The effect of pharmacoeconomics on company research and development decisions.

There is a strong rationale for integrating pharmacoeconomics into research and development (R&D) project selection and termination decisions. The average cost for the typical new drug introduction now exceeds $US300 million. Furthermore, a growing proportion of phase III projects are terminated because of economic factors relative to efficacy and safety concerns. While the use of pharmacoeconomic studies by payers is still evolving, the pressures on firms to show that new products are cost effective will only intensify in future periods. Accordingly, it is important for firms to begin analysing the cost effectiveness of new drug candidates early in the R&D process. The cost effectiveness of a new therapy can be simulated prior to clinical testing using different assumptions about the efficacy, tolerability, pricing and formulation of the new therapy. These models can be refined and updated as data become available from clinical testing and other sources. A key objective is to make uncompetitive projects fail sooner while channelling development resources to projects with high expected returns. Cost-effectiveness analysis should be an integral component of the firms's strategic action plan and its return on investment analyses.