

Market Consolidation

Pharmaceuticals manufacturers are seeking to minimize their risk by leveraging economies of scale. The late 1990s were characterized by a series of large-scale mergers and acquisitions between many of the major players: eg the formation of Astra Zeneca, Glaxo SmithKline, Pharmacia & Upjohn, Novartis, Sanofi Synthelabo, Celltech Chiroscience, and Aventis.

Faster Synthesis and Screening

Increases in the length and number of clinical studies required for product registration have been largely offset by time savings at the discovery stage, through the use of combinatorial chemistry and high throughput screening. Advances in genomics have also allowed more precise targeting of receptor molecules. The expected lead-time for a NAS from discovery to market approval has thus remained stable through the 1990s at 11-13 years, depending on indication (CMR International).

Focus on Maximizing Patented Market Life

Time to market before patent expiry is now a major profitability issue for pharmaceuticals manufacturers. Kermani and Findlay estimated in 2002 that a globally marketed blockbuster NAS could expect to generate US$ 2.7 million in sales every day while patent-protected. In the first year off patent, 42% of Glaxo Wellcome's anti-ulcer drug ranitidine earnings were lost to generic competition.

The present effective patent term is 20 years, but more than half of this is consumed before the manufacturer can start to see any ROI.

The short patent protection period remaining at launch creates a need for simultaneous worldwide marketing. This is aided by an increasing trend towards international harmonization of regulatory standards (eg ICH GCP) and acceptance of regulatory approvals between national authorities (eg EU MRP).

E-Technology Applications

Since much of pharma R&D is about collecting, validating and analyzing information, the industry has benefited enormously from the e-revolution, and will continue to do so as manufacturers and regulatory agencies move towards paper-free drug development. Applications range from computer-assisted ligand-receptor modeling, through project tracking, centralized treatment randomization, and web-enabled data capture, to Computer-Assisted New Drug Application (CANDA) review. In Europe, the EMEA are currently rolling out an integrated safety database linked to a study register, which sponsors will be required to update electronically. The up-front investment required for the establishment of such systems is quickly justified by the profits generated by earlier product launch, and reduced R&D labor costs.

Contract Research Organizations (CROs)

OUTSOURCING TO CROs

Since the mid 1980s cost pressures have driven the practice of outsourcing R&D activities, in order to cut the overhead risk of in-house/on-site R&D resourcing. This has lead to the emergence of a new corporate breed known as CROs. These companies specialize in providing one or more of: preclinical/toxicology, clinical development, analytical testing, biometrics and regulatory affairs/ quality assurance (QA) as services to pharma clients.

The primary manufacturer delegates some (or all) of its responsibilities as "sponsor" to the CRO, for the purpose of the development project. This enables sponsors to staff for the valleys rather than the peaks of the research cycle, thereby converting fixed costs into variable costs.

In many cases, geographic coverage, expertise and systems of CROs exceed those of the sponsor, and outsourcing then becomes a strategy for rapid globalized development and registration.

This had traditionally been associated with Phase III clinical development. More recently, the market has broadened to include discovery and preclinical services together with Phases I—II and health economics assessments, as pharma companies find value in outsourcing more and more of their R&D functions.

In 2002 Technomark reported that there are 167 clinical CROs with offices in Europe and 292 in the USA. Of the 25 leading companies, 18 are based in the US, three in Canada, two in the UK, one in Ireland and one in Germany.

The proportion of worldwide pharma/biotech R&D spending outsourced to CROs is expected to increase from 20% in 2001 to almost 30% in 2005, when the market will have doubled on its 1998 value to US$ 12.1 billion (Credit Suisse First Boston; Bear, Stearns & Co).

Economics

Clients are generally billed by CROs based on hourly rates for work done plus expenses. Utilization is typically 70-85%. The hourly rates include an overhead factor to cover non-project corporate costs. Overhead can vary from 15-50%, generally increasing with size of company.

Profit margins range from 8-14% with the overhead-burdened companies forced by competition to operate at the lower end of this range, relying on high volume programs to generate revenues. As a general rule, aggregating both billable and non-billable job classes, annual revenue generation in the CRO industry is US$ 88,000-97,000 per capita (Technomark). In 1999 Jones reported the professional billing rates of 14 leading CROs in the UK (Figure 2.1).

Job Title

UK E/Iioun

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