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C. Assessing the Discovery Portfolio |
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D. Assessing the Development Portfolio |
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E. Quantitative Assessment of the Portfolio and the Review Cycle |
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F. Portfolio Review and Priority Setting |
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G. Interpretation of the Portfolio Analysis and Action Steps |
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References |
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I. Introduction: the Existing Situation |
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For more than a decade now, pharmaceutical R & D expenditures in the United States have grown steadily at a rate of about 15% per year [1]. Over the same period the number of new drugs approved by the FDA has remained at approximately 23 per year [2]. Consequently, the investment in bringing a new chemical entity (NCE) to the pharmacist's shelf has risen steadily. Recent analysis now puts the development cost at $231 million [3], and there is every reason to believe the cost of drug development will continue to rise. |
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Interestingly, most pharmaceutical products are only marginally profitable. According to one study, the majority of pharmaceutical sales come from approximately the top 25% of pharmaceutical products [4]. About 55% of the profit from pharmaceuticals comes from 10% of drugs [5]. Only about 3 out of 10 drugs recover their development costs after taxes over the lifetime of the product [6]. For a sample of drugs introduced in the United States in the 1970s, it took 23 years after market launch to reach a positive net present value on the average R & D investment [7]. Changing market conditions now under way make it likely that newer products will have shorter effective lifetimes [8]. If this is true, the average NCE now being introduced would not pay back its development costs over its product lifetime. The conclusion from these analyses is that it is incumbent on a successful drug company to have an occasional blockbuster NCE to cover the cost of pharmaceutical R & D [7], since many drugs in the portfolio will not pay for their development. |
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Pharmaceutical R & D expenditures as a percent of sales climbed through the 1980s and reached a peak of 16.5% in 1989, as shown in Figure 1. There are a number of factors that have driven the cost of R & D upward, including inflation, the high cost of novel technologies, ever-increasing regulatory requirements, increased pressure to protect the environment, and more stringent worker safety requirements [9]. These factors have not diminished, nor are they expected to diminish in the future. Interestingly, over the past 5 years, |
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