Pharmaceutical companies spend billions of 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). (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 of this may be one which could cure cancer or COVID 19).

During the DDP the following factors have to be taken into consideration and all data and information required by both internal and external authorities made available. Quality assurance (QA) - this factor requires that each step of the drug development process is adequately documented, recorded and traceable. Quality control (QC) - control methods are required as part of the development process to ensure all necessary tests which control such elements as impurity level tolerances and particle size are carried out. Animal testing is carried out prior to first-in-man tests to ensure that no serious harmful side effects are delivered to the subject patients. It is during Phase 1 of the DDP that any uncertain harmful or unexpected side effects may be discovered. Stability tests are performed to ascertain that the drug product will remain stable and efficacious over its stipulated storage shelf life. Testing is carried out throughout the three development phases. Scaling up, the manufacture of bulk quantities of the drug in the latter part of Phase 2 and all of Phase 3, so that clinical trials required for efficacy tests may proceed is carried out. The many factors that affect the scaling-up process include: stability, quality and unexpected reactions between substances not encountered during laboratory development. Clinical trials of a new drug is tested first in the test tube, then in animals and finally in humans. A clinical trial involving patients assesses the safety and efficacy of the therapy under highly controlled circumstances. These trials are carried out in three stages and take between two to four years to complete.

Approximately 70% of the expenditure occurs in the last two to three years of the DDP. This is illustrated by the steepness of the curve in the figure below. This is due to the scaling-up process of the drug in order to produce bulk material for clinical trials.

The resourcing and allocation of essential personnel and equipment account for a large proportion of this expenditure. During this period any small changes made to the constituents of the drug can have major time and cost implications and lead to rejection or substantial re-work. Any changes during this period can affect the acceptance of the drug since it is no longer identical to that originally filed. Pharmaceutical companies work closely with regulatory authorities, especially in the last three months prior to filing approval. This relationship allows pharmaceutical companies to pre-empt the results and plan bulk manufacture. Once filing has been approved for sale of the drug, full scale manufacturing takes place. Sales of the drug will determine the steepness of the curve and the commercial viability of the investment. Development costs must be recouped as soon as possible over the remaining patent life.

It is extremely important that the risks associated with each stage of DDPs are identified early in the development process. Key risks include insufficient financial investment at the appropriate times, unreliable test data, lack of quality assurance and quality control, difficulties arising through the outsourcing of starting materials, introduction of previously unseen effects due to the scaling-up process, poor fit of the equipment to the chemical process, lack of suitable experience in key personnel at each stage of the DDP, inadequate testing and validation etc.

Required

1. A pharmaceutical manufacturing company which is developing a drug to cure COVID 19 has approached you seeking financial advice. The management wants to understand the financial commitments required and the financial implications of decisions made during the drug development process (DDP) and subsequent sale of the drug. Focusing on the case above, advice the management accordingly.
2. advice the management on the risks and their management that may result during the drug development process (DDP) and subsequent sale of the drug