Prior to hitting the market, any new entity has to undergo a series of tests to establish its safety and effectiveness. The animal testing stage is called the pre-clinical testing phase, and the human testing stage is the clinical trial phase. Clinical research symbolizes a bridge from early-phase drug development to retail sales.
The first stage of clinical testing is conducted on normal, healthy human volunteers with the primary goal of affirming the entity’s safety for additional testing. In the second phase the entity is administered for the first time to patients, and it is during this stage that dose determination is accomplished. Further advancement happens in phase three, where a larger patient population is tested.
The bulk of new drug development expenditures arise from large-scale, multicentric phase three events. It generally takes around $400 million to $600 million to transfer a chemical entity from the laboratory to the pharmacy shelf, and this process takes place over a time period of eight to 10 years. And with such high stakes riding on the new drug’s introduction, pharmaceutical business development becomes imperative to ensure the product’s success and profitability.
Thus, the healthcare industry has at least one thing in common with Hollywood: both live or die based on the success of one or two blockbusters. When a new drug looks like it has a good chance of making it through the regulatory authorities, the pharmaceutical company that developed the drug pours tens to hundreds of millions of dollars into a marketing blitzkrieg to crescendo with the drug’s launch. The goal is to rake in as much profit from the drug as possible before the patent expires and competition from generic versions begins.
Pharmaceutical companies end up investing 20% of their revenue back into research and development, a higher percentage than virtually any other industry. But given the high return-on-equity ratios and net profit margins of these companies, pharmaceutical business development makes drug marketing a profitable business.