Will Precision Medicine Change the Cost of Drug Development?

The costs of prescription drugs have been a significant policy topic in recent months. While new drugs clearly create value for patients, the high price of these drugs is usually justified by the costs of funding research and development, and the riskiness of the drug development process. In this paper, we look at how these “input costs” may change if more drugs are developed using precision medicine, with the ultimate goal of estimating whether drug costs may increase or decrease as precision medicine advances.

Precision medicine has the potential to change how drug development is done. Will these changes increase or lessen costs?

The central purpose of precision medicine is to better select therapies based on individual characteristics, e.g., biomarkers or images. Selected patients may be more likely to respond to a therapy, or less likely to experience an adverse effect. If more patients in a trial respond, then the treatment effect will increase, reducing the number of patients needed for the trial, and often the trial’s duration. This can significantly decrease the cost of the trial. Lower trial costs could lead to a decrease in the price of the drugs, because companies will need to recoup less expended capital. These costs will be measured using a model of clinical trial costs.

Also, precision medicine approaches may identify high responders early in drug development. This could lead to fewer failed trials, and therefore less riskiness in the process. Minimizing the riskiness of drug development, while not decreasing the cost of individual trials, decreases the amount of capital that companies need to recoup from successful drugs, which could lead to a decrease in drug prices. These potential changes will be not measured in the manuscript, but will be discussed.

For this analysis, we will use a representative sample of recently approved new drugs, and estimate their clinical trial costs. We will then model alternative scenarios that reflect precision medicine approaches, focusing on the following variables: changes in the number of patients needed for the clinical trials, and the length of the trials. These alternative scenarios will allow us to assess whether average clinical trials costs are likely to be higher or lower when precision medicine drugs are being developed.

The representative sample of drugs will be non-diagnostic new molecular entities (NMEs, or new drugs) approved by the FDA’s drug center in 2016 (n=20). To estimate these costs, we use a clinical trial cost model developed by the Department of Health and Human Services. The model provides estimates of the costs using proprietary data from Medidata Solutions, and allows us to vary the total development costs based on the aforementioned variables.