What development costs, and why most candidates fail
Most candidate medicines fail before they reach the market, and the few that succeed take many years and a great deal of money to develop. Estimates of that attrition, time and cost differ with the stage they count from and the year they were made, and the economics of a therapeutic area such as cancer shape what companies develop within it.
The development funnel
In 2014 only one in 5,000 to 10,000 development compounds reached the market, and the process could take up to 15 years. Many years pass, and many drugs fail, before a drug reaches the phase II and phase III studies of clinical development.
Developing a novel drug is time consuming and costly, and only a small fraction of the investigational new drugs that pass preclinical evaluation and enter clinical trials eventually lead to a marketed product. In 2017 taking a compound from bench to bedside took up to 12 years, at an average estimated cost of more than US $1 billion. The number of compounds narrows at each stage:
- Basic research: target identification and target validation.
- Drug discovery: 5,000 to 20,000 compounds, through lead identification and lead optimisation.
- Preclinical research: 250 compounds, through pharmacodynamics, pharmacokinetics and toxicology.
- Clinical studies: 5 compounds, through phase I, phase II and phase III studies.
- Approved drug: 1 compound, through regulatory approval, drug launch and post-marketing or phase IV studies.
In 2017 a drug was estimated to take 12 years on average to get from the laboratory to routine use in patients, and only 10% of drugs that start preclinical testing were estimated ever to be tested in humans, let alone to gain a licence and reach regular use.
New medicines must first be discovered, purified and tested in preclinical trials before researchers consider clinical trials, which are one of the final stages of a long and careful research process. According to the American Cancer Society, about 1000 potential medicines are tested before one reaches clinical trials. On average, a new medicine to treat cancer has been studied in the laboratory for at least six years, and sometimes many more, before its first clinical trial starts. In 2017 more than 4000 experimental drug therapies were active, and the number was expected to keep increasing.
Developing a new medicine is a lengthy and complex process, and in 2020 its attrition ratio was estimated at 10,000 to 1 and its overall costs could exceed one billion US dollars.
In 2008 the FDA approved 21 new medications, only five of them for conditions that are both common and serious. In 2010 the founding president of a non-profit that works with the FDA, industry and academia to accelerate drug approval held that over the preceding decade the cost per approved drug had risen to $1 billion, time to market had doubled to 15 years, and the drug approval failure rate had risen to 90–95%.
Development costs and returns
A Deloitte business report put the cost of taking a new drug from research and development to market launch at $1.19 billion in 2010 and $2.17 billion in 2018, with a return on investment of merely 3.2% of total research and development costs. With costs higher and market outputs relatively lower, optimising research and development processes, methods and resource allocation was in 2019 on the agenda of medical professionals, stakeholders and investors.
In a survey of 138 pivotal trials on which the FDA based its approval of 59 new therapeutic agents in 2015 and 2016, the median estimated cost was $19.0 million, ranging from under $5 million to $346.8 million. More recent reports, as of 2023, put the median cost for new cancer drugs at $648 million.
In 2010 the founding president of a non-profit that works to accelerate drug approval held that the US spent much on biomedical research and little on regulation, noting that the entire FDA budget was less than that of the school district of Montgomery County, Maryland, where the FDA is located. He likened the disparity to rowing a boat with one strong arm, the NIH, and one puny arm, the FDA, so that the boat goes in circles. He also held that if drug development costs are lower, lower prices can be negotiated for patients.
The economics of cancer drug development
In 2012 cancer had been a top priority in drug development for over 50 years, and cancer drugs, marketed or in development, were a critical part of the portfolio of most major drug companies and could be the sole focus of smaller pharmaceutical and biotechnology companies. Annual healthcare spending on cancer then exceeded $125 billion in the USA alone and was projected to exceed $200 billion within ten years.
In 2010 the world pharmaceutical industry had around 900 cancer drugs in phase I to III development, against about 350 in the next biggest category, central nervous system drugs. As of 2012, cancer accounted for about 13% of deaths worldwide, the same proportion as ischaemic heart disease, with stroke and cerebrovascular disease contributing a further 11%, yet only just under 200 cardiovascular drugs were in the pipeline. The growth in the number of cancer drugs in development was driven by an enormous growth in knowledge of cancer biology. The more is known about how cancer cells behave, the more potential drug targets emerge. But attrition rates for new drugs were high, with figures of 74–95% quoted in the literature in 2012, and many promising new agents failed to alter disease characteristics meaningfully, in phase I or II, or patient outcomes, in phase III.
In one writer's 2012 view, the law of diminishing returns clearly applies to cancer drug development, with fewer genuine breakthroughs and ever-smaller incremental advances. Despite the high cost of developing new cancer medicines and the inevitable political discussions about how extravagantly society is prepared to fund treatments of increasingly marginal benefit, there was then no sign of reduced investment in cancer research, and annual research and development spending by the top 18 pharmaceutical companies exceeded €3 billion. Companies were confronting the financial pressures of the regulatory and patent protection environment by devoting resources more strategically, for example by cancelling unpromising leads earlier and spending on increasing the range of indications for effective products. The same writer held that as cancer classification became ever more sophisticated, treatment was destined to become increasingly personalised, and that as the target populations for novel therapies became smaller, this would create further challenges for the design and conduct of studies and for the financial viability of effective products.
Cancer is one of the leading causes of death globally, with almost 20 million new cases and nearly 10 million deaths estimated in 2020, and as of 2023 research and development of oncology drugs had consequently never lost its momentum. Between 2009 and 2020 the FDA approved over 300 oncology drugs, supportive medicines excluded, and between 2010 and 2019 85 marketing authorisation applications for oncology drugs in Europe received a positive opinion from the EMA's Committee for Medicinal Products for Human Use. In 2023 Europe appeared to be falling behind the US in how quickly it approved oncology drugs, although the number of approvals in both regions was soaring every year. Multiple guidances are dedicated to different tumour types in oncology clinical trials, which shows how complex developing drugs for cancer is.