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67 Food & Drug L.J. 23 (2012)
Accounting for Heterogeneous Treatment Effects in the FDA Approval Process

handle is hein.journals/foodlj67 and id is 31 raw text is: Accounting for Heterogeneous Treatment Effects in the FDA Approval Process ANUP MALANI OLIVER BEMBOM MARK VAN DER LAAN* INTRODUCTION Only one out of every five drugs that begin clinical trials emerges successfully from that testing.' This high failure rate explains a substantial portion of the ex- ploding costs of health care in America. Although it costs roughly $300 million to conduct a full battery of clinical trials on a drug, these costs can only be billed to drugs that are successful enough to be approved by the U.S. Food and Drug Administration (FDA). Dividing the cost of conducting trials by the number of successful drugs inflates the cost of clinical testing to $800 million per approved drug.2 In this manner, the trial failure rate magnifies the already growing cost of conducting clinical trials.' As a result, the cost of prescription drugs has grown twice as fast as the cost of the other two major components of health care costs, hospital stays and physician care, helping to push the overall cost of healthcare to 16% of GDP4 There are two reasons for why so many drugs might fail clinical trials. First, most drugs might not work. Perhaps scientists have plucked the low-hanging pharma- cological fruit and drug companies now face diminishing returns on their research University of Chicago Law School, Resources for the Future and National Bureau of Economic Research; Department of Statistics, University of California-Berkeley; and Department of Statistics, University of California-Berkeley, respectively. We thank Richard Miller for access to the data from the Phase III motexafin gadolinium (MgD) trials. We thank Glenn Cohen, Adam Cox, Jack Calfee, Richard Epstein, Jake Gersen, Dan Ho, Jonathan Masur, Richard Miller, Lars Noah, Ben Roin, participants at the AEI conference, Oncology Drug Development: Rethinking FDA Oversight, March 13-14, 2008, and workshop participants at the University of Chicago Law School for helpful comments. Malani thanks the Milton and Miriam Handler Foundation for financial support and E. Phoebe Holtzman for research assistance. In the interest of full disclosure, two of the authors, Bembom and van der Laan work for Target Analytics, Inc., which was hired by an investor in Pharmacyclics to prepare a statistical analysis of the data from the MgD trials. The data analysis for this particular paper was conducted after Pharmacyclics' application for FDA approval for MgD was rejected by the agency in Dec. 2007. B. Jungbauer, Pharmacyclics 'Xcytrin Gets FDA Not Approvable For NSCLC Patients With Brain Me- tastases, The Pink Sheet (Dec. 28, 2007). More precisely, out of every five drugs for which an Investigational New Drug (IND) application is filed with the U.S. Food and Drug Administration (FDA) to begin clinical testing, only one results in a New Drug Application (NDA) for marketing approval from the FDA. Christopher P. Adams and Van V. Brantner, Estimating The Cost Of New Drug Development: Is It Really $802 Million?, 25 Health Aff. 420, 422 (Exhibit 1) (2006). 2 Joseph A. DiMasi, Ronald W Hansen, Henry G. Grabowski, The price of innovation: new estimates of drug development costs, 22 J. Health Econ. 151, 166 (2003). The reason one cannot simply divide the $200 million estimate by the probability of success during clinical testing (0.2 = 115) is that not all drugs complete a full battery of clinical tests. Id. at 167. The cost of prescription drugs grew, on average, by 12% from 1996-2006. By contrast, hospital and physician costs grew by roughly 6% per year during that period. Kaiser Family Foundation, Pre- scription Drug Trends 1 (2008), available at http://www.kff.org/rxdrugs/upload/3057-07.pdf (last visited Mar. 1,2010).

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