Promoting Innovation in Drug Development

Authored By 
Nicholas Downing
Blog contributor 
Policy Fellow

Making new medicines is a difficult business. The drug development process is risky, expensive, and time consuming: fewer than 20% of drugs tested in clinical trials win FDA approval, and it costs approximately $1.2 billion to produce a new drug in a process that spans 12 years, on average. Together, these factors may contribute to the somewhat conservative nature of drug development today, one that too often delivers “me too” drugs that use an established approach to fight disease. Facing pressure to deliver short-term results, it can be difficult for CEOs of drug makers to justify investment in the development of innovative new drugs that are inherently more risky and will not pay off for many years, if at all.

A 2013 report from the FDA suggested that only 40% of new drug approvals over the past two and a half decades represent truly innovative medicines. These so-called “first-in-class” therapeutics have the greatest potential to transform patient outcomes because they establish new approaches to fighting disease. The remaining 60% work through pre-existing approaches and are therefore likely to yield only incremental improvements. If we are to make significant advances in fighting disease, we need a drug development process that preferentially develops innovative new medicines instead of replicating existing approaches.

Broadly speaking, there are three factors that have the potential to limit how innovative the drug development process can be. First, technical limitations make the development of innovative drugs more risky, as the underlying science may not yet be fully understood, or more broadly. Second, financial constraints cause individual drug makers to bear substantial technical risk, which can lead them to favor safer investments that tend to be less innovative. Finally, regulatory forces may make it more difficult for groundbreaking medicines to win approval due to uncertainty about new ways to combat disease. If these factors can be addressed, the argument for investing in innovative new drugs will become much more straightforward.

Technical risk can be reduced by encouraging effective collaboration and data sharing. There is no doubt that the secrecy surrounding the drug development process creates excessive technical risk, as multiple drug makers often pursue the same target. Collaboration between drug makers allows this technical risk to be shared. Just last month, the National Institutes for Health committed $119 million over five years to the Accelerating Medicines Partnership, a consortium of 10 drug companies and several non-profit organizations who agreed to share scientific data about drugs in early development in four disease areas. This type of collaboration is a model for mitigating technical risk inherent in drug development. At this stage, however, it is limited to a minority of drug makers and just a few diseases. We also don’t know if this model will produce innovative new drugs that help patients. Regardless, it seems that similar collaborations and a greater commitment to open science represent useful approaches to reduce technical risk.

Innovative therapeutics are, on average, more commercially successful than those that follow in their footsteps. Given the fairly steady rate of innovative drug introductions over the past 25 years, it seems that drug makers discount this source of value. This may be because, despite significant improvements in financing mechanisms in the past few decades, drug makers still bear a huge amount of individual financial risk. Hundreds of millions of dollars are spent on the development of a new drug, but when a drug fails in clinical trials, drug makers generally absorb the development costs. The traditional insurance market cannot really be applied to the drug development process, chiefly due to the difficulty of accurately measuring technical risk. However, the lack of traditional insurance does not mean that the risk of the drug development process cannot be shared. Many approaches to hedging R&D risk have been proposed; however, they have not been systematically adopted. Some have even suggested that the drug development process be securitized, an approach that would more effectively distribute the risk to a willing pool of investors. Drug makers, investors, and bankers must work together to improve and adopt new project financing and hedging tools that effectively spread the financial risk inherent in the drug development process.

Finally, the FDA has several well-defined pathways, such as accelerated approval, that effectively speed the development and approval of promising new drugs. Although these pathways have been in existence for over a decade, the rate of innovative drugs reaching the market has remained steady. The Food and Drug Administration Safety and Innovation Act of 2012 created the “breakthrough therapy” designation, which commits FDA resources to the most promising new drugs early in the development process. The program is too new to have had a measureable impact: only four drugs have been approved as breakthrough therapies, and their development was already underway when the program was established. More study is needed in the coming years to determine the overall impact of this program and whether it will prove to be a useful model for bringing other innovative therapies to market more quickly.

Some critics will, correctly, point out that not all drugs need to be innovative. There are numerous examples of “me too” drugs that have yielded a material advantage over their innovative, first-in-class predecessors (e.g., reduced dosing frequency, fewer side effects). But when 60% of drugs utilize an existing approach, the balance seems to have tilted too far towards caution.

With global research and development investments hovering near all-time highs, we need to support the drug development process by changing key technical, financial, and regulatory structures to ensure that advances in basic science are being translated into the most innovative and impactful new medicines.

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