Clinical Trials for New Drug Development: Optimal Investment and Application

Panos Kouvelis (), Joseph Milner () and Zhili Tian ()
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Panos Kouvelis: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130
Joseph Milner: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Zhili Tian: College of Business, Florida International University, Miami, Florida 33199

Manufacturing & Service Operations Management, 2017, vol. 19, issue 3, 437-452

Abstract: Phase III clinical trials are expensive and require enrolling and treating hundreds or thousands of patients at many sites. The time and cost required to do so are 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 at which 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 low- to 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 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:19:y:2017:i:3:p:437-452

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