Market Barriers to the Development of Pharmacotherapies for the Treatment of Cocaine Abuse and Addiction: Final Report. Pharmaceutical Evaluation of New Drug Investment Opportunities


As discussed above, a pharmaceutical company's decision to develop and market a drug is predicated on a number of factors related to the probability of economic success of a given product. Each of the several companies that were interviewed for this study indicated that the evaluation of a candidate drug project hinged on an overall assessment of risk versus reward. Indeed, several of our interviewees reported using some form of risk-reward analysis as the primary analytic framework to inform drug development decisions.

The decision to develop a drug requires the input of both the clinical development departments of the company and the market research/product planning departments to help assess the clinical and commercial viability of candidate products. One of the company executives described a two-step decision making process. First, a pre-clinical committee meets to discuss key topic areas of interest for the company (e.g., CNS, cardiovascular disease) and then agrees upon a preferred list of development topics. For example, if there is a research breakthrough in the area of cocaine abuse and addiction, the pre-clinical committee first would have to agree that the breakthrough warranted the company's focus on that particular disease area. If the pre-clinical committee agrees that drug development should be pursued, it would refer the drug candidate to the commercial development arm of the company, which then would assess the product's market potential.

A part of the overall risk-versus-reward analysis by pharmaceutical firms involves financial calculations, e.g., the net present value (NPV) of a product. Although these calculations may be performed at any point during the development cycle of the drug, one interview respondent noted that most financial calculations are performed at the end of Phase II or the beginning of Phase III clinical trials of a product. These financial calculations are most often performed by market research or product planning departments as part of an assessment of a candidate drug's potential commercial viability. Interview respondents cautioned that while NPV and other financial calculations are important quantitative indices of risk and reward, certain qualitative factors that may be more difficult to quantify (e.g., product liability issues, opportunities to pursue drug development in other areas) must be weighed in assessing risk versus reward.