Full text of DOI:10.2165/00019053-200119070-00004

Pharmacoeconomics 2001; 19 (7): 753-766
1170-7690/01/0007-0753/$22.00/0
ORIGINAL RESEARCH ARTICLE
© Adis International Limited. All rights reserved.
Emerging Role of Pharmacoeconomics
in the Research and Development
Decision-Making Process
Joseph A. DiMasi,1 Erol Caglarcan2 and Maria Wood-Armany3
1
2
3
Director of Economic Analysis, Tufts Center for the Study of Drug Development, Tufts University,
Boston, Massachusetts, USA
Vice President, ICOM Health Economics & Pricing, Johnson & Johnson, Inc., Raritan,
New Jersey, USA
Research Coordinator, Tufts Center for the Study of Drug Development, Tufts University, Boston,
Massachusetts, USA
Objectives: This study examines the organisational structure of pharmaco-
economics departments in major pharmaceutical and biotechnology companies,
the impediments to optimal use of pharmacoeconomic evaluations by companies
and the integration of pharmacoeconomic analysis with research and develop-
ment decision making.
Abstract
Data and Methods: The heads of the pharmacoeconomics departments of 40
companies were surveyed on the structure of pharmacoeconomics departments
in their companies, the roles that pharmacoeconomic analyses are playing in the
new drug development decision-making process, and the initiation of pharmaco-
economic studies during the development process for a random sample of their
companies’ investigational new drugs.
Results: 45 department heads from 31 parent companies responded to the survey.
The pharmacoeconomics function in pharmaceutical and biotechnology compa-
nies is relatively new and growing rapidly. Most pharmacoeconomics department
heads preferred a different reporting structure than what they currently have and
indicated that the strategic role that pharmacoeconomics can play is not well
understood within the organisation. Pharmacoeconomic analyses have been in-
creasingly initiated early in clinical development and have been a factorin clinical
trial design and in key decisions made during the development process.
Conclusions: Given the continued emphasis on containing healthcare costs
worldwide, demand will increase for evidence that drugs provide good value for
the money spent on them. Companies will likely respond not only with more
economic evaluations for purchasers, but also with greater use of pharmaco-
economics early in the development process to aid in rationalising key research
and development decisions, and in guiding final pricing decisions and reimbur-
sement planning, thereby improving resource allocations.

754
DiMasi et al.
The financial viability of the innovative activi-
these studies. While individual companies can de-
termine what their own response has been to the
growing demand for economic studies, only a third
party collecting data from many companies can
inform senior management and other company
decision makers, policy makers, and industry ana-
lysts on the extent and nature of recent industry
trends and the degree of intercompany variability
in company-financed pharmacoeconomics research.
To these ends, we conducted a survey on how the
health economics function is structured and resourced
in the pharmaceutical industry and how this function
is being integrated into the research and develop-
ment decision-making process.
ties of a pharmaceutical company is dependent not
only on scientific and medical progress within and
without the company, but is also critically reliant
on the costs and returns of new drug development.
The costs and risks of new drug development have
been found to be high,[1,2] and the returns to new
drug development are highly skewed.[3] In an
environment in which healthcare cost contain-
ment pressures have been growing, pharmaceutical
companies must be able to demonstrate that the
products that they market offer value for money.
In addition, it is increasingly important that
they determine early in the development process
whether the expected returns on their products
outweigh their expected costs. Pharmacoeconomics,1
therefore, can not only help new products obtain re-
imbursement, but can also help rationalise product
development decisions. For example, this may oc-
cur by assessing early in the process how payers
would value the drug for various potential uses.
Pharmaceutical companies have been very ac-
tive in recent years in conducting and commission-
ing economic studies that evaluate the cost effec-
tiveness of their products. Much of this work has
been conducted for products that have already been
launched, but proportionately more of the analyses
have been conducted prior to registration for mar-
keting approval. Additionally, many of these pre-
marketing economic studies have been or could
be advantageously integrated with development
plans.[4,5] However, few hard data exist on the degree
to which companies have relied on these studies to
make drug development decisions, where in the de-
velopment process these studies have been inte-
grated, the resource costs to companies of the phar-
macoeconomics function, and how companies have
accommodated the process of conducting pharmaco-
economic studies in their organisational structures.
Given the substantial interest in and likely in-
creasing significance of pharmacoeconomic stud-
ies for both research and development decisions
and product reimbursement, it is important to gather
comprehensive data on how resources within pharma-
ceutical companies have been allocated to producing
Data and Methods
We surveyed the heads of pharmacoeconomics
departments in 40 major pharmaceutical and bio-
technology companies. These companies were de-
termined by the authors prior to surveying to have
formal pharmacoeconomics departments. The sur-
vey was conducted in the summer and fall of 1998
and included questions on the size of pharmaco-
economics departments, the internal organisation
of the pharmacoeconomics function, the integra-
tion of pharmacoeconomic analyses into the re-
search and development decision-making process,
the perceived obstacles to the optimal conduct
and use of pharmacoeconomic evaluations, and the
timing of pharmacoeconomic studies during the de-
velopment process for a random sample of investi-
gational drugs.2
We used a Tufts Center for the Study of Drug
Development (CSDD) database of new pharmaceu-
tical and biopharmaceutical entities to select for each
company a random sample of their investigational
compounds that first entered clinical testing any-
1
The term ‘pharmacoeconomics’ used here is meant to
encompass company activities that have also been described
as outcomes research, health economics, and socioeconomics.
2
The survey respondents were promised confidentiality.
Only Tufts Center for the Study of Drug Development per-
sonnel working on this project saw any of the raw data.
Because of confidentiality concerns, only aggregated analy-
ses are presented herein. A copy of the questionnaire is
available from the authors upon request.
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Pharmacoeconomics 2001; 19 (7)

Pharmacoeconomics and R & D Decision-Making
755
where in the world during 1990 to 1994. A new
drug is defined as any new molecular entity not
previously approved in the US, excluding vaccines,
diagnostics, and new salts, esters, and dosage forms
of previously approved compounds. For the selected
compounds, the respondents were asked to indicate
whether pharmacoeconomic studies were initiated
during each of the 3 major clinical testing phases,
the regulatory review period, or post-approval.
The sample consisted of a representative sample of
compounds for which development has been aban-
doned, for which development is continuing, and
for which an application for marketing approval
has been submitted or approved.
Since the manner or extent to which company
pharmacoeconomic activities are internally organised
and integrated with the research and development
process may differ by company size, we grouped
the responding companies into 3 size groups based on
annual pharmaceutical research and development ex-
penditures or annual pharmaceutical sales. With re-
gard to research and development spending, small
companies are defined as those with annual phar-
maceutical research and development expenditures
in 1996 of less than $US350 million, medium com-
panies are those with annual expenditures of be-
tween $US350 million and $US1 billion, and large
companies are those with annual expenditures in
excess of $US1 billion.[6] Using sales as a size cri-
terion, we define small companies to be those with
annual pharmaceutical sales in 1996 of less than
$US3 billion, medium companies to be those with
annual sales of between $US3 billion and $US7
billion, and large companies are those with annual
sales in excess of $US7 billion. The expenditure
and sales data for the companies were scaled up to
1998 levels according to the ratio of 1998 to 1996
values for these variables at the industry level.[7]
Although the size groupings by research and de-
velopment expenditures and sales are slightly dif-
ferent, the qualitative results are the same. Since
one of our analyses is a comparison of pharmaco-
economic budgets to research and development
budgets, we report results by size using the phar-
maceutical research and development expenditure
criteria. For several companies a precise level of
pharmaceutical research and development expen-
ditures was not available, but knowledge of total
company research and development expenditures
and reasonable assumptions about the company’s
reliance on its pharmaceutical business allowed us
to place the companies in the defined size groups.
Results by company size are reported below (see
Results) when the differences are notable.
The survey responses gave us department
budget ranges and both department and company
full time equivalent (FTE) levels for the pharmaco-
economic function. For a given parent company,
the department budget ranges were added to ob-
tain a company budget range. For those instances
where the company FTE size for the pharmaco-
economic function was greater than the sum of the
department FTE sizes, we scaled up the aggregate
budget by the ratio of company FTE to reported
department FTE.
Two-variable correlations were computed where
associations between responses were plausible.
Given that many of the important variables were
reported in a discrete, but ordinal, manner (question
options or our own groupings were given as ranges),
the Spearman rank correlation statistic was gener-
ally used. For some survey questions, the prob-
ability of a response as a function of department
characteristics was estimated with probit regres-
sions. Results were taken to be statistically signif-
icant at the 10% level for a two-tailed test.
Results
Some parent companies had multiple pharmaco-
economic department subsidiaries and multiple
department heads. The results of individual depart-
ments, which may or may not have global respon-
sibility, have all been included. However, the re-
ported company data are global.
45 department heads from 31 parent companies
responded to the survey (78% response). The re-
sponding companies include 19 of the top 20 and
23 of the top 25 companies ranked by pharmaceu-
tical research and development expenditures. 16 of
the responding companies were US owned, 14 were
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Pharmacoeconomics 2001; 19 (7)

756
DiMasi et al.
European owned, and one may be considered trans-
national (US and Europe).
On average, pharmacoeconomic departments main-
tained a staff of 12 FTEs. Large companies tended
to have much larger departments. The average FTE
department size was 6.0 for small companies, 7.4 for
medium companies, and 16.9 for large companies.
The compositions of the departments by title tend to
be weighted fairly heavily toward relatively high
level positions, with one-third of the staff at the
director level or above (table I).
The respondents anticipated that their depart-
ments would expand substantially in the near term,
with staffing levels expected to increase by nearly
one-half in the following 2 to 3 years (table I). On
average, the expected growth rates are fairly uni-
form across levels within the departments. In rela-
tive terms, expected growth is greatest at the senior
director level (57%) and least at the director level
(36%). Anticipated increases in staffing tended to
decrease with company size. The expected growth
rate was 120% for small companies, 53% for me-
dium companies, and 32% for large companies. As
noted above, small companies have had less time
to build pharmacoeconomic departments.
Many of the personnel in pharmacoeconomic
departments have attained fairly high formal ed-
ucational levels. Specifically, on average, 7% of
pharmacoeconomic personnel held an M.D. degree,
30% held a Ph.D. degree and 2% held both. Addi-
tionally, 11% of the staff in the average department
held a Pharm.D. degree, and 23% held a Masters
degree (10% held a Bachelors Degree).
On average, company FTE pharmacoeconomic
staff size (26) was a little more than twice the aver-
age department size (12). Company FTE pharmaco-
economic staff levels tended to increase substan-
tially with company size (Spearman rank correlation
= 0.765, p < 0.001); mean company staff size was 7
FTE for small companies, 16 FTE for medium-sized
companies, and 46 FTE for large companies. The
distribution of company staff levels was right-
skewed, with 50% of the surveyed companies with
FTEs of 20 or less, 32% with FTEs of 21 to 40, and
18% with FTEs of 41 or more (fig. 2).
While pharmacoeconomic analyses have been
reported in the literature for the last 2 decades, and
activity in this area has been present in commercial
organisations in an informal way for some time,[8]
the formalisation of this function within pharma-
ceutical companies is a relatively recent phenome-
non.[9] Our survey results indicated that pharmaco-
economics has been organised as a formal function
in the responding companies, on average, for a little
more than 6 years (fig. 1). The average department
had been in existence for a little over 5 years. The
results differ, however, by company size. While, on
average, medium-sized and large companies for-
mally organised this activity at approximately the
same time, small companies lagged their larger coun-
terparts by more than 3 years (fig. 1).
Resource Allocation
A portion of our survey was designed to gather
information on the extent to which resources are
allocated to the pharmacoeconomic function. Spe-
cifically, we obtained data on current and expected
future staffing levels by title, budget levels, and the
distribution of budgets between in-house and out-
sourcing activities.
Staffing Levels
A wide range of position types and qualifica-
tions exist within pharmacoeconomic departments.
7
6.8
7
6
5
4
3
2
1
0
Small
Medium
Large
All
6.2
5.8
5.2 5.2
3.6
3.6
Company
Department
Fig. 1. Mean time that pharmacoeconomics has been a formal
company/department function by company size.
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Pharmacoeconomics 2001; 19 (7)

Pharmacoeconomics and R & D Decision-Making
757
Table I. Average current pharmacoeconomic department staffing
size for the pharmacoeconomic function was
greater than the sum of the department FTE sizes,
we scaled up the aggregate budget by the ratio of
company FTE to reported department FTE.
levels and expected growth in staffinga
Position level
Current
number
(FTE)
Expected
increase
(FTE)
Senior director or above
Directorb
Manager or research analyst
Support personnel
0.7
3.3
5.4
2.6
12.0
0.4
1.2
2.7
1.1
5.5
A base-case estimate of pharmacoeconomic ex-
penditures relative to pharmaceutical research and
development expenditures for the surveyed com-
panies as a whole was determined as the ratio of
the midpoint of the aggregate of the company bud-
get ranges to the aggregate of company pharma-
ceutical research and development expenditures.
We found that the value of the resources consumed
by the pharmacoeconomic function amounted to
the equivalent of only 1% of what was spent on
pharmaceutical research and development (fig. 3).
The end-points of the budget ranges provided lower
(0.6%) and upper bound (1.4%) estimates for this
ratio. There was little difference between the ratios
of pharmacoeconomic expenditures to pharma-
ceutical research and development expenditures for
the medium-sized and large companies, but small
companies had a somewhat higher ratio (2.2%). An
internal company pharmacoeconomic function may
not be viable unless a minimum scale for the func-
tion is achieved. Thus, a threshold effect could ex-
plain the higher ratio of pharmacoeconomic ex-
penditures to pharmaceutical research and
development expenditures for small companies.
Departmental total FTE headcount
a
Staffing levels as of April 1, 1998 and growth that is expected
over the following 2 to 3 years.
b
The director level includes the titles of assistant director,
associate director, and director.
FTE = full time equivalent.
Budget Levels
In relation to either research and development
expenditures or sales, company budgets for the phar-
macoeconomic function were quite small. 70% of the
surveyed departments had annual budgets of $US5
million or less; none had annual budgets in excess
of $US20 million (table II). Department budget
sizes tended to increase with company size (Spear-
man rank correlation = 0.435, p = 0.007); half of
the departments in large companies had budgets of
at least $US6 million, while only 14 and 13% of
the departments in the small and medium compa-
nies had budgets that large (table II).
As shown below (see Licensing, Portfolio and
Abandonment Decisions), the pharmacoeconomic
function can play important roles during the new
drug development process. It is instructive then to
examine the financial commitments that compa-
nies are making to this activity in relative, as well
as absolute, terms. A useful comparator against which
to measure these commitments is the company’s
spending on pharmaceutical research and develop-
ment. We compared our data on the level of phar-
maceutical research and development expendi-
tures by the responding companies with estimates
of their expenditures on pharmacoeconomics. The
survey responses gave us department budget ranges
and both department and company FTE levels for
the pharmacoeconomic function. For a given
parent company, the department budget ranges were
added. For those instances where the company FTE
39
40
30
21
18
20
10
0
11
11
1-10
11-20
21-30
31-40
41+
Company FTE
Fig. 2. Distribution of company full time equivalent (FTE) staff
sizes for the pharmacoeconomic function.
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Pharmacoeconomics 2001; 19 (7)

758
DiMasi et al.
Table II. Pharmacoeconomic department annual budget levels [US dollars ($US)]a
Annual budget
($US million)
Percentage of departments Percentage of departments Percentage of departments Percentage of all
in small companies
in medium companies
in large companies
departments
<1
15
6-10
11-20
57
29
14
0
13
73
13
0
11
39
39
11
20
50
25
5
a
Percentages may not add up to 100% due to rounding.
Outsourcing Patterns
While companies have built up substantial in-
(up to one-half of the budget and more than one-
half of the budget) we obtain a statistically signif-
icant correlation between company size groups
and departments that outsource most of their work
(Spearman rank correlation = -0.275, p = 0.082).
We also examined the decision to outsource most
of the department’s pharmacoeconomic work in a
multifactorial context. Probit regressions were run
to predict the probability that a department would
outsource most of its work dependent on company
size, reporting structure, department size, and bud-
get level. For a functional specification that used
dummy variables for company size and reporting
structure, we found support for an inverse associa-
tion between company size and the likelihood that
a department would outsource (p = 0.074 for the
large company coefficient), and an increased like-
lihood that departments that report to Marketing
would outsource most of their work (p = 0.043).
The company size variables were insignificant when
either department FTE size or budget level was in-
cluded in the regressions, but, as noted above (see
Staffing Levels and Budget Levels), company size
is correlated with both department size and budget
level. Including both department size and budget
levels in the same regression should yield what
are essentially tautological results for those vari-
ables. If the budget level is a proxy for department
workload, then holding department size constant,
higher budgets should be associated with greater
outsourcing. Similarly, holding the budget constant,
larger departments should be associated with less
outsourcing. When both factors are included in a
regression, these variables are significant with signs
consistent with the above argument.
ternal expertise in pharmacoeconomics and expect
to increase their staff sizes, they have also relied on
outside groups and researchers to conduct a signif-
icant portion of their workload. Only 10% of the
companies outsourced 10% or less of their budget,
and nearly one-fifth of the companies outsourced
at least three-quarters of their budget (table III).
Although there is substantial variability in the data,
the results suggest differences by company size.
While 32% of large companies and 46% of medium
companies outsourced at least half of their work,
72% of small companies outsourced more than half
their budget. The data are too thin to show sta-
tistically significant differences by company size
across each of the outsourcing ranges in table III,
but if we divide the budget responses into 2 groups
1.5
1.4
1
1
0.6
0.5
0
Lower bound
Average
Upper bound
Pharmacoeconomics budget
Fig. 3. Company expenditures on pharmacoeconomics relative
to company pharmaceutical research and development expen-
ditures. R&D = research and development.
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Pharmacoeconomics 2001; 19 (7)

Pharmacoeconomics and R & D Decision-Making
759
The degree to which companies outsourced their
pharmacoeconomic work varied by the type of work,
with outsourcing more prevalent for the components
of pharmacoeconomic evaluations that occur later
in the process. Pharmacoeconomic departments
outsourced one-half of their publications/commu-
nications work, a little less than one-half of their anal-
ysis and implementation work, but less than one-
quarter of their early design work (fig. 4). Although
smaller companies tended to outsource more of their
work in these areas, the pattern of increased outsourc-
ing for later stages did not vary by company size.
ecutive officer, president, chief operating officer,
business head, or chief financial officer) would be
optimal (two-thirds of those reporting to corporate
prefer their current structure). Although a ‘clinical
head’was a specific option in the relevant question,
only 7% of the respondents thought that reporting
to the clinical head was optimal, and each of these
respondents thought it was optimal to also report
to another part of the organisation.
Most department heads preferred a reporting
structure that differs from the one that they cur-
rently have (68%). The pattern of cross-tabulations
between current and ideal reporting structures did
differ, however, according to where the department
currently resides in the organisation. Only 40% of
the department heads that currently report to mar-
keting thought that reporting to marketing, either
singly or jointly with another part of the organisa-
tion, was optimal (26.7% singly and 13.4% jointly).
Additionally, 40% of these department heads reported
that it was optimal to report to corporate (33.3%
singly and 6.7% jointly). Only 13.4% of the depart-
ment heads that report to marketing preferred to
report to medical in some fashion (6.7% singly and
6.7% jointly). Of the department heads that cur-
rently report to medical, 63.2% reported that it was
optimal to report to medical, although only 36.8%
preferred to report only to medical. For the de-
partment heads that report to medical, 26.4% pre-
ferred to report to corporate (21.1% singly and 5.3%
jointly) and 21.1% preferred to report to marketing
(5.3% singly and 15.8% jointly).
Corporate Organisation
Internal company structure and perceptions
within the organisation about the role of pharmaco-
economic analysis can affect the value that the
organisation obtains from the pharmacoeconomic
function. To address these issues we questioned re-
spondents on where their departments are placed
within the organisation, where they believe their
departments should reside, and internal impediments
to best practice for the pharmacoeconomic func-
tion.
Current and Perceived Optimal
Reporting Structures
The vast majority of company pharmacoecono-
mic departments report to either medical (includ-
ing research and development and clinical) or
marketing heads (table IV). A notably different
reporting structure was revealed when respondents
were asked to give what they believe is the ideal
reporting structure for a pharmacoeconomic depart-
ment. While only 7% of the departments currently
report at the corporate level, 34% of the respondents
believe that reporting to corporate (including chief ex-
Obstacles to Optimal Research
The respondents were asked to rank a set of 9
potential obstacles (with an option to list and rank
1 other obstacle) to the optimal conduct and utilisa-
Table III. Outsourcing of pharmacoeconomic work: percentage of pharmacoeconomic department budget outsourced by company sizea
Company size
Percentage of departments by percentage of budget outsourced
<10%
14
13
5
10
10–25%
0
7
26
15
26–50%
14
33
37
32
51–75%
29
33
16
24
>75%
43
13
16
19
Small
Medium
Large
All
a
Percentages may not add up to 100 due to rounding.
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Pharmacoeconomics 2001; 19 (7)

760
DiMasi et al.
of pharmacoeconomics. Table VI indicates that, as
perceived by pharmacoeconomic department heads,
the majority of the heads of a number of impor-
tant segments of their companies do not fully
understand the strategic contribution that pharmaco-
economics can make to company profitability. Mar-
keting and business heads were perceived to have
the best understanding of the value of pharmaco-
economics, and regulatory heads the least. Senior
management was more often thought to have little or
no understandingofthestrategicimportance of phar-
macoeconomics than was the case for most of the
heads of other parts of the organisation.
Publications/
50
communication
Analysis
44
Implementation
Design stage
43
23
0
10
20
30
40
50
Percentage outsourced
Interaction with Government Authorities
Fig. 4. Percentages of work on components of pharmaco-
economic studies that are outsourced.
Pharmaceutical companies have increasingly had
to interact with government regulatory authorities
with regard to their pharmacoeconomic evaluations.
These interactions have primarily been with pric-
ing and reimbursement authorities, but company
pharmacoeconomic data have also been submitted
to registration authorities as part of applications for
marketing approval.
tion of their department’s pharmacoeconomic re-
search. The responses were given on a scale from
1 (greatest) to 10 (least). The 9 potential obstacles
and their mean ranks from greatest to least are listed
in table V.
These results suggest that 3 obstacles (con-
flicting internal priorities, inadequate resources,
and misunderstanding of the role of pharmaco-
economics by decision-makers outside of pharmaco-
economic departments) were perceived as particu-
larly problematic, with little difference on average
in the ranks among the three. Responses to another
of the survey’s questions lend further support to the
importance of one of these factors – the degree to
which others in the organisation understand the value
Registration Authorities
Although not required in the US, one-third of
the respondents reported that it is their policy to
submit pharmacoeconomic analyses as part of a new
drug application (NDA) to the Food and Drug Ad-
ministration (FDA). A majority of the respondents
(57%) indicated that they expect to begin or in-
crease the submission of economic analyses to the
FDA in the next 2 to 3 years; only 5% expected
fewer submissions. For those respondents who had
Table IV. Current and perceived ideal reporting structure for pharmacoeconomic departments
Current reporting structure (n = 44)
Ideal reporting structure (n = 40)a
Medical
Marketing
Corporate
Otherc
46%
36%
7%
34%b
27%
34%
27%
11%
a
b
Percentages for the ideal reporting structure add to more than 100% because some respondents preferred reporting to multiple sources.
The results for medical in the ideal reporting structure break down to 27% for the research and development head and 7% for the clinical
head. Similarly, the ideal reporting structure results for corporate break down to 32% for CEO, COO, or president and 2% for the CFO.
c
‘Other’ for the current reporting structure can include reporting to multiple parts of the organisation.
CEO = chief executive officer; CFO = chief financial officer; COO = chief operating officer.
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Pharmacoeconomics 2001; 19 (7)

Pharmacoeconomics and R & D Decision-Making
761
Table V. Obstacles to optimal pharmacoeconomic research in rank order as perceived by pharmacoeconomic department heads
Obstacle
Mean rank score [from scale
of 1 (greatest) to 10 (least)]
Conflicting internal priorities
Limited financial and/or manpower resources
3.8
3.9
4.0
4.7
5.0
5.4
5.6
5.8
6.3
Misunderstanding of the role of pharmacoeconomics by management
Lack of strategic direction
Insufficient coordination among headquarters, research and development and operating companies
Reporting structure: results in bias in favour of either a clinical or a marketing perspective
Recruiting: insufficient number of experts available to hire for internal positions
Pipeline: insufficient number of breakthrough products
Do not have responsibility for pharmacoeconomic studies in all phases of the product lifecycle
(phase I through postmarketing)
submitted pharmacoeconomic data in NDAs, a
breakdown isgivenintableVIIoftheresultsaccording
to the form provided and to whether the infor-
mation supplied is resource use or quality-of-life
(QOL) data. Analytical/technical report informa-
tion on resource use and QOL and raw data listings
for resource use data are the most common submis-
sions.
Submission of pharmacoeconomic data to for-
eign registration authorities is, overall, more com-
mon (55% submit such information).3 The type of
data included, however, tends to differ from that
submitted in NDAs (table VII). With regard to
resource use data, analytical/technical reports and
cost/charge data are more often supplied to foreign
registration authorities. Raw data listings and anal-
ysis plans, though, areincluded muchlessoften. Raw
data listings on QOL data are also submitted to
foreign registration authorities much less frequently
than to the FDA (table VII).
submit higher percentages of their economic dos-
siers to these authorities in the next 2 to 3 years
(76% for pricing authorities and 88% for reimbur-
sement authorities). None of the respondents ex-
pected the percentage to decrease.
The respondents were also asked whether
they use pharmacoeconomic studies for reimbur-
sement planning in the US and abroad. Only 11%
of the department heads responded that they never
use pharmacoeconomic studies for reimbursement
plannng in the US, 40% responded that they use
them but less than half of the time, and 49% re-
sponded that they use them more than half of the
time. 73% of the respondents expected that the fre-
quency of use would increase in the next 2 to 3
years. The use of pharmacoeconomic studies for
reimbursement planning was somewhat more preva-
lent for non-US countries. Four percent of the re-
spondents reported that they never use their studies
for reimbursement planning in non-US countries,
48% use them but less than half of the time, and
48% use them more than half of the time. Two-
thirds of the respondents anticipated that the fre-
quency of this use would increase in the next 2 to
3 years.
Pricing and Reimbursement Authorities
While it is widely accepted that pharmaco-
economic analyses are often produced for pricing
and reimbursement authorities, it is not known how
much further the supply of economic evaluations to
these authorities will grow. Overwhelming major-
ities of the respondents expected that they would
Integration with Research and
Development Decision Making
3
Whether such information should be included in the
Our survey contained a number of inquiries
regarding the extent to which pharmacoeconomic
analyses have been used to influence research and
clinical dossier was a frequent topic for debate during a CMR
International Workshop on ‘Is the Clinical Dossier a Cause
for Concern’ (CMR International News, August 1999).
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Pharmacoeconomics 2001; 19 (7)

762
DiMasi et al.
Table VI. Management understanding of the strategic importance of pharmacoeconomics to the company’s bottom line: perceptions of
pharmacoeconomic department heads
Senior management
Marketing head
Business head
Clinical head
CEO, president
Do not understand (%)
5
5
Partially understand (%)
Fully understand (%)
53
57
63
53
60
53
42
38
28
28
26
14
9
19
14
33
Research and development head
Regulatory head
CEO = chief executive officer.
development decisions. A sizeable portion of the
respondents (42%) indicated that their company’s
policy is to subject all of the products in their com-
pany research and development portfolios to phar-
macoeconomic evaluation at some point during
the development process (fig. 5). While the results
for small- and medium-sized companies were very
similar, departments in large companies were notably
more likely to have a policy of subjecting all prod-
ucts to economic evaluation (the association is close
to statistical significance for a 2-tailed test (Spear-
man rank correlation = 0.248, p = 0.108). For the
respondents for whom the decision to subject de-
velopment candidate drugs to pharmacoeconomic
evaluation varied, the reasons offered included
‘internal resource limitations,’ ‘the scientific and
commercial potential of the product,’ ‘the feasibil-
ity of obtaining necessary data,’ ‘the need to jus-
tify value for the product,’‘the expectation that the
product will be cost effective,’and ‘whether mean-
ingful clinical differences exist with comparators.’
We also found that many pharmacoeconomic
departments had a role in formulating clinical trial
designs (fig. 6). Asubstantial majority (71%) of the
departments had a role in the selection of compa-
rator compounds. A majority or close to a majority
of departments also had some influence on impor-
tant clinical trial parameters, such as sample size,
the countries in which trials are conducted, and the
indications to be studied.
Licensing, Portfolio, and Abandonment Decisions
Most pharmacoeconomic departments have
played a role in important decisions regarding new
drug development (table VIII). Specifically, sub-
stantial majorities of the responding departments at
least sometimes had been involved in evaluating
licensing candidates, selecting compounds for de-
velopment, and decisions to continue or terminate
development of investigational compounds. How-
ever, only 11 to 18% of the responding departments
had often played a role in such decisions.
The data suggest that departments in larger com-
panies are more likely to have some role in each of
these critical research and development decision-
making processes. However, the results for ‘fre-
quently’or ‘always’having a role comparing me-
Table VII. Forms in which pharmacoeconomic analyses have been submitted to regulatory authorities in drug registration applicationsa
Form
Resource use data (%)
Quality-of-life data (%)
FDA
67
67
50
25
foreign
83
22
22
61
FDA
87
56
56
NA
foreign
Analytical/technical report
Raw data listings
Analysis plan
94
19
44
NA
Cost or charge data
a
One-third of responding departments had a policy of submitting pharmacoeconomic analyses in drug registration applications to the
FDA, while 55% of the departments did so for foreign regulatory authorities.
FDA = Food and Drug Administration; NA = not available.
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Pharmacoeconomics 2001; 19 (7)

Pharmacoeconomics and R & D Decision-Making
763
dium and large companies are mixed. We alsoanalysed
these decision-making roles according to depart-
ment reporting structure. Those departments that
reported to medical were somewhat more likely to
have some role in selecting compounds for de-
velopment (75 vs 69%) and in go/no-go decisions
(68 vs 56%) than were departments that reported
to marketing. Departments that reported to market-
ing, though, more often had a role in evaluating
licensing candidates (75 vs 60%). For all 3 deci-
sions, departments that reported to medical were
more likely to often have a role (frequently plus
always); the comparative results were 30 versus
6% for licensing and compound selection decisions,
and 16 versus 6% for go/no-go decisions. Single
variable correlations with department involvement
in these research and development decisions were
generally close to statistical significance. Similarly,
probit analyses on involvement in these decisions
using company size, reporting structure, department
size, and budget ranges as covariates resulted in
coefficients with the expected signs but that gener-
ally were statistically insignificant. One exception
was department size, which was statistically sig-
nificant in all specifications except for the go/no-
go regressions.
Comparator
Sample size
Trial location
Indication
71
59
44
42
Dosage
29
0
20
40
60
80
Percentage of departments with role
Fig. 6. Percentages of company pharmacoeconomic depart-
ments that have a role in the selection of clinical trial parame-
ters.
entered clinical testing for the first time anywhere
in the world during 1990 to 1994. For those com-
pounds that entered phase I (all compounds), none
that had entered clinical testing during 1990 to 1993
had any pharmacoeconomic studies initiated dur-
ing phase I. However, for those that entered clinical
testing in 1994, 15% had pharmacoeconomic re-
search begun during phase I (table IX). For drugs
that entered the later clinical phases, the sample
generally reflects more recent experience. Some of
the drugs in the sample were still in phase II testing
at the time of the survey. Others had reached phase
II, but had been terminated fairly close to the time
of the survey.
The initiation of studies during phase II more
than doubled in relative terms from approximately
the first half of the study period (first in humans
during 1990 to 1991) to the second half (first in
humans during 1992 to 1994). For compounds from
the early part of the study period, a majority of
those that had entered phase III had had phar-
macoeconomic studies initiated during that phase.
Still, an additional 10% of the compounds for the
later part of the study period had pharmacoecono-
mic evaluations initiated during phase III. We also
found a doubling from the early to the later part of
Trends by Development Phase
We obtained data on a random sample of 86 of
the respondent companies’ compounds that had
80
Small
Medium
Large
All
71
69
70
60
58
55
50
40
30
20
10
0
45
42
31
29
All products studied
Decision to study varies
Fig. 5. Policy on pharmacoeconomic evaluations of investiga-
tional compounds by company size.
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Pharmacoeconomics 2001; 19 (7)

764
DiMasi et al.
Table VIII. Roles that pharmacoeconomic departments play in research and development decision making
Role
Never
Occasionally
Frequently
Always
Licensing
Small companies
Medium companies
Large companies
50%
25%
24%
29%
38%
56%
57%
53%
12%
13%
19%
16%
0%
6%
0%
2%
All companies
Pipeline
Small companies
Medium companies
Large companies
All companies
50%
25%
19%
27%
38%
63%
52%
53%
12%
6%
24%
16%
0%
6%
5%
4%
Go/no-go
Small companies
Medium companies
Large companies
50%
33%
24%
32%
38%
47%
71%
57%
12%
20%
5%
0%
0%
0%
0%
All companies
11%
the study period in the proportion of compounds
reaching registration submission or marketing ap-
proval that had pharmacoeconomic studies initi-
ated during those phases.
were developed later, were expected to grow even
faster. There may be a certain amount of catching-
up to do for these companies. The expected rate of
increase in staffing for small companies was more
than twice that of medium companies and about 4
times that of large companies.
Discussion
Although companies have developed extensive
internal expertise in pharmacoeconomics, they have
found it useful to outsource a significant portion of
their activities in this area. Small companies tended
to outsource substantially more of their work than
did their larger counterparts. However, the small
companies have had formal pharmacoeconomic de-
partments for a shorter period. The higher expected
staff growth for the small companies may reflect a
relative shortage of internal expertise in these com-
panies. Thus, the differences by company size in the
use of outside experts may not persist over the long
term.
Cost containment pressures worldwide are in-
creasingly driving drug developers to demonstrate
the value of their products to purchasers. Adequate
reimbursement is now often dependent on such ev-
idence. Pharmaceutical companies are responding
to this challenge by investing in pharmacoecono-
mic analyses for many new products. Our survey
indicated that industry leaders in this field expect
substantial further growth in the use of pharmaco-
economics. This finding is similar to those found
in earlier studies.[8]
Pharmacoeconomic staff sizes have grown rap-
idly in the past decade. We found, on average, the
company FTE pharmacoeconomics staff size to
be 26. The comparable average for company phar-
macoeconomics staff in 1990 was 5.[9] Our survey
showed that department heads expect staff sizes
to continue to grow significantly, although in light
of the extreme shortage of skilled practitioners,
it is not clear how this increasing demand will be
met.[10] The departments of small companies, which
Our results raise the possibility that many com-
panies may not have organised their pharmaco-
economics function optimally (see also Wyse[10]).4 A
majority of the responding pharmacoeconomic de-
partment heads believed that a change should be
4
Several firms have recently hired consulting companies
to help them with their reorganisation efforts.
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Pharmacoeconomics 2001; 19 (7)

Pharmacoeconomics and R & D Decision-Making
765
Table IX. Changes over time in the integration of pharmaco-
economics with research and development: studies initiated during
development phases
made to their current reporting structure. In addi-
tion, the obstacles to the optimal conduct and use
of pharmacoeconomic analyses ranked highest by
department heads were insufficient resources allo-
cated to the pharmacoeconomic function, conflict-
ing internal priorities, and lack of understanding of
the role of pharmacoeconomics by the company’s
senior management. We also found that the organ-
isational leaders with the poorest understanding of
the pharmacoeconomic function were the Regula-
tory Affairs heads, who are naturally focused on
obtaining marketing approval from registration au-
thorities, and the highest management levels. It is
especially difficult to utilise the pharmacoecono-
mic function in the best ways possible when senior
management does not fully comprehend the strate-
gic value of pharmacoeconomics. These percep-
tions, of course, are those of the heads of the
groups that conduct pharmacoeconomic analyses.
It would be interesting to research whether these
views can be corroborated through interviewing other
decision-makers within the companies.
Given increasing research and development costs
and cost-conscious buyers, the uses of pharmaco-
economic analyses have also expanded in recent
years to include roles in selecting compounds for
development, choosing clinical trial parameters, and
deciding whether to continue clinical testing on
individual drugs. Our results demonstrated an in-
creasing trend in the use of pharmacoeconomics
during clinical development. Overall, at the time
of the survey, 41% of the investigational compounds
in the sample had been subject to economic evalu-
ation. Some drugs were terminated early, and some
of the drugs that are still in clinical testing, regula-
tory review, or have recently been launched will
have pharmacoeconomic studies done. Thus, ulti-
mately, the proportion of the sample compounds
that will be subject to economic evaluation will be
higher than reported here.
Phase
Period of first human testing for compound
1990-1991
0%
12%
1992-1994
15%a
29%
Phase I
Phase II
Phase III
61%
71%
Pre-registration
Post-approval
25%
36%
50%
71%
a
The percentage for phase I refers to 1994. None of the com-
pounds that had clinical testing initiated during 1990 to 1993
had pharmacoeconomic studies initiated during phase I,
while 15% of the compounds with clinical testing initiated dur-
ing 1994 had such studies initiated during phase I.
mining important clinical trial parameters. We also
found that despite the potential importance of phar-
macoeconomics to these decisions, it is not cur-
rently costing the companies very much directly, if
one measures their budgets against research and
development expenditures.
The demand for pharmacoeconomic analyses
conducted by pharmaceutical companies will likely
grow substantially in the near future.[11] Managed-
care providers, pharmacy benefit managers, and for-
eign pricing and reimbursement authorities will
increasingly demand credible evidence of pharma-
ceutical value tailored to their needs. In particu-
lar, efforts to establish what some refer to as a ‘fourth
hurdle’ in Europe and Australia for new drugs
based on cost effectiveness will strongly motivate
the need for company pharmacoeconomic analysis.
For example, the pharmaceutical industry has been
concerned that new moves in Brussels to set up a
body to advise on drug utilisation will turn into a
Europe-wide version of the UK’s National Institute
for Clinical Excellence (NICE) initiative, as more
governments scrutinise their drug expenditures.[12-14]
These market pressures together with high drug
development costs that increase as a drug candi-
date progresses through development phases[1] ar-
gue strongly for early economic evaluation. Such
evaluation serves to guide the initial selection of
candidate compounds and their development, to en-
sure that appropriate data are collected for late-stage
cost-effectiveness studies, and to reach early ter-
Our results show that most pharmacoeconomic
departments have been involved at critical research
and development decision-making points, and they
expect their roles to increase over time. Addition-
ally, these departments have played roles in deter-
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Pharmacoeconomics 2001; 19 (7)

766
DiMasi et al.
mination decisions for uneconomical candidates.
Companies that recognise the strategic value of phar-
macoeconomic analysis and effectively integrate phar-
macoeconomics into research and development deci-
sion-making processes will acquire important
competitive advantages.
Acknowledgements
We wish to thank all those individuals who gave their
time to responding to our survey. This study was supported
in part by a grant from Johnson & Johnson, Inc.
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Conclusions
Survey data from 45 heads of pharmacoeco-
nomicsdepartments in leading pharmaceutical
companies indicate that the pharmacoeconomic
function within industry is growing rapidly. The
results show that pharmacoeconomic analyses have
been increasingly initiated early in the clinical
development process. Pharmacoeconomic depart-
ments have played significant roles in selecting
clinical trial design parameters, such as the choice
of a comparator drug, sample size, the location of
trials, and the indications pursued. The analyses
have also been used to help make company deci-
sions on whether to license-in a drug, on whether
an internally generated drug should enter the clin-
ical development pipeline, and on whether to con-
tinue development of a drug that has entered
the clinical pipeline. The integration of pharmaco-
economic analysis into the research and develop-
ment decision-making process should allow firms
to make more rational allocations of scarce research
and development resources, and should provide bet-
ter support for reimbursement planning and final
pricing decisions.
10. Wyse RK. Pharmacoeconomics. Richmond: Scrip Reports, 1996
11. Thwaithes R, Townsend RJ. Pharmacoeconomics in the new
millenium: a pharmaceutical industry perspective. Pharmaco-
economics 1998; 13 (2): 175-80
12. Drugs: touch of flu. The Economist. Oct 9 1999; 353 (8140):
78-9
13. NICE wants to be flexible. SCRIP PJB Publications Ltd 2000
Jan 19; 2506: 4
14. Implementing NICE clinical guidelines. SCRIP PJB Publica-
tions Ltd 2000 Jan 21; 2507: 3
Correspondence and offprints: Dr Joseph A. DiMasi, Tufts
Center for the Study of Drug Development, Tufts Univer-
sity, 192 South St., Suite 550, Boston, MA 02111, USA.
E-mail: joseph.dimasi@tufts.edu
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Pharmacoeconomics 2001; 19 (7)