What is Research and Development in the Pharmaceutical Sector?

Pharmaceutical R&D is the process of developing drugs and pharmaceuticals so they are appropriate and safe for market use. The funding is usually from a mix of both private and public sources.

Pharmaceutical R&D is important so that we can continue innovating and developing the most effective medicine and drugs to medicate people worldwide.

In this article we’ll look deeper into Pharmaceutical Research and Development as we analyse the past, present and future of one of the most heavily invested R&D industries.

History of Pharmaceutical R&D

Pharmaceutical R&D has changed and evolved over centuries.

One of the first documented clinical trials dates right back to the 16th century in the scurvy trial conducted by James Lind. Lind segregated 12 sick sailors into 6 pairs and gave each of the pairs a different substance to add to their diet.

The pair that had orange and lemons in their diet saw an improvement in their scurvy illness. Years later, we now know that this is because the oranges and lemons contain vitamin C.

James Lind was a pioneer and his contribution helped Pharmaceutical Research and Development become what it is today. The process he set up includes many similar elements of any modern clinical trial such as separating people into groups and monitoring the effect of different variables.

However, it was still missing key components that we have in clinical trials today including the use of control groups to show that the treatment is causing the results, and not external variables.

Developments in clinical trials and Pharmaceutical Research and Development continued throughout history, the process itself developing to be safer and the data more reliable. In the 1800s, for example, the placebo first appeared in medical literature.

Today, when we look at Pharmaceutical R&D we’re looking at a robust, highly regulated process. A process that can take years and years to develop a drug and bring it to market. It has certainly come a long way from James Lind’s ‘scurvy trials’.

What are Recent Trends in Pharmaceutical R&D?

The pharmaceutical industry has massively increased its spending over the years on research and development.

In 2019, $83 billion was spent on R&D, this is around 10x the industry spent in the 1980s. (Source).

This is partly because more drugs are being approved. In 2021, 50 new drugs were approved by the FDA. This is an increase of just over 65% from 1985 – when only 30 new drugs were approved.

Now that more drugs are being approved to market each year, and profits are bigger than ever, there’s more incentive for pharmaceutical companies to research and develop new drugs.

Pharmaceutical companies decide to research and develop a drug based on whether they think the drug will be approved, how much the drug will cost to develop, and if the lifetime revenue they will make is worth the investment.

In the last decade, only around 10% of drugs have received approval by the FDA. Drugs are only successfully approved when they have passed the 3 stages of each clinical trial.

It’s worth mentioning that a lot of drugs can fail during the third phase of a clinical trial. At this point, the company has likely already spent hundreds of millions of dollars, and several years, developing the drug.

This means that pharmaceutical companies have to research diligently the likelihood of the drug being approved before they invest significant money and time developing a product.

Impact of COVID-19 on research and development.

The coronavirus global pandemic placed new demands on pharmaceutical research and development.. With a rapid number of people being infected and dying from the COVID-19 virus, a vaccine needed to be rolled out quickly.

However, pharmaceutical research and development has traditionally been a long, resource-heavy process.

Typically, drugs take around 10 years before they’re rolled out to market, going through three phases before they can be successfully approved by the FDA.

Each of these phases typically takes years. The COVID pandemic, however, demanded a fast solution.

To accommodate this, pharmaceutical companies had to pause work, or focus less, on the current drugs they were developing.

A study done by McKinsey & Company showed how much pharmaceutical companies increased their efforts to develop a vaccine for Covid-19: 90% of the companies polled executed emergency protocols in their business plans, and more than 50% of these companies paused existing clinical trials for a period of time. (Source).

What did this actually look like in terms of an increase in R&D spend?

Perhaps unsurprisingly, when the pandemic started, vaccine and drug manufacturers saw an increase in expenditure by up to 20%.

Companies like Gilead Sciences, AbbVuem Pfizer and AstraZeneca increased their R&D budgets significantly.

Most R&D increases were from a mixture of public and private investments. For example, The Trump administrations invested nearly $2 billion in Pfizer and a German biotechnology company for a covid vaccine.

Covid-19 had a wider effect on R&D because it wasn’t just the pharmaceutical companies that increased their spend. In 2020, overall industry spend increased by 6.21% compared to 2019.

How Much Does Developing a New Drug Cost?

In 2014, the estimated cost of researching and developing a new biological entity or new chemical was at €1.9 billion. (Source)

The mean cost of developing a new drug was estimated in 2018 to be somewhere between $314 million to $2.8 billion. (Source)

With drug prices being this expensive to research and develop, it has a knock on effect on the prices of the drugs over-the-counter and for healthcare providers.

With R&D so expensive, pharmaceutical companies have to raise the prices they charge for the drug in order to make a profit.

Certain studies show that the launch prices of new brand name drugs have increased by nearly 11% every year from 2008 to 2021. (Source)

This model isn’t sustainable. If R&D spend continues increasing, and drug prices with it, the public won’t be able to afford drugs sold over the counter and healthcare providers essential medication for patients. It affects the affordability of both private and public healthcare.

Thanks to the amount of money it takes to bring a drug to market, and the likelihood of it not being successfully approved, many pharmaceutical companies don’t develop certain drugs that could aid patients…

Instead, investments are more likely for developing new drugs that are the most likely to be approved and that it will be profitable.

This puts narrow criteria on which drugs pharmaceutical companies are inclined to develop. If pharmaceutical companies are only developing drugs of that criteria, they’re likely missing out on developing some potentially groundbreaking medication. This particularly affects drugs for rare diseases. With fewer patients, they are less profitable.

The Risks of Pharmaceutical R&D

A PhRMA study suggested that companies have spent nearly 1 trillion dollars in R&D since 2000 (Source).

Pharmaceutical companies are taking a big risk every time they choose to develop a drug: they’ll likely have to spend hundreds of millions, if not billions, of pounds.

Drugs also typically take 10 years before they’re rolled out to market. Pharmaceutical companies are risking 10 years of time and billions of pounds for each product.

When the risks are so high, why do pharmaceutical companies still choose to spend 20-25% of their profits back on R&D, and why is R&D for pharmaceutical companies one of the most heavily invested R&D sectors in the world?

Whilst there are massive risks in the process, there are also massive rewards.

Getting a drug approved to market can mean huge profit. Pfizer, for example, made $37 billion in 2021 from COVID vaccine sales – one of the most lucrative products in history. (Source)

Pfizer made an overall net profit of nearly 22 billion in 2021. Whilst drug development is a risky game, it is also a lucrative one.

The Future of Pharmaceutical R&D

Pharmaceutical R&D spending is likely to continue to increase, as it has done over the last decade.

In the future, more money will be spent on developing drugs, but the prices of drugs over the counter and for healthcare providers will also increase.

However, if drug prices increase too much, the general public and healthcare providers won’t have the funds to buy them. Pharma companies will struggle to make a profit and the process of R&D might have to adapt once more.


Pharmaceutical research and development is essential for the development of drugs and new medication, with spending on an upward spiral

Whilst investment is increasing, the cost of developing drugs seems to be too. It’s important that the prices of these drugs remain affordable enough for both private and public healthcare.

There are big risks with pharmaceutical R&D, but there are also big rewards. It’s likely that corporations will continue to invest in R&D for many decades to come.

Back to Blog Archive