Clinical Trials for New Drug Development: Optimal Investment and Application

Manufacturing & Service Operations Management, Forthcoming

Rotman School of Management Working Paper No. 2873859

Posted: 28 Nov 2016

See all articles by Panos Kouvelis

Panos Kouvelis

Washington University in St. Louis

Joseph Milner

University of Toronto - Rotman School of Management

Zhili Tian

University of Houston - Downtown; Coastal Carolina University - E. Craig Wall College of Business Administration

Date Written: November 21, 2016

Abstract

Phase III clinical trials are expensive, require enrolling and treating hundreds or thousands of patients at many sites. The time and cost required to do so is uncertain as is the economic value of the drug upon completion. We consider the problem of determining when and how many test sites should be opened, and the rate patients should be recruited. We model the problem as a discrete-time, discounted dynamic program with the objective of maximizing the expected net present value of a drug based on the costs of conducting the trial, and on the drug’s quality-moderated likelihood of approval and its subsequent expected revenue stream if approved. We show the optimal policy is characterized by a series of thresholds on the number of patients enrolled over time that indicate when additional test centers should be opened and how many patients should be targeted. We demonstrate using data from completed clinical trials that for lowto-moderate valued drugs, these thresholds are relevant to the firm’s decisions. We extend the problem to the case with multiple interim analyses and demonstrate that optimizing the clinical trial capacity and its utilization provides significant value in addition to the option value of stopping the trial early.

Keywords: Pharmaceutical Drug Development, Clinical Trial, R&D Project Management, Optimal Investment

Suggested Citation

Kouvelis, Panos and Milner, Joseph and Tian, Zhili, Clinical Trials for New Drug Development: Optimal Investment and Application (November 21, 2016). Manufacturing & Service Operations Management, Forthcoming, Rotman School of Management Working Paper No. 2873859, Available at SSRN: https://ssrn.com/abstract=2873859

Panos Kouvelis (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.panoskouvelis.info

Joseph Milner

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Zhili Tian

University of Houston - Downtown ( email )

320 N Main st
Houston, TX Texas 77002
United States
9512903906 (Phone)

Coastal Carolina University - E. Craig Wall College of Business Administration ( email )

320 N Main st
Houston, TX Texas 77002
United States
9512903906 (Phone)

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