Friday, May 7, 2010

Perverse incentives in clinical trials

Decisions whether to progress to Phase 3 are not always based on the effiacy and safety of a drug or the feedback on the drug from Phase 2. Derek Lowe notes that because Phase 3 is a milestone for smaller companies and their valuations is dependent on how advanced their products are.

A common mistake I see is that a Phase 2 study will fail soundly, but the sponsor still runs a Phase 3 trial without further tests. To "justify" these studies, a case will often be made that a secondary endpoint is "trending" and, if enough subjects are enrolled, it will be significant. Of course, most such Phase 3 trials will fail. Unfortunately, this same strategy carries forth into the investment arena with press releases chock full of meaningless p-values. P-values that savvy investors are double-checking.

We have statistical techniques available or under development that will aid in Phase 3 go/no-go decision-making without requiring statistical significance or baseless guesswork. We can compute a probability of Phase 3 success, with an estimate of uncertainty of that probability, using techniques we have now. I guess too many small companies want to go to Phase 3 at any cost rather than make a cool-headed decision. Maybe investors should start requesting a failure plan for drugs under development in which they invest to reduce this perverse incentive.