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Pharmacologic Treatments for Dry Eye: A Worthwhile Investment?

Novack, Gary D. Ph.D.

Clinical Sciences
Free

Purpose. To determine whether investment in a novel pharmacologic agent for the treatment of dry eye would be worthwhile from a financial perspective.

Methods. Estimates were made of the cost and time required to develop a novel pharmacologic treatment of dry eye and the potential revenues for the product. These estimates were used to compute the value of the investment, adjusting for the time value of money.

Results. Development was estimated to cost $42 million and to take 55 months from investigational new drug exemption filing to new drug application approval. The potential market for this treatment was estimated at $542 million per year at year 5. Adding in the cost of development and marketing as well as other costs, net present value was very positive at the 5, 8, 10, and 40% cost of financing. The internal rate of return was 90%.

Conclusion. In summary, if there were a successful pharmacologic treatment of dry eye and if a firm could manage the cash flow during the development, then the market potential approaches that of other treatment of chronic ophthalmic conditions (e.g., glaucoma), and it would be a worthwhile investment.

From Pharma-Logic Development, Inc., San Rafael, California, U.S.A.

Submitted June 18, 2001.

Revision received September 10, 2001.

Accepted September 14, 2001.

Financial disclosure: The author serves a consultant to a number of firms developing dry eye treatments. He also owns stock in two companies developing or marketing ophthalmic pharmaceuticals.

Address correspondence and reprint requests to Dr. Gary D. Novack, Pharma-Logic Development, Inc., 17 Bridgegate Drive, San Rafael, CA 94903–1093, U.S.A. E-mail: gary_novack@pharmalogic.com

The diagnosis of dry eye is made on the basis of objective and subjective findings. Observations made by the clinician do not always relate with the patient complaints. Although there are several therapeutic options available (e.g., topical lubricants, punctal plugs, special eyewear), potentially vexing for the clinician and patient alike is the lack of approved topical pharmacologic agents. The development of such agents is typically conducted by the private sector. A key issue for any private sector firm is whether investment in such a potential product will be worthwhile from a financial perspective. The author previously analyzed this investment for agents to treat glaucoma. 1 In addition, the author presented a preliminary analysis for the pharmacologic treatment of dry eye. 2 In this report, this evaluation is presented with more detail.

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METHODS

The financial analysis involves three parts: (1) an estimate of the cost and time required to develop the product, (2) an estimate of the potential revenues for the product, and (3) a computation of the value of the investment, adjusting for the time value of money.

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Drug Discovery and Development

To estimate the cost of research and development, one would typically look to older drugs in the same class. However, there are no precedent drugs in this area; as of August 2001, no topical pharmacologic treatment of dry eye is approved in Japan, Europe, and North America. At least two drugs are in late-stage development in the United States. 3–5 It is assumed that the development efforts of these firms are based on discussions with regulatory agencies and their overall clinical strategy in estimating development costs is used. All costs are in 2001 US$, with no adjustment for inflation.

Other assumptions used in the cost estimate were (1) a flat $10 million was assumed at the time of investigational new drug exemption filing; (2) a double-masked, paired comparison design (randomized on eye) for early-stage clinical trials; (3) a double-masked, vehicle-controlled design (randomized on subject) with unequal randomization to increase the population of patients exposed to the investigational medication for latter stage trials; and (4) sample sizes adequate to provide 80% power to detect a change of 0.5 to 1.0 grades (0 to 3 scale) with a standard deviation of 1.0 grades with a two-tailed α = 0.05. Also included was a sufficient number of patients to meet the International Conference on Harmonisation requirements that 1,500 patients need to be exposed to the drug in the anticipated dosage regimen. Additional estimates include per-patient costs based on the author's professional experience in similar studies; 150% costs to administer the study (plan, monitor, provide quality assurance, manage data, analyze write up); an additional 50% to cover costs of additional toxicology studies, clinical supplies, manufacturing scale-up, and other project costs. Personnel costs in addition to this were assumed to be from 1 to 6 persons per year.

The past decade of approvals at the U.S. Food and Drug Administration suggests that an interval of 12 months between new drug application submission and approval is appropriate. 6,7

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Marketing Costs and Sales Projections

As already stated, there are no approved topical pharmacologic therapies for dry eye, and, thus, there is no precedent for market estimation. In lieu of this, the potential market was estimated based on the size of the patient population who might use this drug, the penetration of the new product into this population, and the product price.

The prevalence of mild to moderate dry eye in the United States is approximately 10 million. 8,9 Other assumptions made in the revenue model include a total penetration for all products would be 30%; maximum penetration reached 4 years after product launch; a price of $2.25 day (price as it leaves manufacturer); marketing costs were 5 to 15% per year, starting with the year before launch; and cost of goods sold was estimated at 10% of peak sales.

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Computation of the Value of the Investment

Computation of the value of the investment was performed using two financial tools: net present value (NPV) and internal rate of return (IRR) (Excel 2000, Microsoft, Redmond, WA). In this analysis, 5 years of sales were assumed, with a residual value at year 6 of three times sales.

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RESULTS

Drug Discovery and Development

As shown in Table 1, planned enrollment is 2,400 patients. The cost of the development would be $26.4 million. Adding $5.5 million for personnel and $10 million for discovery, the total development program would be $42 million.

TABLE 1

TABLE 1

The time projections for development are: Investigational new drug exemption review, 1 month; Phase 1a, 3 months; Phase 1b, 3 months; Phase 2, 12 months; Phase 3, 18 months; New drug application preparation, 6 months; and New drug application review time, 12 months, for a total clinical development period of 55 months.

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Marketing Costs and Sales Projections

The potential market for this treatment was estimated at $542 million per year at year 5.

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Computation of the Value of the Investment

Adding in the cost of development and marketing and other costs, NPV was very positive at the 5, 8, 10, and 40% cost of financing. The IRR was 90%.

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DISCUSSION

The objective of this evaluation was to determine whether investment in a novel pharmacologic agent for the treatment of dry eye would be worthwhile from a financial perspective. The very positive NPV (even at 40%, a typical hurdle rate for relatively risky investments such as drug development), and the IRR in the 90% range suggest that the financial aspects of this type of investment are very encouraging. Compared with a previous analysis, 2 the present analysis added additional development costs ($10 million for discovery, and additional development personnel) as well as marketing and production costs. Even with this additional expense, the investment was still positive. If one assumed access to European and Japanese markets for relatively low incremental costs and relatively low risks, then the investment is even more positive.

The present financial analysis must be tempered with drug development risks. A firm would need a compound of sufficient promise to develop for this indication. As well, many compounds fail in clinical development for a host of reasons.

In summary, if there were a successful pharmacologic treatment of dry eye and if a firm could manage the cash flow during the development, then the market potential approaches that of other treatment of chronic ophthalmic conditions (e.g., glaucoma), and it would be a worthwhile investment.

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REFERENCES

1. Novack GD. Financing new drug development in ophthalmology. J Glaucoma 2000; 9: 195–9.
2. Novack GD. Drug development issues in pharmacological treatments for dry eye. Adv Exp Med Biol 2001.
3. Sall K, Stevenson OD, Mundorf TK, et al. Two multicenter, randomized studies of the efficacy and safety of cyclosporine ophthalmic emulsion in moderate to severe dry eye disease. CsA Phase 3 Study Group. Ophthalmology 2000; 107: 631–9.
4. Stevenson D, Tauber J, Reis BL, The Cyclosporin A Phase 2 Study Group. Efficacy and safety of cyclosporin A ophthalmic emulsion in the treatment of moderate to severe dry eye disease: a dose-ranging, randomized trial. Ophthalmology 2000; 107: 967–74.
5. Mundasad MV, Novack GD, Allgood VE, et al. Ocular safety of INS365 ophthalmic solution: a P2Y 2 agonist, in healthy subjects. J Ocul Pharmacol Ther 2001; 17: 173–9.
6. Novack GD. Review times for ophthalmic new drug applications (NDAs) at the U.S. Food and Drug Administration (FDA). Am J Ophthalmol 1998; 126: 122–6.
7. Novack GD. Update on regulatory review intervals for ophthalmic new drug applications at the U.S. Food and Drug Administration. Am J Ophthalmol 2000; 130: 664–5.
8. Schein OD, Munoz B, Tielsch JM, et al. Prevalence of dry eye among the elderly. Am J Ophthalmol 1997; 124: 723–8.
9. Moss SE, Klein R, Klein BEK. Prevalence of and risk factors for dry eye syndrome. Arch Ophthalmol 2000; 118: 1264–8.
Keywords:

Keratoconjunctivitis sicca; Treatments; Financial analysis; Drug development

© 2002 Lippincott Williams & Wilkins, Inc.