Corporate Risk Management, 2nd Edition

14

CASE STUDY 1

Risks in Projects in the Pharmaceutical Industry

14.1 INTRODUCTION

Pharmaceutical companies spend billions of US dollars each year in the development of new products. On average, the development of a new drug costs between US$300 and US$800 million and takes between 8 and 12 years from conception of the initial idea for a drug design to production of a final product. The average success rate is about 1 in 12 ranging from 1 in 4 for ‘me too’ to 1 in 25 for ‘blue-sky’ products. Approximately 40% of the ‘starting candidates’ are not sanctioned for further development during the first 12 months of the drug development process (DDP).

Every drug discovered in the laboratory development stage is a potential candidate for further development. The decision to sanction further development is dependent on the results of tests at each stage of the DDP, the costs, time and risks associated with a particular candidate. The development of drugs is dynamic which results in numerous drugs being developed at any one time within the drug development industry. The development of drugs can be considered as a number of discrete phases, each having inherent risks at each stage of the DDP.

(A ‘me too’ drug can be defined as a drug product which may be typified by the commonly used antibiotic type drug following a composition that is already well established and not subject to a patent. An example of a ‘blue-sky’ product would be a drug which would be the first in its class, an example ...