Will virtual trial models provide the Covid-19 vaccine faster?

Covid-19 has given us a glimpse into the long and costly process of drug development. While health experts are speculating on a covid-19 vaccine by 2021, the reality is that the drug development process can take about 10-15 years in part due to the time and costs of clinical trials – which play an important role in the research and development (R&D) of new drugs. Data has shown that the current cost of bringing a new drug to market is estimated at approximately US $2.6bn, with clinical trials accounting for two-thirds of the costs – of which 90% end in failure.

While the market has seen a deceleration in traditional ‘physicial’ clinical trials – over 1,100 clinical trials have been cancelled during May across the US and Europe alone (GlobalData) – virtual clinical trials have seen a jump in demand following Covid-19. Over the last three months, drug developers were forced to completely abandon their trials since hospitals and clinics, that typically served as trial sites, were flooded with Covid-19 patients. At the same time, Covid-related restrictions and the fears of transmission have contributed to this sharp decline.

Against this backdrop, a number of pharmaceutical companies along with researchers and a small number of tech start-ups are turning to virtual clinical trials to continue their drug development process. Virtual trials are less expensive to run and we struggle to see what cannot be done online that is currently done by a physical visit to the trial centre, including highly sensitive items such as consent and data collection.

Virtual trial models provide a significant cost reduction opportunity for drug developers, probably enough to make the switch entirely inevitable. The savings in trial costs are measured in both capital expense and time, thereby conserving working capital and extending the revenue generating period of patents.

Apart from the more obvious transition to a mixed model of physical plus virtual clinical trials, there are other interesting market implications.

A reduction in the cash and time cost of running clinical trials plus a likely speeded up approval process by the FDA in the US could lead to significant lowering of the minimum internal rate of return (IRR is a discount factor for future cash flows), also known as the hurdle rate, which in turn means more projects will come into the consideration set for investment.

The more projects a company has that can make an acceptable return the more growth opportunities the company has. In short, if the hurdle rate is lowered, over time more problems get solved (read more drugs or devices come to market). At worst the a mixed physical plus virtual clinical trials model will lead to a rise in additional indications (uses) for FDA and EMA approved drugs.

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