The Process and Costs of Drug Development

The investment required for discovering and developing each new drug averages $2 billion USD. In addition, the process of taking a synthesized compound to the market as a drug can take years, even decades. With such high risk and no promise of reward, companies and institutions continue to work toward developing new drugs to save and improve lives. We take a look at the huge costs involved in getting a new drug from the lab bench to the pharmacy shelf.

Drug Discovery: The Hit Compound

“The drug industry harbors a dirty secret. New drugs are small organic molecules and small organic molecules are made by chemists”

Peter Goodfellow, Senior Vice President of Discovery Research at GlaxoSmithKline (Retired)

Screening For Drug Candidates

Improvements in screening technologies such as X-Ray crystallography is enabling the biologics sector to reach new heights, which will inevitably eclipse the small molecule market in the near future. Another sector that is seeing huge growth is gene therapy, where techniques like CRISPR is fueling a year-on-year increase in the number of gene therapy drugs like Luxturna. However, at the time of writing, the majority of drugs on the market today are still small organic molecules.

small molecules biologic graph comparison FDA drug approvals
The focus on small molecule drug development is slowly shifting toward peptide-based therapies, or ‘biologics’

Though there are various techniques available to design and synthesize these small molecules, their discovery usually starts off by screening existing compound libraries. With the aid of computer programs, screening of thousands of compounds can be quickly performed; this narrows the field to just several viable drug candidates, also known as ‘hits’.

Following this, the next step is to synthesize these ‘hits’ for use in large-scale assays. Typically, companies design and study a large number of drug candidates, as it is a relatively inexpensive process. In vitro assays provide preliminary data, such as how well the drug might work inside a human body (efficacy) – this is a key driver in drug development.

Cost/Benefit Analysis

The pharmaceutical company will usually proceed to subject a few promising hit compounds through to more costly pre-clinical and clinical trials. There are, however, several criteria that it should (ideally) fulfill:

  1. A well-defined pharmacophore – the active functional group(s) of the molecule. This allows for tweaking of other secondary components to optimize safety and efficacy. Essentially, this ‘future-proofs’ the drug by ensuring a pathway for subsequent discovery chemistry.
  2. Safe and feasible scale-up. The initial route of synthesis uses small-scale techniques in a laboratory. In order for a drug to be viable, it needs to be suitable for large-scale manufacturing. But you wouldn’t want your trusty but deadly reducing agent – lithium aluminum hydride – hanging out in large vats, surely?
  3. Cost reduction. Research chemists may be fond of expensive reagents, but from a manufacturing standpoint, the best chemistry is simple chemistry. In addition, highly reactive precursors equate to costs in terms of safety measures.
  4. Green chemistry. In general, the pharmaceutical industry adopts certain practices that have improved the safety and reduced the environmental impact of chemical reactions – both in small benchtop experiments and at larger, industrial scales. These are explicitly stated as the 12 Principles of Green Chemistry.

Drug Development: Clinical Trials

Pre-clinical trials are the next step in the process, where qualified drug candidates are put to the test by studying their effects on animals. Lab rats are the model of choice; in addition to their ease of handling and anatomical similarity, they are also relatively inexpensive. Statistics show that our rodent friends are present in 95% of medical and pre-clinical studies1.

Related: Zebrafish, Lab Rats of the Future?

However, accurate safety and efficacy data is best obtained through the gold standard of drug research: placebo-controlled, double-blind, human clinical studies. Firstly, regulatory authorities must approve the ethics and safety of such studies in humans. In the U.S., companies submit an Investigational New Drug (IND) application, in order to present all existing data on the drug to the Food and Drug Administration (FDA). The FDA will review this before granting approval, after which clinical trials can proceed.

drug discovery development clinical trials humans administration medicine
Though not perfect, human clinical trials provide us with the clearest picture of how drugs work

Four Phases of Clinical Trials

Phase I trials begin once the FDA approves the IND. A small group of healthy volunteers (usually 20 to 80) take very low doses of the drug to determine its effects on humans. Close monitoring for safety data and undesirable side effects is a must; there have been cases of phase I trials causing unpredictable deaths. As a rule of thumb, Phase I clinical trials of life-saving drugs such as AIDS and cancer therapies are almost always performed on patients rather than the usual healthy volunteers).

Related: The First HIV Therapy Came About Before HIV

Phase II trials continue with small-scale efficacy and dosing studies on a group of around 100 patients. The main goal of phase II trials is to determine the correct dosage that produces the desired therapeutic effect. Also collected is data concerning the safety and efficacy of the drug.

Phase III trials involve a large number of patients (in the thousands). Essentially, they check to see if the treatment is comparably better than existing drugs on the market. To further ensure the drug’s viability, these studies usually encompass different populations and regions, different dosages, and even in combination with other drugs.

But that’s not the end! Long-term studies – known as Phase IV trials – detect unexpected adverse reactions; this continues even after the drug is approved. Consequently, the FDA requires companies to present regular safety updates from these trials. In the past, phase IV trials have uncovered dangerous side effects in drugs, causing their withdrawal from the market.

overview drug discovery development process costs
Overview of the process of drug discovery and development, costs (time/money) estimated

From Discovery to Market

Following promising clinical data, the company then submits a New Drug Application (NDA). This dossier will include prior in vitro assays and in vivo animal studies, combined with human clinical trial data. Also submitted is new knowledge from the trials, such as information on drug metabolism and excretion. On average, only 13.8% of all drugs that enter clinical trials ever make it to an NDA submission2.

Related: Key Roles of CYP450 Enzymes in Drug Metabolism

The FDA then reviews every bit of information – from manufacturing facility standards to appropriate labeling on the box – before choosing to approve it for sale on the market. While drug discovery already sounds long and tedious, let’s take a look at some of the staggering numbers involved3. The table below shows the costs of research and development for an average investigational drug, adjusted to a 2018 dollar value.

Cost of bringing a drug to market, blanketed to cover costs of failed research – based on a final success rate of ~10%.

In conclusion, the costs for a pharmaceutical company to bring a drug to market in 2018 approaches $2 billion and 12 years of development. Despite over $50 billion in yearly R&D spending by the larger pharmaceutical companies, the FDA only approves around 20 new chemical entities per year5. Consequently, this severely impacts the industry and limits the potential for blue-sky discovery research. Uncertain returns on investment mean the pharmaceutical industry prefers to target already established markets.

The Future of Drug Development

As a result, many existing drugs have simply been ‘refreshed’ and marketed as new. But these are usually therapies for ‘Western’ diseases: coronary artery disease, stroke, lung cancers. There will always be a significant part of the population in need of a new cholesterol-lowering drug and additionally, can well afford it too. So why not keep churning out more Lipitors, the world’s all-time best-selling drug? The current model of drug development – considering the costs involved – supports this approach.

Related: The FDA’s Answer to Rare and Tropical Diseases

From the early days of penicillin to the recent blockbuster success of novel biologics like Humira, the general public always has always had a keen interest in discovery research. Novel treatments create a bigger impact and bigger improvement of our lives, but it is a risky business for companies. Regulatory agencies must continue to work toward incentivizing and rewarding new research by companies that dare to venture.

We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been.

George W. Merck – President, Merck & Co., Inc. (1925 to 1950)


  1. The Essential Need for Animals in Medical Research. (n.d.). Washington DC: Foundation For Biomedical Research.
  2. Wong, C. H., Siah, K. W., & Lo, A. W. (2018). Estimation of clinical trial success rates and related parameters. Biostatistics2018.
  3. Mestre-Ferrandiz, J., Sussex, J., & Towse, A. (2012). The R&D cost of a new medicine. Monographs.
  4. Paul, S. M., Mytelka, D. S., Dunwiddie, C. T., Persinger, C. C., Munos, B. H., Lindborg, S. R., & Schacht, A. L. (2010). How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nature reviews Drug discovery, 9(3), 203.
  5. Adams, C. P., & Brantner, V. V. (2006). Estimating the cost of new drug development: is it really $802 million?. Health Affairs, 25(2), 420-428.
  6. Kola, I., & Landis, J. (2004). Can the pharmaceutical industry reduce attrition rates?. Nature reviews Drug discovery, 3(8), 711.
  7. Dickson, M., & Gagnon, J. P. (2004). Key factors in the rising cost of new drug discovery and development. Nature reviews Drug discovery, 3(5), 417.

You may also like...

2 Responses

  1. I found it interesting that the FDA reviews every bit of information from manufacturing standards to labeling on the boxes. I’ve been reviewing the process of drug development and was very surprised to learn how much goes into it. I also liked that you mentioned the cost to bring a drug to market can be around $2 billion and around 12 years of development.

    • Sean says:

      Thank you! Out of necessity, there are indeed very tight controls around the development and manufacturing of drug products. $2bn is based on my own research and calculations, the actual cost will of course, vary from drug to drug.

Leave a Reply