Innovation Requires Investment—and Sustained Investment Requires Sufficient Returns

The pace of innovation in pharmaceutical research has continued at an accelerated pace, producing breakthrough therapies that have significantly improved the length and quality of lives around the world. In just the past 20 years, we have seen antivirals launched that cure hepatitis C virus, new and effective treatments for cystic fibrosis patients that have extended their life spans substantially, and treatment cocktails for HIV patients that have transformed the disease from a death sentence to a chronic, manageable disease.

The pharmaceutical industry is uniquely taxed with substantial regulatory requirements and oversight from multiple government agencies and payers, including the FDA, Centers for Medicare & Medicaid Services, the United States Department of Health and Human Services, and Medicare and Medicaid, which can dictate what gets approved, or not, how and what is paid for it, and whether it will be included on formularies. The FDA has rigid standards and study requirements for new drug development, marketing, and postmarketing surveillance. The process to develop a new drug, get it approved, and launched is lengthy, risky, and extremely costly.

While the industry continues to innovate, sadly the FDA and the other organizations that regulate it have remained stagnant and have not progressed to realistic and practical new standards that reflect the world we live in today. This has to change—for one important reason (not the only one). It is a major factor in the high costs of drugs and the substantial delays in getting life-saving therapies to patients as quickly as possible.

The FDA is an amazing organization with many individuals dedicated to striking the right balance between protecting public safety and promoting innovation. Medicine is not an exact science like physics—it is an applied science, and our system has to adapt to our learnings. Bureaucratic requirements are, in many cases, stale and must be evolved. There is also often an unacceptable lack of transparency between the FDA and the companies developing new drugs. This must be addressed, as it threatens the viability of future investments in innovation.

Pharmaceutical innovation has had a huge impact on society by extending and improving the quality of life, but this extends to a larger healthy working population and improvements in gross domestic product. The total development costs to bring these new therapies to patients are well over $1 billion and can take a decade or more.

These costs have only steadily increased, while in other mature industries, their sunk costs would be expected to fall substantially; in pharma, costs are steadily rising.

Currently, less than 10% of drugs reportedly make it from inception to launch, and unless these few drugs are financially successful, dollars invested in innovation and pharmaceutical research will most definitely decline—potentially substantially. The fact is: money chases returns, in any economy and in any market.

The practice of medicine is an act of service to the most vulnerable, and so the idea of profit from a medicine or treatment can and does make many uncomfortable and may seem contradictory. That said, much of the returns are funneled back into more research and better therapies.

Pharma companies and the high cost of drugs are easy sound bites and targets for politicians seeking to appeal to the public. It resonates! But the public doesn’t really understand the extraordinary complexities of the industry, and the companies come off as self-serving or tone-deaf when trying to explain it.

The fact is, an investor would not take a high-risk bet without the expectation that there was the potential and a path to a high return, and they certainly wouldn’t do it repeatedly if proven wrong over time. There is probably not a higher risk or a longer duration for expectation of return than an investment in an early-stage biopharma asset.

Investors need as much predictability as possible, and, here, the FDA has been and appears to be appreciably lacking.

While no one can predict success or failure at the start of a decade-long process, there are some avoidable uncertainties that the new US leadership in Congress and the Trump administration must eliminate to the benefit of all.

In 1992, Congress passed the Prescription Drug User Fee Act (PDUFA), which requires the FDA to complete its review process within 10 months of the acceptance of a company’s filing for approval. Yet in practice, PDUFA dates can get extended or delayed without warning—and these can happen sometimes due to little matters such as FDA staff turnover or vacation time. Preventable delays of PDUFA dates should be simply unacceptable. The FDA must adhere to and perform within the PDUFA timelines—or Congress must step in and do it for them.

There are simple ways to accomplish this. The FDA could simply require touchpoints with a company ahead of its PDUFA date, forbid delays in the final 100 days before a PDUFA date, or impose penalties for lack of performance. Investors in the companies awaiting FDA approvals for new drugs are expecting an approval or an action, perhaps unfavorable, but, nonetheless, within an expected timeline. When that doesn’t happen, stocks can often suffer substantial damage.

A PDUFA delay might sound like a small problem, but the consequences can be severe and far-reaching. A surprise delay could result in millions of dollars in additional investments and could tank a promising treatment if investors get spooked and refuse to fund the company going forward.

Another initiative that the FDA could take would be to expand the use of adaptive trial designs, conditional approvals for high-need indications, and real-world evidence to inform benefit-risk assessments. These steps would maintain rigorous standards while reducing uncertainty for both investors and patients and reduce the costs of development, which are the key drivers of the cost of therapies in the marketplace.

Congress should not wait for the FDA’s scheduled reauthorization in 2027. Congress and FDA leadership need to seize this moment of opportunity and new leadership to accelerate pharmaceutical innovation in the US. A rethought, predictable, innovation-enabled, realistic, and practical regulatory framework is not just pro-investor—it is pro-patient. The future of medicine depends on it. No time like the present.

About the Author

Barbara Ryan has been a Pharmaceutical Executive Editorial Advisory Board member since 2015. After a more than 30-year career as a sell-side pharmaceutical analyst on Wall Street, Ryan founded Barbara Ryan Advisors in 2012 to offer senior strategic communications counsel, investor relations services, fundraising, and M&A support to the C-suite of a wide range of life sciences companies.