Module I: The Business of Biodiversity

Pharmaceuticals are big business. The top 15 pharmaceutical companies generated over US$185 billion in drug sales in 1999. From the perspective of the pharmaceutical companies, there are intense performance pressures, including the need to increase output while cutting timelines and costs, the demand for lower prices from governments and managed care organizations, the need to build a critical mass in research and development (R&D) sufficient to keep pipelines flowing and competitive, and rising costs of enabling technologies for research, including genetic engineering, bioinformatics, and high-throughput screening. As a result, the industry has seen a recent wave of mergers and acquisitions, such as Monsanto joining with Pharmacia and Upjohn, or SmithKline joining with Glaxo, among others.

There are three basic stages to the drug discovery process:

• Basic Research and Feasibility Studies: Identifying promising leads, including from natural products, typically involving a team of some six people and taking 9 to 12 months.
• Programs: Identifying drag candidates, typically involving a team of 15 to 25 people and taking 1 to 3 years.
• Preclinical Studies: Identifying and testing new chemical entities, typically involving a team of 35 people or more and taking two to four years.

The whole discovery process typically takes six years or more and costs US$128 million or more.

Following the discovery of a potential drug there is a development process that can be divided into four essential phases:

• Human Safety Assessment
• Demonstration of Efficacy
• Side Effects and Long-Term Use
• Post-Marketing Surveillance

The development process typically takes about six years and costs more than US$270 million. The time frame for a US Food and Drug Administration review of a new drug application is approximately two years. The entire drug discovery and development process therefore takes approximately 12 years and costs about US$400 million. The net revenues (gross sales minus production and marketing expense) for the average new drug amount to nearly US$3 billion over 25 years.

For every 10,000 to 20,000 compounds screened for possible activity in the basic research stage, about 250 will make it as far as pre-clinical testing; of those, five make it as far as clinical trials, and only one becomes an actual FDA-approved drug. US expenditures on pharmaceutical R&D have risen fromUS$2 billion in 1980 to US$24 billion in 1999. As a percentage of sales, R&D has risen from 11.9 percent in 1980 to 20.8 percent in 1999.