New Drug Development: Science, Business, Regulatory, and	 
Intellectual Property Issues Cited as Hampering Drug Development 
Efforts (17-NOV-06, GAO-07-49). 				 
                                                                 
Drug development is complex and costly, requiring the testing of 
numerous chemical compounds for their potential to treat disease.
Before a new drug can be marketed in the United States, a new	 
drug application (NDA), which includes scientific and clinical	 
data, must be approved by the Food and Drug Administration (FDA).
Recent scientific advances have raised expectations that an	 
increasing number of new and innovative drugs would soon be	 
developed to more effectively prevent, treat, and cure serious	 
illnesses. However, industry analysts and the FDA have reported  
that new drug development, and in particular, development of new 
molecular entities (NMEs)--potentially innovative drugs 	 
containing ingredients that have never been marketed in the	 
United States--has become stagnant. GAO was asked to provide	 
information on (1) trends in the pharmaceutical industry's	 
reported research and development expenses as well as trends in  
the number of NDAs submitted to, and approved by, FDA; and (2)	 
experts' views on factors accounting for these trends and their  
suggestions for expediting and enhancing drug development. GAO	 
analyzed data from FDA on all 1,264 NDAs submitted to the agency 
from 1993 through 2004. GAO also convened a panel of experts and 
interviewed other drug development experts and analysts to	 
identify factors affecting, and suggestions for enhancing, drug  
development.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-49						        
    ACCNO:   A63504						        
  TITLE:     New Drug Development: Science, Business, Regulatory, and 
Intellectual Property Issues Cited as Hampering Drug Development 
Efforts 							 
     DATE:   11/17/2006 
  SUBJECT:   Drug testing					 
	     Pharmaceutical industry				 
	     Pharmacological research				 
	     Policy evaluation					 
	     Prescription drugs 				 
	     Product evaluation 				 
	     Research and development				 
	     Research and development costs			 
	     Safety regulation					 

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GAO-07-49

   

     * [1]Results in Brief
     * [2]Background

          * [3]The Drug Discovery, Development, and Review Process
          * [4]FDA Response to Concerns Over the Number of Drugs Developed

     * [5]Drug Development Trends Are Not Commensurate with Research a

          * [6]The Productivity Associated with Research and Development Ex
          * [7]Most NDAs Were for Modifications to Existing Drugs
          * [8]FDA Approves Most NDA Submissions, and Approval Times Have B

     * [9]Experts Identified Factors Contributing to Declining Product

          * [10]Lack of Scientific Understanding in Treating Diseases Contri
          * [11]The Business Environment Drives Drug Development Decisions
          * [12]Factors in the Operating Environment Affect Drug Development

               * [13]Regulatory Uncertainty Can Hamper Drug Development
               * [14]Intellectual Property Protections Have Affected Drug
                 Develop

          * [15]Drug Development Experts Offered Suggestions to Improve Prod

     * [16]Concluding Observations
     * [17]Agency Comments
     * [18]GAO Contact
     * [19]Acknowledgments
     * [20]GAO's Mission
     * [21]Obtaining Copies of GAO Reports and Testimony

          * [22]Order by Mail or Phone

     * [23]To Report Fraud, Waste, and Abuse in Federal Programs
     * [24]Congressional Relations
     * [25]Public Affairs

Report to Congressional Requesters

United States Government Accountability Office

GAO

November 2006

NEW DRUG DEVELOPMENT

Science, Business, Regulatory, and Intellectual Property Issues Cited as
Hampering Drug Development Efforts

GAO-07-49

Contents

Letter 1

Results in Brief 4
Background 5
Drug Development Trends Are Not Commensurate with Research and Development
Expenditures 12
Experts Identified Factors Contributing to Declining Productivity in Drug
Development and Offered Suggestions for Improvement 25
Concluding Observations 37
Agency Comments 37
Appendix I Scope and Methodology 39
Appendix II National Academy of Sciences Expert Panel Participants 42
Appendix III Comments from the Department of Health and Human Services 44
Appendix IV GAO Contacts and Staff Acknowledgments 47

Tables

Table 1: Ranking of Innovative Potential of NDAs Using Chemical Type and
Therapeutic Potential Classifications 17

Figures

Figure 1: The Drug Discovery, Development, and Review Process 8
Figure 2: FDA Classification of NDAs by Chemical Type and Therapeutic
Potential 9
Figure 3: IND Submissions, 1986-2005 13
Figure 4: Research and Development Expenses (Constant 2004 Dollars), Total
NDA, and NDA for NME Submission Trends, 1993-2004 15
Figure 5: Proportion of 1,264 NDAs Submitted by Innovation Potential,
1993-2004 17
Figure 6: Percent of NDAs Submitted that were NMEs, 1993-2004 18
Figure 7: Percent of NDAs Submitted that were Priority NMEs, 1993-2004 19
Figure 8: Status as of September 2005 for the 1,264 NDAs Submitted,
1993-2004 20
Figure 9: Average Approval Times as of September 2005 for 961 Priority and
Standard NDAs Submitted and Approved, 1993-2004 22
Figure 10: Proportion of 961 NDAs Submitted and Approved by Innovation
Potential 23
Figure 11: Total NDA and NDA for NME Approvals, 1993-2005 24

Abbreviations

AAMC Association of American Medical Colleges FDA Food and Drug
Administration HHS Department of Health and Human Services IND
investigational new drug application NAS National Academy of Sciences NDA
new drug application NME new molecular entity PDUFA Prescription Drug User
Fee Act PhRMA Pharmaceutical Research and Manufacturers of America

This is a work of the U.S. government and is not subject to copyright
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separately.

United States Government Accountability Office

Washington, DC 20548

November 17, 2006

The Honorable Edward M. Kennedy Ranking Minority Member Committee on
Health, Education, Labor and Pensions United States Senate

The Honorable Henry A. Waxman Ranking Minority Member Committee on
Government Reform House of Representatives

The Honorable Richard J. Durbin United States Senate

Before a new drug can be marketed in the United States, it must be
approved by the Food and Drug Administration (FDA), an agency within the
Department of Health and Human Services (HHS). To gain approval, drug
sponsors1 must submit a new drug application (NDA) to FDA containing
scientific and clinical data. FDA reviews the NDA to determine whether the
new drug is safe and effective for its intended use. The submission of an
NDA typically follows a long period of research and development. To
develop a new drug, researchers and scientists identify and test numerous
chemical compounds for their potential to treat disease. On average, drug
sponsors can spend over 13 years studying the benefits and risks of a new
compound, and several hundred millions of dollars completing these studies
before seeking FDA's approval. About 1 out of every 10,000 chemical
compounds initially tested for their potential as new medicines is found
safe and effective, and eventually approved by FDA, making the drug
discovery and development process complex, time consuming, and costly.
Although high costs and failure rates make drug discovery and development
risky, creating a safe and effective new drug can be rewarding for both
the sponsor and the public. A highly successful new drug can generate
significant annual sales, and can provide cures or help treat the symptoms
of diseases and illnesses affecting millions of people.

1A drug sponsor is the person or entity who assumes responsibility for the
marketing of a new drug, including responsibility for complying with
applicable provisions of laws, such as the Federal Food, Drug, and
Cosmetic Act and related regulations. The sponsor is usually an
individual, partnership, corporation, government agency, manufacturer, or
scientific institution.

Significant scientific advances have raised new hope for the prevention,
treatment, and cure of serious illnesses. For example, the decoding, or
sequencing of the human genome, advances in medical imaging, and new
technologies that enable drug researchers to rapidly synthesize numerous
compounds, created expectations that the pharmaceutical industry would
soon be producing an increasing number of new and innovative drugs to more
effectively treat disease. However, over the past several years it has
become widely recognized throughout the industry that the productivity of
its research and development expenditures has been declining; that is, the
number of new drugs being produced has generally declined while research
and development expenses have been steadily increasing. Similarly, FDA and
analysts reported that pharmaceutical research and development investments
were not producing the expected results and that innovation in the
pharmaceutical industry had become stagnant.2 In addition, FDA reported
that the industry was predominantly submitting NDAs for variations of
existing drugs, rather than for new and innovative drugs, such as new
molecular entities (NMEs)--potentially innovative drugs containing active
chemical substances that have never been approved for marketing in the
United States in any form. In response to the declining productivity of
drug development, FDA launched two separate initiatives--one in 2003 and
another in 2004--to help facilitate drug development.3 In its 2004
initiative, it specifically cited an urgent need to improve the drug
development process and to enhance collaboration among the government,
industry, and academia.

You raised questions regarding the numbers of new drugs being produced,
and in particular, those drugs representing important therapeutic advances
in effectively treating disease--such as NMEs. This report provides (1)
data regarding trends in the pharmaceutical industry's reported research
and development expenses as well as trends in the number of NDAs and NDAs
for NMEs submitted to, and approved by, FDA; and (2) experts' views on
factors accounting for these trends, and their suggestions for expediting
the drug development process and increasing the productivity of research
and development efforts.

2For example, see FDA, Innovation or Stagnation: Challenge and Opportunity
on the Critical Path to New Medical Products (March 2004).

3See FDA, Improving Innovation in Medical Technology: Beyond 2002 (Jan.
31, 2003) and FDA, Innovation or Stagnation: Challenge and Opportunity on
the Critical Path to New Medical Products (March 2004).

To determine trends in the pharmaceutical industry's reported research and
development expenditures, we obtained information from the Pharmaceutical
Research and Manufacturers of America (PhRMA)4 for the period 1993 through
2004, and adjusted it for inflation to 2004 dollars.5 We did not
independently verify these amounts; however, many researchers have cited
these data as the best available information. To identify trends in the
number of submissions and approvals of NDAs, we obtained and analyzed data
from FDA on all 1,264 NDAs submitted to the agency for review from January
1, 1993, through December 31, 2004. The information we reviewed on these
1,264 NDAs included their status--whether the applications had been
approved, withdrawn, or were still under FDA's review. In addition, we
obtained FDA's initial assessment of the NDAs' review priority, whether
the NDAs were for NMEs, specific dates documenting when an NDA was
submitted, and all of FDA's decisions regarding the applications. We also
discussed the results of our data analyses with FDA officials to obtain
their perspective on drug development trends.

To determine factors underlying new drug development trends, we
interviewed experts from the pharmaceutical industry, academia, and a
public interest group who possess knowledge of issues that have had an
impact on drug development. We also interviewed some pharmaceutical
industry analysts who had previously published reports on drug development
issues. In addition, we organized a panel of experts--with assistance from
the National Academy of Sciences (NAS)--that included experts from
academia, the pharmaceutical industry, and patient advocates. We held this
panel in order to provide a forum where widely recognized experts could
collectively discuss drug development issues. The panel was not designed
to build consensus on any of the issues discussed. The panelists provided
their individual views, which do not necessarily reflect those of the
organizations with which they were affiliated or the NAS. We asked these
experts to identify factors affecting the development of new drugs, and in
particular, innovative drugs such as NMEs. As part of the panel
discussion, we asked them to identify incentives or actions that could
expedite drug development and enhance the development of drugs that offer
therapeutic advances in effectively treating diseases. Further, we
reviewed and analyzed previously published reports and articles issued by
pharmaceutical industry analysts, academic researchers, and the federal
government. We reviewed these reports and articles to identify factors
influencing drug development, and suggestions for expediting this process.
Detailed information on our methodology is in appendix I and a list of the
panelists is in appendix II. We conducted our work from July 2005 through
October 2006 in accordance with generally accepted government auditing
standards.

4PhRMA represents pharmaceutical research and biotechnology companies.

5We obtained PhRMA's data for this period to correspond with data we
obtained from FDA. In 1992, FDA implemented a new system for classifying
NDAs, and in 1993, specified time-frame goals for reviewing NDAs were
established. We therefore obtained data beginning with 1993 to generally
correspond to these changes, and requested data through 2004, which was
the most recent year with a complete set of NDA submission data at the
time of our request.

Results in Brief

Although the pharmaceutical industry has reported substantial increases in
annual research and development costs, the number of NDAs submitted to,
and approved by, FDA has not been commensurate with these investments.
From 1993 to 2004, the industry reported that annual research and
development expenses steadily increased from nearly $16 billion to nearly
$40 billion in real terms--a 147 percent increase.6 In contrast, the
number of NDAs submitted annually increased at a lower rate--38 percent
over this period--and generally declined over the past several years. The
number of NDAs submitted annually increased from 74 to 129, or by 74
percent, between 1993 and 1999, and generally declined after 1999. In
2004, sponsors submitted 102 applications to FDA--a 21 percent decrease
from the 1999 level. Similarly, the number of NDAs submitted to FDA for
NMEs increased by only 7 percent over this period, and generally declined
since 1995. From 1993 through 1995, the number of NDAs submitted for NMEs
increased, but declined by 40 percent between 1995 and 2004. The
percentage of NDAs submitted that were for NMEs also generally declined
after 1995. These submission trends indicate that the productivity of
research and development investments has declined. Regarding approval
trends, FDA eventually approved most NDAs--961 or 76 percent overall--and
the percentage approved each year has remained relatively constant.
However, the overall number of NDAs--and NMEs in particular--approved
annually has generally been declining since 1996, which corresponds with
the decline in submissions.

6Real growth reflects growth after the effects of inflation are removed.

Results from the discussion among panel members, our interviews with drug
development experts and analysts, and our review of academic and industry
reports identified several factors affecting the types of drugs being
developed, and the length, costs, and failure rates of drug development.
These factors include limitations on the scientific understanding of how
to translate chemical and biological discoveries into safe and effective
drugs; business decisions by the pharmaceutical industry that influence
the types of drugs developed; uncertainty regarding regulatory standards
for determining whether a drug should be approved as safe and effective;
and certain intellectual property protections that can discourage
innovation. Together, these factors have been cited as affecting the cost
and length of the drug development process, as well as the types of drugs
being produced. Faced with these issues, some of the panelists, other
experts we contacted, and the literature we reviewed, suggested ways to
expedite drug development and find more innovative drugs. These include
generating greater numbers of scientists who possess the skills needed to
translate drug discoveries into effective new medicines; restructuring
regulation of the drug review process to allow for conditional approval of
drugs for therapeutic areas that currently lack effective treatments based
on shorter clinical trials using fewer numbers of patients; and altering
the length of patent terms to encourage innovation. Some of the experts
have cautioned that adequate measures to ensure safety need to be
implemented along with any changes to expedite the regulatory review
process.

In its comments on a draft of this report, HHS provided clarifications,
which we incorporated as appropriate.

Background

FDA is responsible for helping to ensure the safety and effectiveness of
drugs marketed in the United States. It oversees the drug development
process, reviews drug sponsors' applications for the approval of new
drugs, and monitors the safety and efficacy of drugs once they are
available for sale. As part of its responsibilities, FDA assists drug
sponsors in designing clinical trials to test drugs on humans, reviews
proposals for conducting such trials, and approves drugs for sale in the
United States based on its determination that a drug's clinical benefits
outweigh its potential health risks, and is safe and effective. Prior to a
manufacturer's marketing of a drug, FDA reviews drug labels and
accompanying materials to ensure they are consistent with applicable laws
and regulations. Among other things, labels must include information on
the drug's usage, for example, the medical conditions and patient
populations for which it has been tested and approved as safe and
effective.

The Drug Discovery, Development, and Review Process

The process of bringing a new drug to the market consists of four main
stages--drug discovery, preclinical testing, clinical trials which involve
testing on volunteers, and FDA review. During these stages, scientists
from the government, academia, and the private sector conduct extensive
research and testing to identify safe and effective medicines. The entire
drug discovery, development, and review process takes, on average, 15
years to complete.

During the first stage--commonly referred to as drug discovery--numerous
researchers from pharmaceutical companies, academia, and government search
for and identify promising chemical entities, or compounds, capable of
curing or treating diseases. During the second stage--preclinical
testing--these compounds are tested in laboratories and in animals to
predict whether a drug is likely to be safe and effective on humans. Most
compounds fail during these first two stages; according to PhRMA, only 5
in every 10,000 compounds, on average, successfully completes these two
stages. In general, these two stages typically take a total of 6 1/2 years
to successfully complete for a particular compound.

If the compound is found to be promising, a drug sponsor may decide to
test it as a new drug on humans, and proceeds to the third stage--clinical
trials. Before doing so, a sponsor must submit an investigational new drug
application (IND)7 that summarizes the data that have been collected on
the compound and outlines plans for the clinical trials.8 Generally,
clinical trials may begin 30 days after FDA receives the IND, unless FDA
orders a delay. FDA does not issue a formal approval to the sponsor
regarding an IND submission, but it can prohibit the start of a clinical
trial if, for example, it determines that human volunteers would be
exposed to an unreasonable and significant risk of illness or injury. As
described below, the clinical trial stage consists of three phases, known
as Phase 1, 2, and 3 clinical trials.

7Drugs studied under INDs are compounds that are under development and
essentially provide the pipeline of drugs that ultimately become the
subjects of NDAs that are submitted to FDA for approval.

8There are two classes of INDs--commercial and noncommercial. Commercial
INDs are submitted primarily by companies whose ultimate goal is to submit
an NDA to obtain marketing approval for a new product. Noncommercial INDs
are filed for noncommercial research purposes. For example, a physician
might submit a research IND to study potential medicinal uses for an
unapproved drug. In this report, all references to INDs refer to
commercial INDs.

In Phase 1 clinical trials, sponsors typically conduct safety studies on
about 20 to 100 healthy volunteers. Potential side effects are identified
and various dosage levels are determined. In Phase 2 clinical trials, the
drug is typically tested on approximately 100 to 500 volunteers who have a
particular disease to determine the drug's effectiveness. In Phase 3
clinical trials, the drug is typically tested on about 1,000 to 5,000
volunteers, to determine the drug's safety and effectiveness. According to
PhRMA, on average, one out of every five drugs successfully completes all
three clinical testing phases--that is, is found safe and effective by the
drug sponsor and submitted as an NDA to FDA for review and approval. On
average, the three phases of the clinical trial stage take a total of 7
years to successfully complete.

The fourth and final stage is the FDA review stage, which covers FDA's
review and final approval of NDAs. The review process begins when a
sponsor submits an NDA to FDA. The NDA contains scientific and clinical
data submitted by the sponsor intended to demonstrate that the drug is
safe and effective for its proposed use. FDA evaluates data contained in
the NDA to determine whether the drug meets these standards and if it
should be approved.9 For those NDAs that are approved, it typically takes
about 1 1/2 years to complete the review process and obtain FDA's
approval.

Figure 1 shows the amount of time, on average, for a successful new drug
to move through and complete the four stages. It also illustrates that for
every 10,000 compounds initially identified, only one, on average, will be
found safe and effective, and be approved by FDA.

9For more information on the FDA review and approval process, see for
example, GAO, Food and Drug Administration: Effect of User Fees on Drug
Approval Times, Withdrawals, and Other Agency Activities, [26]GAO-02-958
(Washington D.C.: September 17, 2002).

Figure 1: The Drug Discovery, Development, and Review Process

Upon receipt of an NDA, FDA will classify it in two ways--by its chemical
type and its therapeutic potential. First, an NDA is classified into
chemical types, one of which is an NME.10 Because NMEs contain active
chemical substances never before approved for marketing in the United
States, industry analysts and FDA generally consider them innovative. The
other six classifications consist of non-NMEs, which are typically
considered less innovative because they represent modifications to drugs
already on the market. In most cases, the sponsor submitting an NDA for a
non-NME has altered the original medicine to produce a drug with different
features, such as a new dosage form or route of administration. Second,
FDA classifies an NDA by its therapeutic potential. In doing so, FDA
compares the NDA to existing products already on the market. Those that
appear to have relatively significant therapeutic benefits in the
treatment, diagnosis, or prevention of a disease are classified as
priority.11 Those with little or no additional therapeutic benefits
compared to existing products are classified by FDA as standard. As figure
2 shows, an NDA can be classified in one of four ways--priority NME,
priority non-NME, standard NME, or standard non-NME.

10FDA classifies NDAs into seven chemical types. These classifications are
(1) NME, (2) new salt of previously approved drug (not a new molecular
entity), (3) new formulation of previously approved drug (not a new salt
or a new molecular entity), (4) new combination of two or more drugs, (5)
already marketed drug product - duplication (i.e., new manufacturer), (6)
new indication (claim) for already marketed drug (includes switch in
marketing status from prescription to over the counter), and (7) already
marketed drug product--no previously approved NDA--for example, according
to an FDA official, a drug marketed prior to the creation of FDA, such as
aspirin.

Figure 2: FDA Classification of NDAs by Chemical Type and Therapeutic
Potential

In response to concerns that FDA was taking too long to review and approve
NDAs, the Prescription Drug User Fee Act (PDUFA)12 was enacted in 1992. It
provided FDA with additional resources in the form of user fees from the
pharmaceutical and biotechnology industries to speed up the process of
reviewing applications for new drugs and biological products, and
established performance goals for FDA, including completing its review of
a certain percentage of applications within certain time frames.13 PDUFA
authorized FDA to collect these fees to supplement its annual
appropriation for salaries and expenses, and use the additional funds to
review applications more quickly.14 PDUFA was amended and reauthorized in
1997 and 2002 for an additional 5 years and established new performance
goals for various aspects of the drug review process. For example, current
goals state that FDA should complete its initial review and act on 90
percent of all priority NDAs within 6 months and 90 percent of all
standard NDAs within 10 months. FDA uses these and other review time goals
to assess its review timeliness, and issues an annual report on its
performance to the President and Congress.15

11FDA's Manual of Policies and Procedures notes that the priority
designation is intended to direct overall attention and resources to the
evaluation of applications that have the potential for providing
significant therapeutic advances as compared to "standard" applications.
It also states that the priority determination is based on conditions and
information available at the time the application is filed. It is not
intended to predict a drug's ultimate value or its eventual place in the
market.

12Pub. L. No. 102-571, 106 Stat. 4491.

The review process may span several review cycles. The first cycle begins
when the NDA is submitted to and filed by FDA, indicating that the
application is sufficiently complete to permit a substantive review. The
first cycle ends when FDA has completed its review and responds by issuing
an action letter to the sponsor. This could mean that FDA approved the
application; told the sponsor it was approvable, but that more information
was needed; or told the sponsor that the NDA contained significant
weaknesses and was not approvable. If the application is approved in the
first cycle, the total approval time is the length of that cycle. For
those NDAs not approved during the first review--both approvable and not
approvable--the second cycle begins when the sponsor files an amendment
and resubmits the application and it is filed by FDA. The resubmission
often contains additional studies, analyses, data, or clarifying
information to address concerns raised by FDA in the previous review. As
with the first cycle, this cycle ends when FDA has completed its review
and issues an action letter to the sponsor. If the review process takes
two or more cycles, the total approval time includes the time spent during
the review cycles, plus the additional time the sponsor uses to address
the issues raised by FDA.

13Biological products, or biologics, are derived from living sources--such
as humans, animals, and microorganisms--as opposed to being chemically
synthesized, and include vaccines and blood products.

14Under PDUFA, companies pay three types of user fees to FDA--application
fees, establishment fees, and product fees. In most cases, a company
seeking to market a new drug in the United States must pay an application
fee to support the agency's review process. Generally, companies also pay
an annual establishment fee for each facility in which their products
subject to PDUFA are manufactured and an annual product fee for marketed
drugs for which no generic versions are available. For more information on
PDUFA user fees see GAO, Food and Drug Administration: Effect of User Fees
on Drug Approval Times, Withdrawals, and Other Agency Activities,
[27]GAO-02-958 (Washington D.C.: September 17, 2002).

15See: FDA, FY 2004 Performance Report to the President and the Congress
for the Prescription Drug User Fee Act.

FDA Response to Concerns Over the Number of Drugs Developed

Over the past several years, numerous industry analysts and FDA noted a
decline in the submission of applications for NDAs overall, and for
innovative drugs, such as NMEs.16 In light of this, in January 2003, FDA
launched a broad initiative to improve the development and availability of
innovative medical products, including new drugs.17As part of this
initiative, FDA sought to reduce: (1) the number of drugs requiring more
than one review cycle, (2) overall approval times, and (3) development
costs. To help accomplish this, FDA sought to improve the development and
review process by educating drug sponsors on the type and extent of
scientific data that must be present in the NDA's initial submission.
Noting the decline in the number of NDAs, in 2004 FDA proposed a second,
more targeted, initiative--known as the critical path initiative--to form
a collaborative effort between government, industry, and academia.18 In
doing so, FDA cited an urgent need for a new product development "tool
kit" to enable researchers to more effectively translate basic research
discoveries into safe and effective products. Such tools include better
techniques of identifying safety problems as early as possible and better
methods for demonstrating medical effectiveness; tools, which according to
FDA, could help reduce the failure rates of drug development and increase
the number of NDA submissions.

16For example see: American Enterprise Institute-Brookings Joint Center,
Shortening Drug Approval Times via Industry Funding of the FDA: Did
Legislation Help or Hurt? (Feb. 16, 2005).

17FDA, Improving Innovation in Medical Technology: Beyond 2002 (Jan. 31,
2003).

18FDA, Innovation or Stagnation: Challenge and Opportunity on the Critical
Path to New Medical Products (March 2004).

Drug Development Trends Are Not Commensurate with Research and Development
Expenditures

Overall, our analyses of drug development data revealed that increases in
research and development expenditures from 1993 through 2004 have not led
to a commensurate increase in NDAs submitted to FDA, including those
classified as NMEs. Although the pharmaceutical industry reported a 147
percent real increase in annual research and development expenditures from
1993 through 2004, and an increasing number of INDs are being submitted to
FDA, the number of new drugs developed has not grown in a similar manner.
Compared to industry-reported research and development expenditures, the
number of NDAs and NDAs for NMEs submitted to FDA over the period
increased at a lower rate--by 38 percent and 7 percent respectively--which
indicates that the productivity of the research and development
investments has been declining. Furthermore, the majority of NDAs
submitted to FDA were for non-NMEs, and thus represented modifications to
existing drugs rather than newer and potentially more innovative drugs.
FDA has consistently approved most of the NDAs submitted, with approval
rates nearing 80 percent overall, and has been approving applications much
more quickly in recent years. However, the actual numbers of drugs
approved annually has been declining, reflecting the trends in NDA
submissions.

The Productivity Associated with Research and Development Expenditures Has
Recently Declined

According to PhRMA and industry analysts, research and development
expenditures are key to the development of new and innovative medical
products, including pharmaceuticals. During the drug discovery and
preclinical stages, research and development expenditures fund efforts to
identify new compounds that could ultimately become INDs. Research and
development expenditures during the clinical trial phases fund the studies
needed to prove a drug is safe and effective, leading to a potential NDA
submission. Our review of annual research and development expense data
reported by PhRMA and IND submission data reported by FDA indicate that
there have been substantial and consistent increases in these expenses
over the past decade, and that the number of INDs submitted to FDA has
been increasing. However, we found that these investments have not led to
a commensurate increase in the number of NDAs and NMEs, and thus, the
productivity of these investments has declined.

Figure 3, which shows the number of INDs that sponsors submitted to FDA
from 1986 through 2005, indicates that there have been fluctuations in the
number of INDs submitted each year.19 However, in general, sponsors have
been submitting an increasing number of INDs since 1986. Figure 3 also
shows a 45 percent increase in IND submissions over the last 2 years.

Figure 3: IND Submissions, 1986-2005

Note: The data in this figure are for commercial INDs.

Despite the trends of increasing IND submissions and steady increases in
research and development expenses, we found that the number of NDAs
submitted to FDA has generally been declining over the past several years.
Figure 4 shows the annual research and development expenses reported by
PhRMA for 1993 through 2004 (adjusted for inflation to 2004 dollars), and
the total number of NDAs (including those for NMEs) and NDAs for NMEs
submitted to FDA during the same period.20 As figure 4 shows, annual
research and development expenses grew consistently over the period. In
1993, the inflation-adjusted expenses were nearly $15.7 billion, and grew
to an estimated $38.8 billion in 2004--a 147 percent real increase over
the period.21 Our analysis also revealed that inflation-adjusted annual
growth rates of the research and development expenses ranged from a low of
just over 2 percent from 2001 to 2002, to over 11 percent from 1999 to
2000.

19We chose this time period for two reasons. First, because we obtained
NDA data beginning with 1993 and it takes 7 years, on average, to
successfully complete clinical trials, trends emerging from INDs submitted
in 1986 could be reflected in NDA submission trends beginning in 1993.
Second, 2005 was the most recent year for which we could obtain complete
data from FDA.

20Pharmaceutical Research and Manufacturers of America, Pharmaceutical
Industry Profile 2005 (Washington, D.C.: Pharmaceutical Research and
Manufacturers of America, 2005). Each year, PhRMA surveys its membership
and requests information on the amount its members spent on research and
development. According to PhRMA, these expenses include both domestic
expenses and expenses incurred abroad. Domestic expenses include those
incurred within the United States by PhRMA member companies. Expenses
abroad include expenses incurred outside of the United States by
U.S.-owned PhRMA member companies and expenses incurred outside the United
States by the U.S. divisions of foreign-owned PhRMA member companies.
Expenses incurred outside the United States by the foreign divisions of
foreign-owned PhRMA member companies are not included. We did not
independently verify these amounts. However, these data have been
repeatedly cited, and they represent the best available information. For
example, see Kaiser Family Foundation, Prescription Drug Trends (October
2004).

21According to our analysis of PhRMA's data, total research and
development expenditures were 17 percent of total sales in 1993, and were
16 percent in 2004.

Figure 4: Research and Development Expenses (Constant 2004 Dollars), Total
NDA, and NDA for NME Submission Trends, 1993-2004

In contrast to the steady and large increase in research and development
expenditures, we found that the number of NDAs submitted annually
increased at a lower rate--38 percent over this period--and has generally
declined over the past several years. As figure 4 shows, there was initial
growth followed by a general decline in submissions of all NDAs, including
NDAs for NMEs, to FDA. For NDAs, figure 4 shows that the number submitted
to FDA, in general, grew from 1993 through 1999. In 1993, sponsors
submitted 74 NDAs to FDA. In 1999 this number grew to 129--a 74 percent
increase from 1993. After 1999, however, NDA submissions generally
declined, and in 2004, sponsors submitted 102 NDAs, which represented a 21
percent decrease from 1999 levels. Figure 4 also shows that the number of
NDAs submitted to FDA for NMEs increased slightly over this 12-year
period--by 7 percent. In addition, Figure 4 shows that the number of NMEs
submitted to FDA peaked in 1995, and, for the most part, then began to
decline. Although sponsors submitted 50 NMEs in 1995, this number fell to
30 in 2004, which represented a 40 percent decline. It should be noted
that submissions of NDAs for NMEs increased during the last 2 years of
this time frame--rising from 23 in 2002, to 28 in 2003, and 30 in 2004.

Because it may take several years from the time research and development
investments are made until the time a sponsor submits an NDA to FDA for
approval, expenses in any given year are generally not related to NDA
submissions in that year. Additionally, given the uncertain nature of
research and development efforts, it is unlikely that expenditures and NDA
submissions would grow at the same rate. However, given a 147 percent
increase in research and development expenditures over the 12-year period,
many analysts and experts assumed that the trend in NDA submissions would
also generally be one of consistent increases. The NDA submission trends,
combined with IND submission trends, indicate that the industry faces
challenges in successfully completing the clinical testing stage, leading
up to the submission of an NDA.

Most NDAs Were for Modifications to Existing Drugs

In addition to determining the overall trends in the number of NDAs and
NMEs submitted to FDA, we used FDA chemical type and therapeutic potential
classifications--NME, non-NME, priority, and standard--to make a general
assessment of the level of innovation of the NDAs submitted. Any one
NDA--regardless of whether it is for an NME or was granted priority status
by FDA--may eventually turn out to be an innovative and uniquely
therapeutic product. However, FDA and industry analysts use the chemical
type and therapeutic potential classifications to make a general
assessment of the innovative potential of NDAs at the time of submission.
We used the four classifications as outlined in table 1 to rank the
innovative potential of NDAs.22

22Based on our interviews with FDA officials and our review of prior
studies, we determined there was a general consensus that the most
important factor in assessing the innovative potential of an NDA was
whether or not it was an NME.

Table 1: Ranking of Innovative Potential of NDAs Using Chemical Type and
Therapeutic Potential Classifications

NDA submission type Level of potential innovation 
Priority NME                                    1 
Standard NME                                    2 
Priority non-NME                                3 
Standard non-NME                                4 

Source: GAO analysis of FDA chemical type and therapeutic potential
classifications.

Note: The ranking of 1 represents the highest innovative potential, and 4,
the lowest.

Based on how FDA classified the 1,264 NDAs submitted from 1993 through
2004, we determined the proportion of NDAs submitted by each of the four
classifications. As figure 5 shows, 68 percent of the NDAs were classified
as non-NMEs--those representing modifications to existing drugs, while the
remaining 32 percent of the NDAs submitted were NMEs. The figure also
shows that 12 percent of NDA submissions were for drugs in the priority
NME classification--those representing the highest potential level of
innovation.

Figure 5: Proportion of 1,264 NDAs Submitted by Innovation Potential,
1993-2004

Based on FDA's classification of the 1,264 NDAs, we determined the
percentage submitted each year that were NMEs and priority NMEs. Regarding
NMEs, figure 6 shows that during the period 1993 through 2004, there was
variation from year to year in the percentage of NDAs submitted that were
NMEs. Figure 6 shows that this percentage ranged from a high of 43 in 1995
to a low of 24 in 2002. It also shows that although this percentage had
generally declined since 1995, it increased from 2002 through 2004.

Figure 6: Percent of NDAs Submitted that were NMEs, 1993-2004

Regarding priority NMEs, figure 7 shows that in general, the percentage of
NDAs that were priority NMEs ranged from between 10 and 15 percent during
the 12-year period. Figure 7 also shows that this percentage ranged from a
high of 15 in 2003, to a low of 5 in 2001. Finally, it shows that after a
steep reduction in 2001, this percentage increased the following 3 years
to levels similar to those previously experienced.

Figure 7: Percent of NDAs Submitted that were Priority NMEs, 1993-2004

The results of our analyses indicate that the reported increases in
research and development expenditures during the period have not led to a
commensurate increase in the innovative potential of NDAs submitted to
FDA. These findings are consistent with FDA's conclusions in its 2003 and
2004 reports. In its January 2003 report on improving innovation in
medical technology--including drugs--FDA found that data regarding
application submissions showed a trend toward decreased numbers of
applications for truly innovative products, including NMEs.23 The report
also concluded that the trends were of concern to FDA because at the same
time, it had seen a substantial increase in the number of applications for
new products, including new drugs in areas where comparable products
already existed--such as non-NME NDAs. Further, these same trends, which
suggested stagnation in innovation, were noted as a basis for FDA's launch
of the critical path initiative in 2004.

23FDA, Improving Innovation in Medical Technology: Beyond 2002 (Jan. 31,
2003).

FDA Approves Most NDA Submissions, and Approval Times Have Been Decreasing

We reviewed the status of all 1,264 NDAs submitted from January 1, 1993,
through December 31, 2004, to determine approval trends. Our review found
that as of September 2005, FDA had approved 961, or 76 percent of the NDAs
submitted. Further, we found that FDA approval times have been decreasing
and that approval times were consistently shorter for priority NDAs. We
also found that most of the NDAs approved from 1993 through 2004 were for
non-NMEs, or modifications to drugs already on the market. Finally,
reflecting the declining number of NDA submissions, we found that the
numbers of NDAs and NMEs approved each year have generally been declining.

The status of the 1,264 NDAs as of September 2005, shown in figure 8,
indicates that FDA had approved the majority of them, and the remaining
were either still under FDA review or had been withdrawn by the sponsors.

Figure 8: Status as of September 2005 for the 1,264 NDAs Submitted,
1993-2004

In addition to determining the overall approval rate over the period, we
calculated approval rates for each year the NDAs were submitted. We found
that approval rates were consistently above or near 80 percent for years
1993 through 2000. Approval rates for the later 4 years--and years 2003
and 2004 in particular--were lower because many of the NDAs submitted--34
of the 106 submitted in 2003 and 51 of the 102 submitted in 2004--were
still under FDA review at the time of our analyses.24

We also calculated the length of time it took FDA to approve each of the
961 NDAs, and determined the trends in average approval times based on the
year the NDAs were submitted. Our analysis showed that the average time it
has taken FDA to approve NDAs submitted in recent years is generally lower
than for those submitted in earlier years. For example, we found that it
took FDA, on average, 669 days to approve NDAs submitted in 1993, but only
442 days to approve those submitted in 2002--a 34 percent decrease.25 This
decrease is due, in part, to the fact that FDA has been approving an
increasing number of NDAs in one or two review cycles, which has helped
cut overall approval times.

Additionally, we found that approval times for priority NDAs were
consistently lower than for standard NDAs. This was due, in part, to the
fact that for those priority NDAs approved, FDA approved 63 percent of
them in one review cycle, compared to 46 percent for the standard NDAs.
Figure 9 shows the average approval times for priority and standard NDAs
based on the year they were submitted, from 1993 to 2004. It should be
noted that PDUFA was in effect during the period covered in figure 9.
During that time FDA collected user fees and was subject to PDUFA
performance goals.

24FDA provided us with this information in September 2005. Therefore, many
of the NDAs submitted in 2003 and 2004 were still under review at the time
of our analyses.

25Because many of the applications submitted during 2003 and 2004 were
still under review at the time we performed our analyses, the average
approval times for these years are artificially lower. Therefore, we did
not use average approval times for these years to make any comparisons to
earlier years.

Figure 9: Average Approval Times as of September 2005 for 961 Priority and
Standard NDAs Submitted and Approved, 1993-2004

Note: NDA approval times include the time taken by FDA to review the
application as well as time needed by the sponsor to address FDA's
concerns. In addition, 85 of the 208 the applications submitted in 2003
and 2004 were still under review at the time of our analyses, and thus
average approval times for these years may increase if they are eventually
approved.

Previous studies have indicated that implementation of PDUFA's user fees
and performance review goals have been a contributing factor to the
quicker review times. For example, in 2002, we reported that fees
collected under PDUFA had provided FDA with additional resources that have
helped the agency expedite the approval of new drugs by reducing review
times.26 In addition, an October 2000 study by the Tufts Center for the
Study of Drug Development concluded that user fees contributed to a 51
percent drop in average approval times from 1993 through 1998.27

26GAO, Food and Drug Administration: Effect of User Fees on Drug Approval
Times, Withdrawals, and Other Agency Activities, [28]GAO-02-958
(Washington D.C.: September 17, 2002).

To categorize the innovative potential of the drugs submitted and approved
during the period, we applied the same four-level ranking scale discussed
earlier to the 961 NDAs that FDA approved. Based on our analysis, we found
that, similar to the submission trends, most of the NDAs approved were for
non-NMEs. Figure 10 shows the proportion of the NDAs categorized by
innovative potential.

Figure 10: Proportion of 961 NDAs Submitted and Approved by Innovation
Potential

We also obtained historical data on the numbers of NDAs overall, as well
as NDAs for NMEs that FDA has approved regardless of when they were
submitted.28 In doing so, we reviewed FDA's published data on its annual
approvals of NDAs, including NDAs for NMEs for the years 1993 through
2005.29 Figure 11, which is based on these data, shows that FDA approved
an increasing number of NDAs and NDAs for NMEs from 1993 through 1996.
After that time, however, reflecting the declining number of NDA
submissions, annual approvals declined, and returned to levels not seen
since the early 1990s. Also, there was a spike in the number of approvals
in 2004, but approvals were lower once again in 2005.

27Tufts Center for the Study of Drug Development, Impact Report, Analysis
and Insight into Critical Drug Development Issues, Vol. 2 (October 2000).

28These data reflect the total number of NDAs and NDAs for NMEs approved
annually from 1993 through 2005, and are used to show trends in the
numbers of NDAs and NDAs for NMEs FDA approved during those years.

Figure 11: Total NDA and NDA for NME Approvals, 1993-2005

29FDA Center for Drug Evaluation and Research, 1997 and 2004 Reports to
the Nation, Improving Public Health Through Human Drugs, and FDA's 2005
new drug approval listings on its Web site (
[29]http://www.fda.gov/cder/rdmt/ndaaps05cy.htm downloaded March 3, 2006
and [30]http://www.fda.gov/cder/rdmt/nmecy2005.htm downloaded March 3,
2006).

Experts Identified Factors Contributing to Declining Productivity in Drug
Development and Offered Suggestions for Improvement

According to experts, a variety of factors have contributed to the
declining productivity of pharmaceutical research and development efforts
by making it more difficult for the industry to successfully complete
clinical testing and submit NDAs for approval. These factors include
limitations on the scientific understanding of how to translate chemical
and biological discoveries into safe and effective drugs, business
decisions by the pharmaceutical industry, uncertainty regarding regulatory
standards for determining whether a drug should be approved, and
intellectual property issues, such as the length of patent terms.
According to experts, these factors have impacted the length, costs, and
failure rates of drug development, as well as the innovative potential of
NDAs being submitted to FDA. Although experts agreed that declining
productivity may be a cyclical occurrence that will ultimately be
reversed, they also acknowledged that they need to address the recent
increase of clinical trial failure rates--from 82 percent during the
period 1996 through 1999, to 91 percent during the period 2000 through
2003. As a result, they have proposed suggestions to expedite drug
development and improve the overall productivity of research and
development efforts.

Lack of Scientific Understanding in Treating Diseases Contributes to Increased
Failure Rates and Increased Research and Development Expenditures

We found a general consensus that difficulties in effectively translating
basic research discoveries into new and effective medicines have
contributed to increased failure rates during clinical testing. In turn,
this has led to increased costs of drug development. Difficulties in
understanding the science of disease have historically challenged
researchers. However, according to experts, these difficulties have been
growing over the past several years as the volume of drugs in clinical
trials and the complexity of the diseases to be addressed have increased.
As a result, the inability of drug sponsors to consistently predict the
efficacy of compounds, including those for complex diseases, has resulted
in an increasing number of clinical failures and overall development
costs. In addition, the inability of drug sponsors to effectively utilize
new technologies and a shortage of highly trained researchers who possess
the ability to effectively translate basic discoveries into new drugs,
were seen as factors that further contribute to the increased clinical
failures and costs.

During the panelists' discussion, it was generally agreed that the
inability to effectively predict which compounds will be successful when
tested in humans, combined with the greater numbers of compounds in
clinical testing, have contributed to the increased number of drugs
failing clinical testing and rising expenditures. Panelists commented that
compounds which were thought to be effective treatments during preclinical
testing in animals can ultimately fail when tested in humans because
available animal models used to estimate a compound's effectiveness have
limited ability to predict whether they will be effective in treating
humans.30 This issue was also highlighted in a joint report issued by the
Association of American Medical Colleges (AAMC) and FDA, which found that
although animal models can be useful by providing biological insights,
there is still a lack of understanding when it comes to extrapolating
results from animal models to human studies.31

According to industry analysts, the pharmaceutical industry's increasing
focus on developing drugs for complex and chronic diseases such as cancer
has also contributed to higher failure rates, slower drug development, and
increased costs. Because many of these diseases have not been fully
studied, knowledge of how drugs impact relevant cells remains incomplete.
For example, scientists have rarely been able to develop cancer therapies
that exclusively eliminate cancer cells without also destroying healthy
tissues. As a result, many cancer drugs have failed in clinical testing
because of adverse side effects. Analysts have noted that in order to
document the safety and efficacy of drugs used to treat complex and
chronic diseases, longer studies with larger patient populations are
required, which increases both development time and costs. Similarly,
analysts reported in 2003 that therapies for complex and chronic
conditions are generally more costly to test, as they typically require
more complex patient care and longer monitoring periods.32

Over the past decade, new technologies including genomics and
high-throughput screening have provided tools for researchers to discover
and test compounds.33 According to industry analysts, the use of these
technologies has led to increasing expenses without a commensurate
increase in the number of drugs developed. These analysts have found that
although companies have invested substantial resources in acquiring
technologies that have generated vast quantities of newly discovered
biological data, company researchers are still learning whether the data
will lead to potentially valid drug candidates, resulting in compounds and
drugs that have failed in either preclinical or early clinical testing.
While the panelists generally agreed that the productivity of the
pharmaceutical industry is currently declining, they stressed that this
trend may be part of a cycle that will reverse itself, as researchers
improve their ability to exploit these technologies.

30For example, a panelist who was an industry representative explained
that his company had compounds in development that were intended to affect
the central nervous system and which successfully entered the brains of
animals during preclinical testing. However, after testing the drugs in
clinical trials--at a cost of $10 to $12 million a study--researchers
found that the drugs did not enter the brain in humans.

31The Association of American Medical Colleges, Food and Drug
Administration, Center for Drug Development Science at the University of
California San Francisco, Drug Development Science: Obstacles and
Opportunities for Collaboration Among Academia, Industry and Government
(January 2005).

32Joseph A. DiMasi, Ronald W. Hansen, and Henry G. Grabowski, "The Price
of Innovation: New Estimates of Drug Development Costs", Journal of Health
Economics, Vol. 22 (2003).

33Genomics is used to study how various genes interact with drug
compounds, and high-throughput screening allows researchers to conduct
hundreds of tests at once through a combination of modern robotics and
other specialized laboratory hardware.

Furthermore, a shortage of physician-scientists, also known as
translational researchers--who possess both medical and research degrees
and thus the expertise needed to translate discovery-stage research into
safe and effective drugs--was seen by panelists and other experts as a
fundamental barrier to increasing the productivity of drug development.
During the panel discussion, it was generally agreed that a shortage of
translational researchers was a key factor contributing to the declining
productivity of pharmaceutical research and development efforts,
particularly with the increasing use of new technologies and the shift in
research focus to more complex diseases. In addition, analysts have
reported on this decline, and cited research which found that the number
of physician-scientists declined by 22 percent from 1983 to 1998.34
Experts attribute this shortage to a variety of factors, including lengthy
training and relatively lower compensation for physicians who are
scientists, compared to those in clinical practice. In addition,
researchers, including those in academia, have noted that academic
institutions have not taken the initiative to provide financial
incentives, such as scholarships, for medical students to pursue these
research interests.

The Business Environment Drives Drug Development Decisions

Experts generally agreed that business considerations greatly influence
the industry's priorities of what drugs to pursue. The conflicting
pressures of avoiding risk and producing a high return on investment, in
addition to the recent mergers of pharmaceutical companies, have shaped
business decisions and affected productivity.

34See, for example, Ajit Varki and Leon E. Rosenberg, "Emerging
Opportunities and Career Paths for the Young Physician-Scientist", Nature
Medicine, Vol. 8, No. 5 (May 2002).

Over the past 10 years, the trend in the pharmaceutical industry has been
to focus on developing drugs that produce a high return on investment,
which has reduced the numbers and types of drugs produced. This strategy
has led pharmaceutical companies to pursue development of blockbuster
drugs, which are usually for large patient populations and have the
potential to reach $1 billion in annual sales. Blockbuster drugs may be
developed to the exclusion of other drugs for more limited populations
that generate much less revenue. Drug development experts and several
panelists reported that companies frequently choose to stop developing
drugs that do not offer the same revenue-generating potential as
blockbuster drugs, even though they could be highly innovative and offer
therapeutic advances. According to an industry consultant we contacted,
pharmaceutical companies have annual sales thresholds in place which play
a key role in determining which drugs to continue developing.35 The
emphasis on developing blockbuster drugs has been highlighted by numerous
industry analysts, who have noted that the number of blockbuster drugs
being sold has more than doubled over the past several years. This
strategy can also diminish the amount of resources available to develop
therapies to treat more limited patient populations and less visible
diseases.36 Due to increased competition among companies, the blockbuster
strategy has also been cited as a factor leading to increased costs from
late-stage development failures. According to researchers we interviewed
from the Tufts Center for the Study of Drug Development, although
companies have pursued drugs that they believed had huge market potential,
they later discovered that the potential for substantial revenue no longer
existed for some of these drugs because competitors had already begun
marketing similar drugs. Tufts researchers stated that such companies
subsequently discontinued production of what they thought would be
blockbuster drugs, and that often times these decisions were made late in
Phase 3--the most complex and costly phase--and thus companies
discontinued development after incurring substantial costs.

35For example, the industry consultant indicated that because shareholders
expect large companies to develop drugs that produce revenues of at least
$200 to $500 million per drug per year, they frequently stop the
development of drugs not expected to meet this threshold.

36Congress provided incentives to expedite the development of drugs for
rare diseases with the enactment of the Orphan Drug Act in 1983, such as
tax credits for clinical testing expenses. 26 U.S.C. S 45C. Although
companies have been producing drugs under these provisions, the panelists
noted that, in certain instances, the industry does not view these
incentives as sufficient to encourage development.

Industry analysts have also reported that with increased development costs
and complexity, and with more competition, companies prefer to produce
drugs that require little risk taking but still offer the potential for
high revenues. This strategy has created an emphasis on producing "me too"
drugs--drugs which have a very similar chemical formulation to drugs
already on the market. These drugs are less risky to develop because the
safety and efficacy of the drugs on which they are based have already been
studied. According to one panelist, an industry representative, because
the length, complexity, and expense of developing a single drug have all
increased dramatically over the last 10 to 15 years, companies must choose
fewer drugs to develop. As a result, they will often follow a business
model that involves choosing drugs that are easy to develop, with a large
market that will produce a large return on investment.

Some experts and analysts who are critical of the pharmaceutical industry
often state that the emphasis on "me too" drugs reduces innovation because
such drugs do not offer any significant therapeutic benefits over products
already being sold.37 For example, they state that companies have produced
different drugs all designed to combat depression or reduce cholesterol,
and that such "me too" drugs have similar therapeutic benefits. As a
result, these critics assert that this strategy diverts resources from
developing drugs that offer greater innovative potential. However,
industry analysts report that "me too" drugs benefit consumers by offering
alternative and safer therapies. For example, they indicate that the side
effects and efficacy of these drugs can vary from person to person, which
gives physicians more options in treating their patients. In addition,
analysts report that "me too" drugs increase competition, which can lower
the price of drugs in the market.

Another major business strategy that has affected the success of drug
development since the early 1990s is mergers and acquisitions in the
pharmaceutical industry.38 According to industry analysts, the industry
pursued mergers and acquisitions because it anticipated it would increase
the productivity of research and development. Instead, they noted that
with the rise in research and development costs, the newly formed company
often reviews its combined inventories of potential products and selects
only the most promising compounds for further development. For example,
after consolidating their research efforts, the company may choose to
discontinue one of the individual company's previous research areas
because the projected financial benefits of the product lines fail to meet
the new company's revenue expectations. In addition, analysts have found
that mergers and acquisitions may also result in additional pressure to
develop a blockbuster drug because investors expect the combined company
to generate a substantial growth in revenue. According to a summary of a
winter 2002-2003 Tufts survey39 of 35 clinical research organizations,
merger and acquisition activity was cited as a large barrier to drug
development.40 Due to mergers and acquisitions, nearly 50 percent of these
organizations reported that drug development projects were cancelled
during the 2 years prior to the survey, and that 90 percent experienced
project delays.

37For example, see Marcia Angell, The Truth About the Drug Companies: How
They Deceive Us and What to Do About It (Random House, 2004).

38A merger occurs when two firms agree to combine and form a single new
company. An acquisition occurs when one company purchases another company
and establishes itself as the new owner. Examples of some of the largest
mergers and acquisitions include Astra with Zenica (1999), Glaxo Wellcome
with SmithKline Beecham (2000), and Pfizer with Pharmacia (2003).

Factors in the Operating Environment Affect Drug Development Outcomes

Based on the results of discussion among panel members, our interviews
with drug development experts, and our review of prior studies, we
identified several other factors that affect the numbers, types, and costs
of drugs being developed. These factors affect the operating environment
in which drug sponsors make their decisions, and play a role in shaping
development priorities. They include sponsors' uncertainty over how they
are to implement requirements for the safety and efficacy of new drugs,
and the impact of intellectual property protections on pharmaceutical
innovation.

  Regulatory Uncertainty Can Hamper Drug Development

We found that uncertainties regarding regulatory requirements concerning
both drug safety and effectiveness can impact the success of drug
development efforts. During the panel discussion, there was general
agreement that the lack of precise FDA regulatory standards that outline
what constitutes a safe and effective drug is a factor when making drug
development decisions--weighing the safety of drugs against their
potential therapeutic benefits. Panelists generally agreed that because
there are no precise standards for making these decisions, sponsors and
FDA must address them on a case-by-case basis. As a result, it was
indicated that this uncertainty may lead a drug sponsor to abandon a drug
rather than risk significant development expenditures. Panelists also
indicated that this uncertainty creates risk-averse behavior that can
reduce the prospects for innovative therapies. During the panel discussion
and interviews, FDA officials acknowledged that the regulatory standards
are not precise and that it needs to have flexibility to address safety
and efficacy issues as they arise. For example, FDA officials stated that
they may discover a new drug-to-drug interaction that could affect the
safety risks of an NDA under review, and in such a case, they would
utilize the new information to address previously unknown safety issues.

39Tufts Center for the Study of Drug Development, Impact Report, Vol. 5,
No. 4 (July/August 2003).

40Clinical research organizations contract with drug sponsors to implement
aspects of clinical trials, such as the design of a protocol, selection or
monitoring of investigations, evaluation of reports, site monitoring
visits, statistical analysis, and preparation of reports to FDA.

We also identified a perception held by some drug development experts and
industry analysts that FDA, in response to several events involving drug
safety, has increased its review requirements during the drug development
process. Some analysts believe that these increased review requirements
have contributed to the increased time and costs of drug development by
requiring more complex and costly studies. Some analysts have reported
that safety concerns during the 1990s--which led FDA to request that
manufacturers withdraw pharmaceuticals including fenfluramine and
dexfenfluramine (known as Fen-Phen) in 1997, Propulsid and Rezulin in
2000, and Baycol in 2001--impacted FDA's review requirements.41 For
example, a 2004 report completed for the European Commission--the
executive body of the European Union--found that the withdrawals of these
pharmaceuticals from the market affected FDA's implementation of its
regulatory standards.42 According to this study, FDA began to demand more
complex clinical trials that called for more testing on: (1) how drugs
interact with each other, (2) the effect of drugs on liver toxicity, and
(3) the relationship of drugs to cardiac risk. In addition, according to
several drug development experts and some industry analysts, FDA has been
requiring more lengthy and complex clinical trials, which call for more
patients and increased costs. For example, according to one analysis, the
average number of patients participating in clinical trials per NDA
increased by 19 percent during the period 1995 to 2001, as compared to the
period 1990 to 1994, due, in part, to increasing federal regulations.43 In
its comments on a draft of this report, HHS acknowledged that FDA may be
increasing data requirements in some instances. However, it stressed that
in many cases, the increase in the amount of data submitted results from a
sponsor's decision to provide support for new claims or to better position
its product relative to existing products.

41Propulsid and Fen-Phen were withdrawn due to increased risk of
potentially fatal heart problems; Rezulin was withdrawn due to increased
risk of liver failure; and Baycol was withdrawn due to increased risks of
potentially fatal muscle damage.

42Innovation in the Pharmaceutical Sector, a Study Undertaken for the
European Commission (Charles River Associates, London: November 2004).

Our review of studies and interviews with several experts revealed that
there is a lack of consensus among FDA, industry, and academia as to what
can constitute a valid measurement for proving the effectiveness of drugs
for many diseases. As a result, these sources indicate that drug
development can be more complex, lengthy, and costly than necessary,
because drug sponsors are unsure how to demonstrate a drug's
effectiveness. Drug sponsors rely on end points--or objective
measurements--to evaluate effectiveness. Clinical end points demonstrate
the effectiveness of a drug on a human, such as a medication that can be
proven to prevent strokes. However, it can be easier to prove a drug's
efficacy by using valid biomarkers as surrogate end points (e.g., showing
a medicine is effective in reducing blood pressure instead of proving it
will prevent strokes).44 FDA has approved many drugs to treat the HIV/AIDS
virus using surrogate end points. However, due to the uncertainty among
FDA, industry, and academia over when it is appropriate to use surrogate
end points, expanding their use has been difficult, and has been
recognized by FDA as one issue that needs to be addressed. For example, in
its March 2004 paper outlining the critical path initiative, FDA concluded
that adopting new biomarkers and surrogate end points for effectiveness
standards can drive rapid clinical development, and that efforts are
needed to develop them to help guide drug development.45 This issue was
also extensively addressed in the joint report issued in 2005 by FDA and
the AAMC in response to FDA's critical path initiative.46 That report
identified a need to clarify guidance governing the level of evidence
required to support the use of biomarkers and surrogate end points. In
March 2006, FDA published a report outlining six areas to help increase
productivity in drug development.47 One of these areas included developing
new biomarkers which, according to FDA, could increase the safety of new
drugs, reduce the costs of clinical trials, and expedite drug development.
According to FDA's senior manager for its critical path initiative, the
agency is currently working with industry and academia to develop
biomarkers and other tools to enhance the drug development process.

43B. Hirschhorn, Understanding the Development of the Clinical Study
Budget While Avoiding Bumps and Pitfalls (Temple University, Philadelphia,
Pa.: 2004).

44A biomarker is a physical characteristic that can be objectively
measured, such as blood pressure. A surrogate end point is a laboratory
measurement or a physical sign that can predict the effect of a medicine
on a disease. In 1992, FDA issued regulations that allow for the
accelerated approval of new drugs for serious or life-threatening diseases
based on surrogate end points that are reasonably likely, based on
scientific evidence, to predict clinical benefit. 21 C.F.R. S 314.510.

45FDA, Innovation or Stagnation: Challenge and Opportunity on the Critical
Path to New Medical Products (March 2004).

  Intellectual Property Protections Have Affected Drug Development

During our review, we found a wide variety of views among consumer
advocates, drug development experts and analysts, and industry
representatives regarding how the protection of intellectual property
affects innovation in drug development. Intellectual property protections
are designed to help encourage innovation by providing financial
incentives to engage in research and development efforts.

One form of intellectual property protection is a patent, which provides
its owner with the right to exclude others from making, using, or selling
an invention for 20 years.48 In the United States, the U.S. Patent and
Trademark Office issues patents. Typically, companies that develop
brand-name drugs obtain a patent on the active ingredient used in the
drug. Patents are seen as playing a key role in drug development, because
they allow pharmaceutical companies to charge prices that allow them to
recover their investments made in discovering and developing a new drug
and earn a profit. Drug manufacturers typically apply for patents for
compounds while their medicinal properties are still being developed and
evaluated. Therefore, the quicker companies are able to develop a new drug
and receive market approval from FDA, the more time they have to sell
their drugs without facing competition. The amount of patent protection
remaining after receiving FDA market approval is known as the effective
life of a patent.

46The Association of American Medical Colleges, Food and Drug
Administration, Center for Drug Development Science at the University of
California San Francisco, Drug Development Science: Obstacles and
Opportunities for Collaboration Among Academia, Industry and Government
(January 2005).

47FDA, Innovation or Stagnation, Critical Path Opportunities Report (March
2006).

48Traditionally, the length of patent terms was 17 years. This was amended
to 20 years in 1994 with the enactment of the Uruguay Round Agreements
Act. See 35 U.S.C. S 154 (a)(2).

Through both their reports and our interviews with them, consumer
advocates and some pharmaceutical industry analysts expressed concerns
that certain intellectual property protections do not encourage
innovation.49 First, they contended that companies can easily obtain new
patents by making minor changes to existing products regardless of whether
the drugs offer significant therapeutic advances. Second, they indicated
that pharmaceutical companies may develop new uses for previously approved
drugs that have no patent protection and receive an additional 3 years of
"market exclusivity."50 According to these sources, these intellectual
property protections enable companies to earn significant profits while
reducing the incentive to develop more innovative drugs. These sources
pointed to the relatively high percentage of non-NMEs, and standard NMEs
in particular, that have been approved over the past decade as evidence
that development efforts have focused on making changes to existing drugs.
Some analysts specifically highlighted the practice commonly known as
producing line extensions--deriving new products from existing compounds
by making small changes to existing products, such as changing a drug's
dosage, or changing a drug from a tablet to a capsule. According to
analysts, these changes are typically made to blockbuster drugs shortly
before their patents expire. Some analysts also concluded that this
practice redirects resources that otherwise could be applied to developing
new and innovative drugs.

In contrast, the pharmaceutical industry contended that due to the rising
costs and complexity of developing new drugs, these intellectual property
protections are crucial to maintaining drug development efforts.51 Drug
sponsors and industry analysts also indicated that new drugs produced by
modifying existing compounds are the result of incremental innovation, and
such drugs can result in important therapies. For example, by changing a
medicine to reduce its dosage schedule requirements, some industry
analysts indicated that patients are more likely to comply with their
prescription's instructions. Finally, some analysts assert that the
revenues generated from incremental innovation are needed to fund the more
risky ongoing research and development efforts, which can lead to new
innovations.

49For example, see National Institute for Health Care Management,
Prescription Drugs and Intellectual Property Protection, Finding the Right
Balance Between Access and Innovation (August 2000).

50This protection was added to the Federal, Food, Drug, and Cosmetic Act
with enactment of the Drug Price Competition and Patent Term Restoration
Act of 1984, also known as the Waxman-Hatch Act. Among other things, it
bars FDA from approving an application to market a generic copy of certain
drugs, for a 3-year period, if the clinical investigations relied upon by
the applicant for approval were not conducted by or for the applicant, and
the applicant has not been authorized to rely upon such studies. 21 U.S.C.
S 355(c)(3)(E)(iii).

51For example, see PhRMA White Paper, Delivering on the Promise of
Pharmaceutical Innovation: The Need to Maintain Strong and Predictable
Intellectual Property Rights (April 2002).

Drug Development Experts Offered Suggestions to Improve Productivity and
Innovation

While panelists indicated that the productivity of drug development is
currently in a downward cycle, and that the cycle would eventually
reverse, they were uncertain when this would occur. Therefore, they
recognized the importance of taking steps to develop and implement
initiatives to increase the number, and innovative potential, of drugs
being produced. To help accomplish this, the panelists and other
experts--including representatives from the pharmaceutical industry,
academia, public interest groups, and FDA--made a variety of suggestions
to reduce the costs, increase the speed, and encourage innovation in drug
development. While not every expert mentioned every one of the suggestions
below, or ranked them in a particular order, we found that certain
suggestions were highlighted in the panel's discussion, our interviews,
and academic and industry reports as having the potential to improve the
productivity of drug development. However, some of these experts also
cautioned that any change that expedites the drug development process
should be tempered with appropriate measures to ensure that safety is not
compromised. These suggestions include:

           o Collaborative efforts among the government, industry, and
           academia to:

                        o Design a system to collect and analyze data on why
                        drugs fail during clinical testing. For example, a
                        team of FDA and pharmaceutical representatives could
                        review FDA and company databases to obtain examples
                        of drug failures and then perform a systematic
                        analysis of the causes of these failures. This effort
                        would need to ensure protection of each company's
                        proprietary information on specific drugs. Such an
                        effort may provide new information to prevent
                        multiple companies from making the same or similar
                        mistakes and may increase efficiency in clinical
                        trials.

                        o Develop inventories of validated biomarkers and
                        surrogate end points to use when testing the safety
                        and efficacy of drugs in development. According to
                        experts, to increase the utilization of validated
                        surrogate end points, government, industry, and
                        academia could also work together to clarify FDA's
                        guidance and the level of scientific evidence needed
                        to support the use of biomarkers and their validation
                        as surrogate end points.

                        o Identify diseases in great need of treatment, and
                        implement an expedited regulatory process using
                        conditional approval to decrease the time needed to
                        develop drugs to treat these diseases. According to
                        experts, a new expedited process would require less
                        detailed study and information and allow for more
                        limited clinical trials. Therefore, experts said that
                        an expedited process would help lower the cost of
                        creating drugs for these diseases, and serve as an
                        incentive to increase drug development for such
                        diseases. To help ensure safety, the drugs would have
                        conditional approval--they would initially be
                        distributed to certain populations whose usage of the
                        drug can be studied and carefully monitored before
                        wider distribution would be allowed.52

           o Academia could place a greater emphasis on developing research
           scientists with knowledge of translational medicine by providing
           financial incentives, such as scholarships, for students to pursue
           this discipline. Private and public partnerships could also create
           these incentives to develop such scientists. One of the panelists
           suggested that academia, industry, and FDA formally develop a
           paper that describes the skills most needed by this new type of
           translational scientist and develop funding and training
           mechanisms that would specifically support these individuals.

           o The federal government could consider providing financial
           incentives or disincentives to affect the innovative potential of
           drugs produced by the industry. The government could achieve this
           by extending or reducing the period of patent protection
           associated with a drug based on its therapeutic value. One of the
           panelists suggested that a patent could be extended to 25 or 30
           years for drugs considered innovative, or offering high
           therapeutic potential; while patents for drugs offering less
           innovative benefits could be only 10 years.			  

52Although FDA has an accelerated approval process for new drugs to treat
serious or life-threatening conditions, the suggestion of the panelists
was made in the context of broadening this process to accommodate other
illnesses. Under the accelerated approval process, drugs designed to treat
serious or life threatening conditions may be approved conditionally, that
is, the applicant may be required to conduct further drug studies
following approval to market the drug, to verify and describe the drug's
clinical benefits. Applicants are also required to submit promotional
materials to FDA during specific timeframes. 21 U.S.C. S 356; 21 C.F.R. SS
314.510, 314.550.
			  
			  Concluding Observations

           Developing new drugs is complex, risky, and challenging. It is
           also important to the health and well-being of society, and can
           provide substantial financial rewards to companies. Recent trends
           reveal the number of drugs developed has not been commensurate
           with research and development investments by the pharmaceutical
           industry. While experts believe these trends are part of a cycle
           that can be reversed, there is no clear expectation of when the
           industry will become more productive--that is, producing greater
           numbers of new drugs, and more specifically, those representing
           significant therapeutic advances. The extent to which scientific,
           business, regulatory, and intellectual property issues related to
           drug development can be addressed will largely determine if and
           how quickly these trends can be reversed. Addressing this
           challenge will require effective collaboration between government,
           industry, and academic institutions.
			  
			  Agency Comments

           HHS provided comments on a draft of this report. HHS's comments
           appear in appendix III. Among its general comments, HHS officials
           stated that our ranking of the innovative potential of NDAs based
           on FDA's chemical type and therapeutic potential classifications
           was misleading. Specifically, HHS disagreed with our premise that
           an NDA classified as a standard NME should be ranked as more
           innovative than one classified as a priority non-NME. It noted
           classification as an NME is not necessarily commensurate with
           innovation and gave an example of a priority non-NME that could
           offer more therapeutic potential than a standard NME. We noted in
           our draft, that any one NDA--regardless of whether it is for an
           NME or was granted priority status by FDA--may eventually prove to
           be an innovative and uniquely therapeutic product. However, our
           discussions with FDA officials and our review of prior
           studies--including those conducted by FDA--revealed a general
           consensus that the most important factor in assessing the
           innovative potential of an NDA at the time of submission was
           whether or not it was an NME. For example, FDA has highlighted the
           declining number of NDAs for NMEs as an indicator of the
           stagnation of innovation. In its 2003 initiative, it reported a
           decline in the number of submissions of NDAs for NMEs in both the
           priority and standard classifications and noted this was an
           indication of decreases in the submission of applications for
           truly innovative new products.53
			  
53See FDA, Improving Innovation in Medical Technology: Beyond 2002 (Jan.
31, 2003).			  

           HHS's general comments also noted that statutory changes may be
           needed to implement the experts' suggestion to expedite FDA's
           regulatory process by instituting a new system of conditional
           approval. Although we noted in the draft report that FDA has
           authority to issue conditional approvals for certain drugs to
           treat serious or life-threatening conditions under its current
           accelerated approval program, we agree that, depending on the
           specific parameters of any new system, statutory changes could be
           necessary.

           Further, HHS's general comments included additional
           clarifications. For example, HHS expressed concern that our
           explanation of why FDA could only provide data on NDAs through
           2004 could be misleading and imply that FDA is not good at
           tracking its data. In response, we clarified the report to reflect
           that FDA provided data on NDAs through 2004 specifically at our
           request, as this was the most recent year with a complete set of
           NDA submission data at the time our request was made. We also made
           other clarifications in response to HHS's general comments. In
           addition, HHS provided us with technical comments, which we
           incorporated throughout the report, as appropriate.

           As agreed with your offices, we plan no further distribution of
           this report until 30 days after its date. At that time, we will
           send copies of this report to the Secretary of HHS, the Acting
           Commissioner of FDA, appropriate congressional committees, and
           other interested parties. We will also make copies available to
           others upon request. In addition, the report will be available at
           no charge on the GAO Web site at http://www.gao.gov .

           If you or your staff has any questions, please contact me at (312)
           220-7600 or at [email protected] Contact points for our Offices
           of Congressional Relations and Public Affairs may be found on the
           last page of this report. GAO staff who made major contributions
           to this report are listed in appendix IV.

           Leslie G. Aronovitz
			  Director, Health Care

           To determine trends in the pharmaceutical industry's reported
           research and development expenditures, we obtained research and
           development expenditure information from the Pharmaceutical
           Research and Manufacturers of America (PhRMA). We obtained this
           information for the period 1993 through 2004, adjusted for
           inflation to 2004 dollars. We did not independently verify these
           expenditure data; however, many researchers have cited these data
           as the best available information, and they represented the best
           available information at the time of our study.1
			  
			  Appendix I: Scope and Methodology

           To determine the trends in the number of submissions and approvals
           of NDAs, we requested that the Food and Drug Administration (FDA)
           provide information on all 1,264 new drug applications (NDA)
           submitted to FDA from January 1, 1993, through December 31, 2004.2
           We chose this time period because it generally corresponds to
           changes FDA implemented to its process for reviewing NDAs.
           Specifically, in 1992, FDA implemented a new system for
           categorizing NDAs, using the priority and standard designations
           and in 1993, FDA implemented time-frame goals for reviewing NDAs.
           At the time we requested these data--July 2005--information
           through 2004 was the most current year for which FDA could provide
           complete data. We also compared the trends in the numbers of NDAs
           and NDAs for new molecular entities (NME) submitted to FDA to the
           trends in the research and development expenditures over the same
           12-year time frame.

           For each of the NDAs, we requested and obtained descriptive and
           status information--such as each NDA's unique number, its review
           designation (either priority or standard), whether it was for an
           NME, and all of the dates documenting when drug sponsors provided
           information to FDA and when FDA made decisions during the review
           and approval process. After receiving this information, we
           performed a series of data analyses to identify trends in the
           submission and approval of NDAs, and calculated approval time
           frames for the NDAs. In calculating approval time frames, we
           included both the time FDA spent reviewing the NDAs and any
           additional time needed by the sponsor to address any FDA review
           concerns.

           In addition to obtaining data on the 1,264 NDAs submitted from
           January 1, 1993, through December 31, 2004, we obtained
           information from FDA on the number of NDAs and NDAs for NMEs the
           agency approved each year from 1993 through 2005. We used this
           information to analyze NDA and NDA for NME approval trends,
           regardless of the years these NDAs were submitted. We also
           obtained information from FDA on the number of investigational new
           drug applications (IND) filed with the agency each year from 1986
           through 2005.3 We chose this time period for two reasons. First,
           because it takes 7 years, on average, to successfully complete
           clinical trials, trends emerging from INDs submitted in 1986 could
           be reflected in NDA submission trends beginning in 1993. Second,
           2005 was the most recent year with complete data, and these IND
           data provided an indication of the productivity of research and
           development expenditures for the drug discovery and preclinical
           testing phases in more recent years.

           We performed various tests of data reliability, including
           obtaining information about the data collection and management
           system and its controls that FDA uses to ensure the data are
           reliable, and corroborating the data by comparing them to other
           published information. Based on our work, we believe the data we
           used were sufficiently reliable for the purpose of our report.

           To determine factors affecting new drug development, and to obtain
           experts' suggestions to expedite the process, we took several
           steps. First, we interviewed various experts from FDA, the
           pharmaceutical industry, health care organizations, a consumer
           group, and academia, who possess knowledge of issues that have had
           an impact on drug development. Specifically, we interviewed
           officials from FDA's Center for Drug Evaluation and Research and
           the Critical Path Institute--which was founded by FDA, the
           University of Arizona, and SRI International, an independent,
           nonprofit research institute. In addition, we spoke to experts
           from PhRMA and other pharmaceutical industry analysts, including
           an independent consultant to the pharmaceutical industry. We also
           interviewed representatives from the American Medical Association,
           the Association of Clinical Research Organizations, and the
           National Institute for Health Care Management. Finally, we
           interviewed officials from Public Citizen, a consumer advocacy
           group, and experts at six academic institutions--Boston
           University, the University of California-Davis, the University of
           Medicine and Dentistry of New Jersey, the University of Minnesota,
           Tufts University, and Vanderbilt University. Second, we analyzed
           reports and articles by pharmaceutical industry financial
           analysts, academic researchers, consulting firms, and the federal
           government to obtain information regarding factors impacting drug
           development and potential solutions to address them.

           To supplement information from our interviews and review of
           studies, we contracted with the National Academy of Sciences (NAS)
           to convene a balanced, diverse panel of experts. At our request,
           these experts discussed key factors accounting for the drug
           submission and approval trends from 1993-2004, factors impacting
           new drug development, and potential solutions that either the
           pharmaceutical industry, academia, or the government can take to
           enhance new drug development. We worked closely with NAS to
           identify and select potential panelists who represented industry,
           government, advocacy groups, and academia who could adequately
           respond to our questions about the drug development process as
           well as the FDA regulatory review process. In keeping with NAS
           policy, the panelists were invited to provide their individual
           views, and the panel was not designed to build consensus on any of
           the issues discussed. After the expert panel was conducted on
           January 27, 2006, in Washington, D.C., we analyzed a transcript of
           the panel's discussion to identify each expert's views on key
           questions. The views expressed by the panelists do not necessarily
           reflect the views of the organizations with which they were
           affiliated or the NAS. A list of the experts who participated in
           this panel is contained in appendix II. We also reviewed
           applicable laws and regulations as part of our work. We conducted
           our work from July 2005 through October 2006 in accordance with
           generally accepted government auditing standards.
			  
1For example, see Kaiser Family Foundation, Prescription Drug Trends,
(October 2004) and National Institute for Health Care Management, Issue
Brief, Factors Affecting the Growth of Prescription Drugs Expenditures
(July 1999).

2In addition to requesting information on NDAs, we initially requested
information on applications for biological products, which are derived
from living sources (such as humans, animals, and microorganisms) as
opposed to being chemically synthesized. However, based on the data FDA
provided, there were only 60 applications over the 12-year period.
Therefore, we determined that it would not be meaningful to perform trend
analyses on such a small number, and we limited the study's scope to NDAs.

3There are two classes of INDs--commercial and noncommercial. Commercial
INDs are submitted primarily by companies whose ultimate goal is to submit
an NDA to obtain marketing approval for a new product. Noncommercial INDs
are filed for noncommercial research purposes. In this report, all
references to INDs refer to commercial INDs.
			  
			  Appendix II: National Academy of Sciences Expert Panel Participants

           At our request, the National Academy of Sciences arranged an
           expert panel discussion of new drug development issues. The panel
           discussion was held on January 27, 2006, and the panelists and
           their affiliations as of the date of the panel are listed below:

           Moderator:

           Edward Holmes, M.D., Dean, School of Medicine, University of
           California, San Diego

           Panelists:

           Jerry Avorn, M.D., Professor of Medicine at the Harvard Medical
           School and Chief of the Division of Pharmacoepidemology and
           Pharmacoeconomics at Brigham and Women's Hospital

           Peter Corr, Ph.D., Senior-Vice President for Science and
           Technology at Pfizer Inc.

           William E. Evans, PharmD., Director and Chief Executive Officer at
           St Jude Children's Research Hospital

           Garret A. FitzGerald, M.D., Chair of the Department of
           Pharmacology and Director of the Institute for Translational
           Medicine and Therapeutics at the University of Pennsylvania School
           of Medicine.

           Elaine Gallin, Ph.D., Program Director of the Medical Research
           Program at the Doris Duke Charitable Trust

           Peter K. Honig, M.D., Senior Vice-President of Risk Management at
           Merck Research Laboratories

           John K. Jenkins, M.D., Director of the Office of New Drugs, Center
           for Drug Evaluation and Research at the Food and Drug
           Administration (FDA)

           David Korn, M.D., Senior Vice-President for Biomedical and Health
           Sciences Research at the Association of American Medical Colleges

           Jeffrey Leiden, M.D., Ph.D. President & Chief Operating Officer of
           the Pharmaceutical Products Group at Abbott Laboratories

           John Marler, M.D., Associate Director for Clinical Trials at the
           National Institute of Neurological Diseases and Stroke at the
           National Institutes of Health

           Musa Mayer, author, breast cancer survivor, patient advocate,
           patient representative to the FDA's Oncologic Drugs Advisory
           Committee, and patient consultant to the FDA's Cancer Drug
           Development Program

           Suzanne Pattee, J.D., Vice-President of Public Policy & Patient
           Affairs at the Cystic Fibrosis Foundation

           Cecil Pickett, Ph.D., President of the Schering-Plough Research
           Institute
			  
			  Appendix III: Comments from the Department of Health and Human Services
			  
			  Appendix IV: GAO Contacts and Staff Acknowledgments
			  
			  GAO Contact

           Leslie G. Aronovitz, (312) 220-7600 or [email protected]
			  
			  Acknowledgments

           In addition to the contact named above, Geraldine Redican-Bigott,
           Assistant Director; Shirin Hormozi; Julian Klazkin; David
           Lichtenfeld; and Stephen Ulrich made major contributions to this
           report.
			  
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(290476)

www.gao.gov/cgi-bin/getrpt?GAO-07-49 .

To view the full product, including the scope
and methodology, click on the link above.

For more information, contact

Leslie G. Aronovitz at [email protected] or (312) 220-7600.

Highlights of [40]GAO-07-49 , a report to congressional requesters

November 2006

NEW DRUG DEVELOPMENT

Science, Business, Regulatory, and Intellectual Property Issues Cited as
Hampering Drug Development Efforts

Drug development is complex and costly, requiring the testing of numerous
chemical compounds for their potential to treat disease. Before a new drug
can be marketed in the United States, a new drug application (NDA), which
includes scientific and clinical data, must be approved by the Food and
Drug Administration (FDA). Recent scientific advances have raised
expectations that an increasing number of new and innovative drugs would
soon be developed to more effectively prevent, treat, and cure serious
illnesses. However, industry analysts and the FDA have reported that new
drug development, and in particular, development of new molecular entities
(NMEs)--potentially innovative drugs containing ingredients that have
never been marketed in the United States--has become stagnant.

GAO was asked to provide information on (1) trends in the pharmaceutical
industry's reported research and development expenses as well as trends in
the number of NDAs submitted to, and approved by, FDA; and (2) experts'
views on factors accounting for these trends and their suggestions for
expediting and enhancing drug development. GAO analyzed data from FDA on
all 1,264 NDAs submitted to the agency from 1993 through 2004. GAO also
convened a panel of experts and interviewed other drug development experts
and analysts to identify factors affecting, and suggestions for enhancing,
drug development.

Although the pharmaceutical industry reported substantial increases in
annual research and development costs, the number of NDAs submitted to,
and approved by, FDA has not been commensurate with these investments.
From 1993 through 2004, industry reported annual inflation-adjusted
research and development expenses steadily increased from nearly $16
billion to nearly $40 billion--a 147 percent increase. In contrast, the
number of NDAs submitted annually to FDA increased at a slower rate-- 38
percent over this period. Similarly, the number of NDAs submitted to FDA
for NMEs increased by only 7 percent over this period. FDA approved most
NDA applications--76 percent overall, but the numbers of NDAs and NDAs for
NMEs it approved annually have generally been declining since 1996.

Research and Development Expenses, Total NDA, and NDA for NME Submissions,
1993-2004

According to experts, several factors have hampered drug development.
These include limitations on the scientific understanding of how to
translate research discoveries into safe and effective drugs, business
decisions by the pharmaceutical industry, uncertainty regarding regulatory
standards for determining whether a drug should be approved, and certain
intellectual property protections. These factors have been cited as
affecting the number of drugs developed, the cost and length of the drug
development process, as well as the types of drugs being produced. To
address these issues, experts offered suggestions including increasing the
number of scientists who can translate drug discoveries into effective new
medicines and allowing conditional approval of certain drugs based on
shorter clinical trials using fewer numbers of patients. In its comments
on a draft of this report, the Department of Health and Human Services
provided clarifications, which GAO incorporated as appropriate.

References

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  38. file:///home/webmaster/infomgt/d0749.htm#mailto:[email protected]
  39. http://www.gao.gov/cgi-bin/getrpt?GAO-07-49
  40. http://www.gao.gov/cgi-bin/getrpt?GAO-07-49
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