Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development - Innovation and Marketing in the Pharmaceutical Industry - page 25

The odds of creating a marketable drug are minuscule: only 1 in every 5,000-
10,000 potential compounds investigated by the US-based pharmaceutical companies
is granted FDA approval. Even if the initial screening and testing have shown favor-
able indications, the chances of a promising drug candidate to make it through the
sequential stages of the drug development process remain around one in fi ve. About
30 % of the failures are associated with unacceptable toxicity. Another 30 % stem
from lack of effi cacy, while the remaining failures can be related to issues with the
drug's rate of action, the duration of its effects, or problems with the absorption,
distribution, metabolism, or excretion of the drug by the human body.
On average, obtaining FDA approval and the rights to market a drug take about
15 years, with the majority of that time dedicated to clinical trials. In 2005, the aver-
age cost of a new drug successfully introduced in the USA was estimated to be $1.3
billion—a hefty 62 % increase over the last known estimate of $803 million in 2000.
The opportunity cost of capital, related to the time the drug is winding its way
through the discovery and development process, accounts for about 50 % of the total
cost. Hence, the estimated out-of-pocket R&D expenditure for a new drug is
approximately half of the amount mentioned above (DiMasi et al. 2003 ). Also, it
must be noted that these frequently cited cost estimates are the fully capitalized cost
per approved drug , which includes the cost of investigating compounds that fail to
make the cut.

2.2.2 A Brief Historical Perspective on Drug Innovation

Before WWII, the link between the pharmaceutical industry and the life sciences was
relatively tenuous. Most new drugs were derived from natural sources (herbs) or were
based on existing compounds, mostly of organic origin. Little formal testing was done
to ensure their safety or effi cacy. The war instigated an extraordinary need for antibi-
otics worldwide. Fueled by surging market demands, pharmaceutical fi rms invested
in unprecedented R&D programs that changed forever the process of drug discovery
and development. In addition to acquiring technical and managerial experience along
with the organizational capabilities to produce massive drug volumes, pharmaceutical
fi rms emerged from the war with the clear realization how highly profi table drug
development could be. Large-scale investments in R&D followed suit.
After the war, the industry faced a vast set of diseases and disorders with no known
cures. There was little detailed knowledge of the biological underpinnings of many
ailments. The pharmaceutical companies had to resort to random screening , trying
tens of thousands of diverse natural or chemically derived compounds in test tube
experiments and on laboratory animals in search for potential therapeutic effects.
This process resulted in the compilation of enormous libraries of chemical com-
pounds with known structure and studied properties. Random screening was gener-
ally ineffi cient—serendipity played a major role in fi nding a promising substance as
the various action mechanisms (the biochemical and molecular pathways responsible
for the therapeutic effects of drugs) were not well understood at the time.