The Pharmaceutical Industry

THE PHARMACEUTICAL INDUSTRY

Careful analysis indicates that a majority of new drugs originate in research carried out in public sector institutions (universities, research institutes). However, because of the economic investment required and the need to efficiently access and integrate multiple technologies, most new drugs are then developed in pharmaceuti-cal companies. Enormous and increasing costs, with estimates from $150 million to several billion, are involved in the develop-ment of a single new drug that reaches the marketplace. Only 2 of 10 marketed drugs return their research and development (R&D) investments, thus providing considerable motivation to develop “blockbuster drugs.” Thousands of compounds may be synthe-sized and hundreds of thousands tested from libraries of com-pounds for each successful new drug lead, which then frequently needs to be further optimized for reasons of potency, selectivity, drug metabolism, and dosing convenience before each drug reaches the market. Increasing regulatory challenges and litigation resulting from real or suspected drug toxicity after approval fur-ther increase the cost of developing new drugs. Unfortunately, only 10–15% of the new drugs that achieve marketing approval represent significant advances in safety and effectiveness; the remainder are merely molecular variants (“me-too drugs”) on true breakthrough drugs.In spite of the cost of development, the financial rewards in drug development can be enormous. The global market for phar-maceuticals in 2007 was estimated to be $712 billion and the return on investment in the pharmaceutical industry is among the highest of all industries. This is ensured by setting the price of a new, important drug very high and lowering the price only when competition forces it down; for example, when me-too variants or generic versions of the original molecule become available. Even in Europe, where drug prices are lower than in the USA, industry profits are comparable. The 2007 worldwide sales of the top-selling drug (Lipitor) exceeded $12 billion. In the USA, approximately 10–12% of the health care dollar is presently spent on prescription drugs. At the same time, the investment in drugs can have enormous health benefits—new drugs can reduce suffering and save lives.