ABSTRACT
Pharmaceutical R&D can be viewed as a series of lotteries that require substantial expenditures and yield uncertain returns a decade or more in the future. In most cases, it is necessary to screen thousands of synthetically developed or biologically derived compounds to obtain a few that are promising enough to warrant preclinical animal trials (Buiger 1990). Developing or obtaining these compounds and screening them for a particular set of chemical reactions can take several years. Of those few compounds that show some promise after initial screening, as few as one out of ten may advance through preclinical and clinical testing to eventually receive regulatory approval (Balthasar, Boschi, and Menke 1978; Hansen 1979; FDA 1988; DiMasi et al. 1991). These preclinical and clinical trials can take more than 10 years to complete and require expenditures of $100 million or more, not including financing costs. Regulatory review of new drug applications requires two to three more years. Once a new drug is approved, revenues can be expected to rise over the first few years, remain relatively steady until patent protection expires, and then ultimately decline due to competition from generic drugs or new products (Statman 1983; Grabowski and Vernon 1990).
