How a New Drug Is Born

The long, risky and expensive journey from a lab idea to an approved medicine, and why it shapes how drugs are priced.

Bringing a new medicine to patients is one of the most expensive and uncertain processes in business.

The stages

Discovery: scientists identify a disease target and search thousands of molecules for promising candidates.
Preclinical testing: lab and animal studies check safety and effect.
Clinical trials in humans, in three main phases.
Regulatory review by agencies such as the US FDA or India’s CDSCO.
Post-market monitoring once the drug is sold.

The whole process often takes 10 to 15 years.

The cost

A widely cited 2014 estimate from Tufts University put the average cost of developing a new drug, including failures and the cost of capital, at about 2.6 billion dollars. Other estimates are lower, and the figure is debated, but all agree it is very high.

Failure is normal

Most candidates fail. Of drugs that enter human trials, only around one in ten eventually wins approval. The cost of failures must be recovered from the few successes.

Why this matters economically

High fixed costs, low marginal costs: once developed, a pill may cost cents to make.
Patents give firms temporary monopolies to recover R&D costs.
Risk encourages firms to focus on large, profitable markets, sometimes neglecting diseases of the poor.

The one that made it

A company screens 5,000 molecules, tests 10 in animals and 5 in humans. Only one is approved, 12 years later. Its price must cover the cost of all the others that failed.

Thinking drug prices reflect manufacturing costs

Most of a new drug's cost lies in research, failed candidates and trials, not in making the pills.

Key takeaways

New drugs take 10 to 15 years from discovery to approval.
A 2014 estimate put average development cost at about 2.6 billion dollars.
Only around one in ten drugs entering human trials is approved.
High fixed costs and patents shape drug pricing.