•Research and Development
Time to develop a drug = 10–15 years
–Cost to develop a drug
2001 = $802 million2
1987 = $318 million
1975 = $138 million
–Cost to develop a biologic
2006 = $1.2 billion
Percentage of Sales that went to R&D in 2006
Domestic R&D as a percentage of domestic sales= 19.4%
Total R&D as a percentage of total sales = 17.5%
Total National Institutes of
(Part of this budget is allotted for developing
• 2007 = $28.6 billion
• 2006 = $28.5 billion
• 2005 = $28.7 billion
• Drugs approved in 2006 = 299
• Only 3 of 10 marketed drugs ever produce
revenues that match or exceed R&D
• Between 1995 and 2005, over 160 orphan
drugs were approved.
• Average effective patent life for
pharmaceuticals= 11.5 years
Value of Medicines
• New medicines generated 40 percent of the two-year
gain in life expectancy achieved in 52 countries
between 1986 and 2000.
• A recent study found that the return on investment
(ROI) for a 20 percent increase in adherence was
substantial for disease-related costs: for every $1
spent on diabetes medicines, there were $7.10 in
savings; the savings for $1 spent on cholesterol
medicines was $5.10; and, for every $1 spent on
blood pressure drugs, $4 in savings resulted.
• Every additional dollar spent on health care in the
United States over the past 20 years has produced
health gains worth $2.40 to $3.
• Total number of U.S. prescriptions
October 2004 September 2005
• Generic share of market by volume
(generic/brand, weighted average)
– July 2005 = 54/46
– 2006 = 58/42 (estimated)
“There’s nothing more innovative than
working in the pharmaceutical industry
right now. There’s nothing more
exploratory. There are no frontiers that are
more open than those that exist in our
business right now.”
—Andrew Dahlem, Ph.D., Eli Lilly and
Company, Vice President, Toxicology/
Drug Disposition and
BiopharmaceuticalCompanies Are Investing
More in Research and Development
Sources: Burrill & Company, analysis for Pharmaceutical Research and Manufacturers of America, 2007; and Pharmaceutical
and Manufacturers of America, PhRMA Annual Member Survey (Washington, DC: PhRMA, 2007).
*The “Biopharmaceutical R&D” figures include PhRMA research associates and nonmembers; these are not included in “PhRMA
Member Companies’ R&D Expenditures.” PhRMA first reported this data in 2004.
The Cost of Innovation
• Developing a new medicine is a long and costly
process. The chances of success are very low.
• There are many estimates of the cost of developing a
drug, but one of the most-cited studies is from the
Tufts Center for the Study of Drug Development,
which put the average cost of developing a new drug
at $802 million (in year 2000 dollars), including the
cost of failures and capital.
• The Tufts Center also recently estimated the cost of
developing a biologic (a medicine generally composed
of large and complex molecules, produced by a
biological system) to be $1.2 billion (in year 2005
Most Leads Don’t Become
Statistics show that most candidate drugs
never make it to the medicine cabinet. In
– Only 1 in 5,000–10,000 compounds tested
eventually reaches consumers.
– Only 1 of every 5 compounds that enter clinical
testing reaches the market.
– Only 3 of 10 drugs that reach the market ever
earn enough money to match or exceed the
average R&D cost per new medicine.
Drug Development Costs
Note: The Tufts Center for the Study of Drug Development has updated its $802 million estimate
by adjusting for annual rate of R&D
increases and inflation. That estimate is available at http://csdd.tufts.edu/.
Source: J. A. DiMasi, “Tufts Center for the Study of Drug Development Pegs Cost of a New
Prescription Medicine at $802 Million,”
press release, 30 November 2001.
• Understand the Disease to be Treated.
What are its causes, molecular pathways, and
• Identify a Drug “Target.”
What gene or protein should the new drug
• Test the Target for Research Feasibility.
Is the target really involved in the disease
Can a drug act on the target?
Find a Candidate Drug or “Lead.”
What molecule may act on the target to change disease
Conduct Initial Tests on Every Promising Compound.
– Is the compound nontoxic?
– Can it be absorbed into the bloodstream?
– Distributed to the proper site in the body?
Optimize Remaining Leads for Safety and Effectiveness.
Are any of the hundreds of possible chemical variations
of a lead more effective against the target or less toxic?
Test Leads in the Laboratory and in Animals.
How does the candidate drug work?
Is it safe enough for testing in humans?
Develop and Test Process to Make Drugs for
What “recipe” and form should it have forhuman
How can we make enough of the drug forpatient
IND Application and Submission
File an Investigational New Drug (IND) Application
with the Food and Drug Administration (FDA).
– What is the new drug’s chemical structure?
– Mechanism of action?
– Side effects?
– What is the research plan for clinical trials?
FDA and IRB (Institutional Review Board) Reviews
– Are risks to clinical trial participants reasonable?
– Are plans for informed consent and
Conduct Phase I Trials (20–100 healthy volunteers).
– Is the candidate medicine safe in humans?
– How is the drug metabolized by the body?
– What is the safe dosing range?
– Should it move into further development?
Conduct Phase II Trials (100–500 volunteers with the target condition).
– Does the drug improve the patients’ condition?
– What are its side effects?
– Does it have the anticipated mechanism of action?
– What are the most safe and effective doses and dosing schedules?
Conduct Phase III Trials (1,000–5,000 volunteers with the target
– Does the drug show statistically significant safety and benefit?
– Is the medicine safe over time?
Submit New Drug Application (NDA), which
includes up to 100,000 pages of information
on research findings, analysis of clinical trial
results, and proposed labeling and
–Is the new drug safe and effective enough to be
approved for use?
–Are more studies or information needed before a
decision can be made?
–Does the proposed manufacturing process
ensure product safety and integrity?
Create and Perfect a Large-Scale Manufacturing
–How can we move from smaller-scale production to large
quantities of labeled, packaged products ready for
–How can we guarantee that each tablet will contain the
correct amount of the drug without impurities?
–How can we ensure manufactured product safety?
Create a Customized Manufacturing Facility.
–Is a new facility needed, or can an existing facility be
–Does the manufacturing facility comply with good
manufacturing practices set out by the FDA?
Create a (Sometimes Global) Distribution Process.
Innovative Approaches Characterize New
Medicines in Development
Orphan Drugs Advance
Treatment for Rare Diseases
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