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PD document

March 1999

Basic Facts About Clinical Trials

Rob Glassman – NYMarla Kessler – NCPrat Kumar – AT


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CLINICAL TRIALS FACT PACK

• What is a clinical trial and who are the key players?

• What are the key trends and issues of the industry?

• What are the important terms to know?


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DEFINITION OF A CLINICAL TRIAL

Carefully designed scientific investigation of the effect of a drug, medical treatment, or device on a group of patients. The purpose of a trial is to find new and/or better ways to prevent a disease or disorder. During clinical trials, key questions are answered

• Is the drug safe?

• Is the drug effective for its intended treatment?

• What is the appropriate does to prescribe for the targeted population?

• What side effects, if any, does it cause?


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CLINICAL INVESTIGATION COMES IN SEVERAL FLAVORS

Types of activities

• Physiological trials: disease understanding

• Outcome trials: cost-effectiveness of standard tests/therapies

• Clinical trials: treatment algorithms

Types of clinical areas

• By therapeutic area: respiratory, cardiovascular, surgical, oncology, infectious diseases, rheumatology, etc.

• By care setting: emergency room, intensive care, outpatient, inpatient, etc.

• By type of illness: acute, chronic, etc.

Ways to collect data

• Retrospective studies• Prospective studies• Interventional trials

Types of analyses

• Qualitative• Quantitative

– Statistical analyses– Meta-analyses


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OVERVIEW OF CLINICAL PART OF DRUG DEVELOPMENT

*Investigationaly new drug application

**New drug approval

Basic research and discovery

Process

Key regulatory checkpoints

Phase Preclinical Clinical Scale-up/ market

Development

Exploratory

Preclinical

Formulation

FullProduct launch

Manufacture

IND* NDA**

Phase 2

Phase 3

Phase 1 Marketing/

Phase 4

Clinical


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Subjects

Objective

Key require-ments

Comments (profitability refers to CRO)

• Rodents, dogs, primates, in vivo studies

• Toxicology to identify risks for humans; gathering early pharmaco-kinetic data

• Animal testing and lab facilities

• Low margins, high fixed costs. Overcapacity, especially in U.S. Profitable in specialty areas. Regulatory changes may shrink demand

Pre-clinical Phase 1 Phase 2 Phase 3

• 20-100 healthy volunteers

• Establish safety in humans, study how the drug works, how it is metabolized, interactions with other drugs

• High occupancy test beds

• Low margins, high fixed costs. Relatively slow growth. Companies often overbook facilities (like airlines)

Phase 4

• 100-300 patients

• Establish effectiveness of drug and optimal dosage

• Data management; therapeutic area expertise

• Lower resource intensity, higher margins. Growing more slowly than later phases

• 300-3,000 patients

• Confirm efficacy, dosage regime, and safety profile

• Data management; global operations; therapeutic area expertise

• Higher profitability. Long contracts

• 300+ patients

• Widen spectrum of patients and indications, gain further study safety data, pharma-coeconomic data

• Data management; global operations; therapeutic area expertise

• Recent upsurge in use because of FDA requirements. Higher profitability

ELEMENTS OF DRUG DEVELOPMENT PROCESS

Source:CenterWatch


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TIMING AND COST OF THE DRUG DEVELOPMENT PROCESS

*Does not reflect ~$10 million for manufacturing and processing research throughout Phases 1-3 and opportunity cost of capital

Source:PERI study of 117 development projects of 20 pharmaceutical companies; Nature Biotechnology 12/15/97; McKinsey data

Preclinical Phase 1 Phase 2 Phase 3Submission to NDA

Phase 4OTC submission

1.6 1.5 1.5 2.5 1.5 5.0 1.5TimingYears

Cost*$ Millions

Attrition rateCompounds required for each approved drug

5.9 7.3 18.9 43.3 1.0 12.5 1.0

10.0 5.0 3.5 1.5 1.0 1.0 ?

IND NDA OTC approved drug


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Dispose unused medications

Planning phase

OVERVIEW OF THE CLINICAL OPERATIONS PROCESS FLOW: CONCURRENT STREAMS OF WORK

Start-up phase Enrollment Close-out Analysis

Design trial Project management and review

Enlist/scout sites

Site relationships/training

Site management and monitoring and clinical hotline

Pharmacy prepares and distributes medications

Enrollment*/randomization

Clinical events review and adjudication and core lab

Final statistical analysis

Present findings

*Includes follow-up visits

Interim statistical analysis


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KEY MILESTONES

*May be one step if using remote data entry

**Key milestones for data management and statistical purpose


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KEY MILESTONES (CONTINUED)

*Key milestone for data management and statistical purpose


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Player Description Role

Sponsor The pharmaceutical, biotech,research institution, healthorganization, or government thatpays for the clinical trial

Discovers, purchases, or identifies thedrug, treatment, or medical device to betested

Defines questions to be answered by test Coordinates and sometimes conducts the

clinical trial Applies for approval of drug, treatment, or

medical device from FDA for tested use

Food and DrugAdministration(FDA)

Government agency charged withensuring that “drugs” sold in the U.S.are safe and effective

Reviews applications for new drugs ordevices or new uses for existing drugs anddevices to ensure they are significantlybetter than current options

Approves applications for drugs afteranimal and clinical testing before they canbe sold to the public

Approves language of labels and insertsprovided with drugs and devices

Contractresearchorganization(CRO)

Organization providing outsourcedproduct development and relatedactivities to make the drugdevelopment process proceedmore efficiently and cost-effectively,maximizing the benefits in productlife cycle and profitability of patent-protected products

Provides a specific service (e.g., drugdevelopment, toxicology study)

Coordinates (potentially) activities of sites,sponsor, and/or other CROs

INTRODUCTION TO KEY PLAYERS AND THEIR ROLES


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INTRODUCTION TO KEY PLAYERS AND THEIR ROLES (CONTINUED)

Player Description Role

Principle investigators A medical professional who isoverseeing the treatment ofpatients in the clinical trial at a site

Identifies patients to enroll in trial Administer treatment/therapy Provides care for patient during entire trial

Study coordinators Individual (e.g., nurse orphysician’s assistant) whomanages the conduct of a clinicaltrial at a site

Identifies patients to enroll in trial Fills out the CRF based on patient files Manages paperwork related to trial

Institutional reviewboard (IRB)

A board consisting of health careprofessionals from the institutionwhere the clinical trial takesplace as well as members of thelocal community that mustapprove a protocol before thetrial can be conducted at theinstitution

Scrutinizes all trial activities includingrecruitment, advertising, and potentialrisks

Ensure FDA regulations are beingfollowed

Verifies that the study does not presentan undue or unnecessary risk to thepatient

Enrolled patients People receiving treatment (orplacebo) in a clinical study

Agree to be included in study Return for follow-up visits as necessary

Source:CenterWatch literature search


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CONTRACT RESEARCH ORGANIZATIONS STAND IN THE CENTER OF DRUG DEVELOPMENT

*Includes private funding sources such as Robert Wood Johnson Foundation and the Pew Charitable Trust

Source:Analyst reports

Pharma, medical

product, and biotech

firms

$20 billion in development expenditures

Sites (specific physicians at a

hospital or practice)

Multi-site networks• Cooperative groups• Physician consortiums

Contract research organizations

NIH*

$3 billion in revenues

$6.5 billion in clinical trials


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WHY SPONSORS USE CROs

Percent

Source:CenterWatch survey of 15 pharmaceutical companies

Data collection/monitoring

Statistical analysis

Pharmacoeconomics

Patient recruitment assistance

Medical writing

Negotiating budgets and contracts

Site selection

CANDA preparation

CRF design

Protocol design


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SNAPSHOT OF U.S.-BASED CROs

Source:CenterWatch 1998 survey of 158 CROs

Before 1980

1995-present

1990-94

1985-89

1980-84

When foundedPercent

500-999

100-49940-99

10-39

1-9

1,000 more

Number of employeesUnits

Over $70 million

$0 million-9 million



Foreign officesPercent

Europe Asia Australia Central and S. America

Africa

Annual revenuePercent


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THE LARGEST PUBLIC CROs

$ Millions

*Based on November 1998 exchange rate

Source:CenterWatch


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EVOLUTION OF SPONSORED CLINICAL RESEARCH INDUSTRY

Professional management

Consolidation

Sophistication

Mature hi-tech industry

The once fragmented market is consolidating into full-service CROs and small niche playes• The top four CROs now have 55% of the market • The top six CROs have been gaining about 4-6% market

share each year from small and mid-sized CROs• Successful smaller players are often niche players with

highly specialized skills without large-scale production

Technology-enabled scale advantage where many manual processes are replaced by large systems that can be justified only with scale. Some believe that increasing IT capacity and capabilities are fundamental for success• The FDA encourages the use of computer-assisted filings

in an effort to expedite the approval process • As regulatory requirements have become more complex,

the pharmaceutical and biotechnology industries are increasingly outsourcing to CROs to take advantage of their data management expertise, technological capabilities and global presence

• Several large CROs have purchased remote data entry companies/technologies and/or have formed alliances with such companies

Professional management includes key players from pharma/biotech industry

Cottage industry

Several small players in niche therapeutic areas to complement pharma/ biotech’s internal capacity

“Manual yellow legal pad to spreadsheet” based operations

In-house operation


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SCALE APPEARS TO PLAY A ROLE IN THE CRO INDUSTRY. . .

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0 100 200 300 400 500 600 700 800 900

EBIT/sales

Sales$ Millions

Source:Public financial statements

Premier

ClinTrials

CCR

Covance

Icon

Kendle

ParexelPPDI Quintiles

Chrysalis


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. . . AND MAY BE DRIVEN BY THE ADMINISTRATIVE COSTS OF RUNNING THESE BUSINESSES (ESPECIALLY IT)

Source:Public financial statements

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0 100 200 300 400 500 600 700 800 900

SGA/sales

Sales$ Millions

Covance

ClinTrials

CCR

Icon

KendleParexel

PPDI

Premier

Quintiles

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Synthesis and extraction

Toxicology and safety testing

Regulatory IND and NDA

Process development for manufacturing and quality

Other

Clinical evaluation Phase 4

ALLOCATION OF DOMESTIC U.S. RESEARCH AND DEVELOPMENT BY FUNCTION

Percentage of overall research and development in 1994, 100% = $35.0 billion

Source:Pharmaceutical Research and Manufacturers of America, 1996

Biological screening and pharmacological

Pharmaceutical dosage formulation and stability

Clinical evaluation Phases 1, 2, and 3

Bioavailability 3.0


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*Not including stroke

Source:PhRMA 1996 annual survey; analyst reports

Total R&D spending

OUTSOURCED CLINICAL RESEARCH BY THERAPEUTIC AREA

Outsourced clinical researchPercent, 100% = 3,200 ($ Millions)

Outsourced R&D

Outsourced clinical research

Internal R&D

Outsourcedbasic research

30,400

35,000

Other (480)

Rheumatology (96)

Endocrinology (256)

Neurology/ psychiatry (608)

CV* (384)

Flow of pharma/biotech R&D funds$ Millions

ESTIMATE

Oncology (512)

Infectious diseases(480)

Respiratory (192)

GI/GU (128)

Dermatology (64)


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51.56.545.0

OUTLOOK FOR CRO INDUSTRY

$ Billions

The CRO industry is likely to grow moderately to rapidly.

*Or outsourced to academia

**All scenarios assume that total R&D spending will grow at historical rate of 8%

Source:Pharmaceutical Research and Manufacturers of America; analyst reports; interviews

51.58.543.0

51.511.040.5

35.04.430.6

Estimated CAGR for outsourcingPercent

Projected CRO revenues by 2003

Scenario 1**

• Share of R&D outsourced to CROs continues at current 13%

1996 U.S. R&D spending

Total in-house R&D*

Scenario 2**

• Continued capacity shortfalls force increase in outsourcing of R&D to 17%, but falls short of expectations

Scenario 3**

• Based on analyst estimates• Portion of R&D outsourced

increases significantly (as per industry expectations) to 21%

Outsourced to CRO

Total

8

14

20

Total in-house

R&D

TotalOutsourced to CRO


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MIXED PERFORMANCE OF PUBLIC CROs ON WALL STREET

Ranked by annual return on stock price

IPO PriceHighestprice

Price on8/14/98

Changesince IPOPercent

Average annualchange since IPOPercent

Return in 1998Percent

Quintiles 4.88 (4/94)1 53.50 44.94 821 185 15

Parexel 7.50 (11/95)2 44.75 32.88 338 119 -12

Kendle 14.00 (8/97) 35.00 28.25 102 102 69

Phoenix3 5.00 (11/94) 16.50 10.95 119 31 16

Icon 18.00 (5/98) 32.25 28.00 55 n/a 55

Covance 19.75 (1/97) 27.25 26.06 32 19 31

PPD 18.00 (1/96) 47.75 23.25 29 11 51

ClinTrials 9.00 (11/93) 33.66 4.50 -50 -11 -43

Bioreliance 15.00 (7/97) 26.50 9.75 -35 -32 58

Collaborative 13.50 (6/96) 15.50 3.50 -74 -34 -31

PremierResearch

17.00 (2/97) 26.25 4.00 -76 -48 -66

Chrysalis n/a4 8.75 1.31 n/a n/a -39

BioAnalytical 8.00 (11/97) 10.25 6.75 -16 n/a -10

1Adjusted for two-for-split on 11/95 and two-for-one split on 12/972Adjusted for two-for-one split on 2/973Chrysalis was formed through a merger of biotechnical company and a CRO and thus there is no IPO price for Chrysalis4Phoenix is traded on the Toronto exchange; amounts are in Canadian dollars

Source:CenterWatch


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Term Description

Analytical lab services Laboratory tests/assays on biological samples, e.g., blood, collected duringclinical trials

A specialized service with high entry barriers; can be quite profitable

Biostatistics Consulting for statistical design and planning of trials Well qualified experts in short supply

Case report form(CRF)

A form that contains data that needs to be collected directly from the patientbased on information contained in the patient’s hospital/physician records(e.g., patient’s blood pressure 10 minutes after treatment is administered)

Database The electronic database where all the data collected from patients on theCRFs are collected, stored, and later analyzed

Data management May include development of CRFs, database design and management, andsystems for rapid reporting of adverse drug reactions

Drug formulation andpackaging

Pharma companies often are reluctant to interrupt production lines tomanufacture material for clinical trials; lack of synthesized product a frequentcause of development delays

FDA application Application for permission to conduct tests on human patients or to sell theproduct once these tests are complete

KEY TERMS USED IN CLINICAL TRIALS

Source:CenterWatch; literature search


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Term Description

Investigator and patientrecruitment

Lining up investigators (the doctors and research centers who conductclinical trials) is another frequent cause of delays, particularly in specializedpatient populations

CROs can maintain databases of experienced, high-quality investigativesites for specific therapeutic areas

Pharmacoeconomics Determine cost effectiveness of new medical therapies to support regulatorysubmissions, pricing, and reimbursement strategies

High-growth area which can be leveraged to broader managed careapplications

Pre-clinical laboratory In vitro and animal models to establish toxic effects and potential to causecancer or birth defects

Some niches, e.g., continuous infusion facilities for primates andimmunotoxicology, can be profitable

Protocol A protocol defines the medical issues that a clinical study seeks to examineand the statistical tests that will be conducted. Accordingly, the protocoldefines the frequency and type of laboratory and clinical measures that are tobe tracked and analyzed.

The protocol also defines the number of patients required to produce astatistically valid result, the period of time over which they must be trackedand the frequency and dosage of drug administration.

The study’s success depends on the protocol’s ability to predict correctly therequirements on the regulatory authority.

KEY TERMS USED IN CLINICAL TRIALS (CONTINUED)



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Term Description

Query Process where data provided on CRFs are checked for consistency,feasibility, and completeness with the person that completed and submittedthe CRF

Randomization Process where patient is enrolled in trial and assigned a treatment to be given(i.e., tested therapy, placebo, or currently accepted treatment/”standard ofcare”), usually randomly through a predetermined algorithm

Regulatorysubmissions

Pulling the package together: data, statistical analysis, medical writing forIND and NDA submissions

Some companies, e.g., IBAH, particularly experienced in NDA process

Study design Poor protocol design is a frequent cause of delays in drug development (e.g.,unrealistic inclusion/exclusion criteria for study populations), or prolongingdevelopment efforts of duds (e.g., spurious positive Phase 2 trial resultsfollowed by therapeutic failure in Phase 3)

Study monitoring Interviewing investigators, supervising, trouble shooting, and maintainingquality control in clinical trials which may span hundreds of sites over severalyears

KEY TERMS USED IN CLINICAL TRIALS (CONTINUED)


Business

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