Contract Development and Manufacturing Costs During Clinical Development of a New Drug

Introduction

The investment in manufacturing process development and the supply of clinical trial material are key ingredients in getting innovative compounds and biologics approved and ready for commercial launch.  Because the focus of biopharmaceutical companies is often on finding and testing new entities with desired therapeutic benefits, the importance of managing and improving the clinical trial supply chain is often overlooked.  In recent times, however, shrinking research and development (R&D) budgets and the diminished appetite of venture capitalists to fund the new drug discovery process provides impetus to look at the clinical trial supply chain as an area ripe for financial savings.  Outsourcing of supply using partners is seen as one way to extract savingsⁱ, but how does one quantify the potential.  Through the study of several firms’ expenditures on clinical supply and manufacturing development, an estimate of the large magnitude of R&D budgets devoted to manufacturing activities can be estimated.

Spending on Clinical Trial Supply Chains

Since two-thirds of all spending on clinical trial materials is routed through outsourced manufacturing partnersⁱⁱ, the investigation of financial relationships between biopharmaceutical firms and their partners, contract development and manufacturing organizations (CDMOs), can provide significant insight into the magnitude of clinical trial manufacturing costs.  Unfortunately, the contractual relationships between these firms are closely guarded secrets and thus, the costs of the clinical trial supply chain remain poorly understood.  To overcome this veil of secrecy, we combine the SEC filings and other publicly available documentation of a few small biopharmaceutical firms to zero in on a range of values over which clinical supply related investment comprises overall R&D spending.  By zeroing in on companies with one or two product candidates, we can isolate the costs attributable to the CDMO relationship.  In comparison, the SEC filings of larger firms include data aggregated across multiple expense types and thus, provide no insight into the clinical trial spend associated with bringing one new drug entity through the clinical trial testing process and ready for commercialization.

In our search of public records, we have discovered several companies where both the total R&D costs attributable to their product candidates as well as the costs of their manufacturing-related costs are documented.  These included Acorda Therapeutics, Ariad Pharmaceuticals, Acusphere, Inc., and Allos Therapeutics. Numerous other small public companies were considered for this study, but they lacked transparency in their CDMO financial relationship.  These included Amarin Corporation, AMAG Pharmacetuicals, Dendreon Corporation, Savient Pharmaceuticals, Optimer Pharmaceuticals, Avanir Pharmaceuticals, Progenics Pharmaceuticals, and multiple others. 

Acorda Therapeutics

On March 1, 2010 Acorda Therapeutics commercially launched Ampyra (Fampridine-SR), a new drug to improve walking in patients with Multiple Sclerosis.  We recreate the road to Ampyra's 2010 success through analysis of their initial public offering prospectuses and their annual report filings (i.e. S-1's, S-1A's, and 10-K's filed from 2003 through 2011 for fiscal years 2003-2010) in order to understand the relative costs of payments made to a CDMO prior to approval of a drug.

A summary of our analysis of CDMO spending as a percentage of clinical trial spending is shown in Table 1.  From this table, we can see that 32% of all clinical trial related spending was invested in production related activities including manufacturing process development, quality control testing, and supply of drug for clinical trials.

Ariad Pharmaceuticals

The next company we have useful data for is Ariad Pharmaceuticals and CDMO spending related to their lead product candidate, Deforolimus, is available in their SEC filings.  This product, currently known as ridaforolimus, was licensed to Merck in 2010 and as of June 2013 has not succeeded in achieving regulatory approval.  Deforolimus is a small molecule compound for treating certain types of cancer.  Manufacturing of the product is not enormously complex and the product is readily synthesized using conventional fermentation techniques.  Although the manufacturing process was developed in-house, the company has relied on third-party manufacturers to supply its clinical trial material.  Because of Ariad's reliance on third-party manufacturers, Ariad's 10-K's from fiscal years 2004 to 2006 specifically mentions changes to clinical trial expenses as a result of changes in manufacturing-related costs.  For fiscal year 2003, a breakdown of clinical trial costs is not given so we estimate the manufacturing spend in this year. For 2007 and later, clear breakdowns of manufacturing-related costs are no longer available due to a 2007 deal between Ariad and Merck leading to sharing of Deforolimus development costs.  Using the available data, we estimate that approximately 39% of Ariad's overall clinical trial spending was spent on manufacturing-related activities (i.e. part of supply chain costs).  The supporting data are shown in Table 2.

Acusphere, Inc.

Similar to our analysis of Ariad's annual filings, we find cost information available from the 10-K filings of Acusphere, Inc.  This company's lead product candidate, Imagify, is a cardiovascular drug that has completed Phase III clinical trials and filed their initial new drug application with the FDA in April 2008.  Unlike Ariad's Deforomilus, Acusphere's Imagify requires custom and proprietary manufacturing technology.  Despite this difference, the percentage of clinical trial spending dedicated to manufacturing-related activities is similar to that of Ariad's.  As shown in Table 3, around 40% of Acusphere's clinical trial spending has gone towards manufacturing-related activities for the fiscal years 2003 through 2006. Acusphere went public in October 2003 and thus, earlier expense data relevant to our analysis is not available.

Allos Therapeutics

In contrast to the previously analyzed companies, Allos Therapeutics has multiple product candidates, nonetheless their annual filings provide usable detail on their clinical manufacturing costs.  These costs are separated from all other research and development costs.  Unfortunately, total clinical trial costs are lumped into Allos Therapeutics' R&D number, so a direct comparison of Allos' spending to our previous three examples is not possible.  However, we do have data on twelve years of clinical trial manufacturing costs as a percentage of total R&D spending.  Through analysis of these 12 years, we find that 21.3% of Allos Therapeutics' R&D spending from 1995-2006 has been spent on clinical trial manufacturing-related activities. Assuming that the clinical trial spending is 40% of the total R&D spendingⁱⁱⁱ, this implies that for Allos Therapeutics, clinical trial manufacturing costs account for more than 50% of the total clinical trial costs. We refer the reader to Table 4 for the yearly breakdown of spending.

Conclusion

It is worth noting that the drug candidates used for our first three examples are small molecule drugs. Large molecule treatments, such as those developed by bio-tech companies using live organisms or their components, tend to have much more significant drug supply costs during clinical trials than small molecule chemical (non-biologic) compounds. This is true because large molecule drugs typically require many more steps in production, have much lower yield, and require extra costs on shipping and storage.  Our fourth example comes from a large molecule bio-tech company, and anecdotally, this supports the idea that large molecule manufacturing costs are more costly than small molecule manufacturing costs.

From the examples above, clinical trial manufacturing spend through a CDMO can be a significant source of costs during clinical trials.  In the first three examples, roughly 30% - 40% of clinical trial spending is attributable to supplying the investigational drugs and developing the production process.   If you add to these costs the cost of distribution of trial drug to globally dispersed sites, then it becomes sensible to explore ways of reducing clinical supply costs.  For example, simulating potential recruitment scenarios can allow for more accurate material forecasting and less overage^iv.  While our results cannot be generalized to larger firms, we suspect that future research will uncover equally surprising costs associated with clinical drug supply.

Tables

¹ For 2003, Ariad’s manufacturing spend is estimated at 50% of total spending.  Figures for 2004 – 2006 are then calculated using changes in manufacturing related costs as noted in the SEC filings.  Without the estimate, actual manufacturing spend from 2003 – 2006 can be as low as 30% (i.e. $0 manufacturing spend in 2003) and as high as 48% ($2.54MM in manufacturing spend in 2003) of total clinical spend.

ⁱ M.J Lamberti, M. Costello, and K. Getz, "Global Supply Chain Management: From tactical to strategic: tracking the evolution of global clinical supply chain management," Applied Clinical Trials, 21 (9) 36-42 (2012).

ⁱⁱ J. Miller, “Sizing up the CDMO market,” Pharmaceutical Technology  33(10) 132 (2009).

ⁱⁱⁱ F. Kermani and G. Findlay, The Pharmaceutical R&D Compendium. Surrey UK: CMR International (2000).

^iv D. McEntegart, M. Lang, B. Byrom, S. Bacon, J. Star, N. Dowlman, and G. Nicholls, "Optimizing the Supply Chain Through Trial Simulation," Applied Clinical Trials, 13 (6) 40-46 (2004).

This article will be expanded upon for a future peer-reviewed article.