United States Government Accountability Office

GAO Report to Congressional Requesters

NEW DRUG 

DEVELOPMENT 

Science, Business, 

Regulatory, and 

Intellectual Property 

Issues Cited as 

Hampering Drug 

Development Efforts 

November 2006 

 

GAO-07-49 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

November 2006

NEW DRUG DEVELOPMENT 

Science, Business, Regulatory, and 

Intellectual Property Issues Cited as 

Hampering Drug Development Efforts 

Highlights of GAO-07-49, a report to 

congressional requesters 

Drug development is complex and

costly, requiring the testing of 

numerous chemical compounds for

their potential to treat disease.

Before a new drug can be marketed 

in the United States, a new drug

application (NDA), which includes

scientific and clinical data, must be 

approved by the Food and Drug

Administration (FDA). Recent

scientific advances have raised

expectations that an increasing 

number of new and innovative 

drugs would soon be developed to 

more effectively prevent, treat, and 

cure serious illnesses. However, 

industry analysts and the FDA have 

reported that new drug 

development, and in particular,

development of new molecular 

entities (NMEs)—potentially 

innovative drugs containing

ingredients that have never been

marketed in the United States—has

become stagnant. 

GAO was asked to provide

information on (1) trends in the 

pharmaceutical industry’s reported 

research and development

expenses as well as trends in the

number of NDAs submitted to, and 

approved by, FDA; and (2) experts’ 

views on factors accounting for 

these trends and their suggestions 

for expediting and enhancing drug

development. GAO analyzed data

from FDA on all 1,264 NDAs

submitted to the agency from 1993 

through 2004. GAO also convened a 

panel of experts and interviewed

other drug development experts 

and analysts to identify factors 

affecting, and suggestions for 

enhancing, drug development.

Although the pharmaceutical industry reported substantial increases in 

annual research and development costs, the number of NDAs submitted to, 

and approved by, FDA has not been commensurate with these investments. 

From 1993 through 2004, industry reported annual inflation-adjusted 

research and development expenses steadily increased from nearly 

$16 billion to nearly $40 billion—a 147 percent increase. In contrast, the 

number of NDAs submitted annually to FDA increased at a slower rate— 

38 percent over this period. Similarly, the number of NDAs submitted to FDA 

for NMEs increased by only 7 percent over this period. FDA approved most 

NDA applications—76 percent overall, but the numbers of NDAs and NDAs 

for NMEs it approved annually have generally been declining since 1996. 

Research and Development Expenses, Total NDA, and NDA for NME Submissions, 1993-2004

According to experts, several factors have hampered drug development. 

These include limitations on the scientific understanding of how to translate 

research discoveries into safe and effective drugs, business decisions by the 

pharmaceutical industry, uncertainty regarding regulatory standards for 

determining whether a drug should be approved, and certain intellectual 

property protections. These factors have been cited as affecting the number 

of drugs developed, the cost and length of the drug development process, as 

well as the types of drugs being produced. To address these issues, experts 

offered suggestions including increasing the number of scientists who can 

translate drug discoveries into effective new medicines and allowing 

conditional approval of certain drugs based on shorter clinical trials using 

fewer numbers of patients. In its comments on a draft of this report, the 

Department of Health and Human Services provided clarifications, which 

GAO incorporated as appropriate. 

www.gao.gov/cgi-bin/getrpt?GAO-07-49.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact 

Leslie G. Aronovitz at aronovitzl@gao.gov or 

(312) 220-7600. 
Contents 

Letter 1

Results in Brief 4 

Background 5

Drug Development Trends Are Not Commensurate with Research 

and Development Expenditures 12 

Experts Identified Factors Contributing to Declining Productivity 

in Drug Development and Offered Suggestions for Improvement 25 

Concluding Observations 37 

Agency Comments 37 

Appendix I Scope and Methodology 39 

Appendix II National Academy of Sciences Expert Panel 

Participants 42 

Appendix III Comments from the Department of Health and 

Human Services 44 

Appendix IV GAO Contacts and Staff Acknowledgments 47 

Tables 

Table 1: Ranking of Innovative Potential of NDAs Using Chemical 

Type and Therapeutic Potential Classifications 17 

Figures 

Figure 1: The Drug Discovery, Development, and Review Process 8 

Figure 2: FDA Classification of NDAs by Chemical Type and 

Therapeutic Potential 9 

Figure 3: IND Submissions, 1986-2005 13 

Figure 4: Research and Development Expenses (Constant 2004 

Dollars), Total NDA, and NDA for NME Submission

Trends, 1993-2004 15 

Page i GAO-07-49 New Drug Development
Figure 5: Proportion of 1,264 NDAs Submitted by Innovation

Potential, 1993-2004 17 

Figure 6: Percent of NDAs Submitted that were NMEs, 1993-2004 18 

Figure 7: Percent of NDAs Submitted that were Priority NMEs, 

1993-2004 19

Figure 8: Status as of September 2005 for the 1,264 NDAs 

Submitted, 1993-2004 20 

Figure 9: Average Approval Times as of September 2005 for 961 

Priority and Standard NDAs Submitted and Approved, 

1993-2004 22

Figure 10: Proportion of 961 NDAs Submitted and Approved by 

Innovation Potential 23 

Figure 11: Total NDA and NDA for NME Approvals, 1993-2005 24 

Abbreviations 

AAMC Association of American Medical Colleges 

FDA Food and Drug Administration 

HHS Department of Health and Human Services 

IND investigational new drug application 

NAS National Academy of Sciences 

NDA new drug application 

NME new molecular entity 

PDUFA Prescription Drug User Fee Act 

PhRMA Pharmaceutical Research and Manufacturers of America 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page ii GAO-07-49 New Drug Development
United States Government Accountability Office

Washington, DC 20548 

November 17, 2006 

The Honorable Edward M. Kennedy 

Ranking Minority Member 

Committee on Health, Education, Labor and Pensions 

United States Senate 

The Honorable Henry A. Waxman 

Ranking Minority Member 

Committee on Government Reform 

House of Representatives 

The Honorable Richard J. Durbin 

United States Senate 

Before a new drug can be marketed in the United States, it must be 

approved by the Food and Drug Administration (FDA), an agency within 

the Department of Health and Human Services (HHS). To gain approval,

drug sponsors1

 must submit a new drug application (NDA) to FDA 

containing scientific and clinical data. FDA reviews the NDA to determine 

whether the new drug is safe and effective for its intended use. The 

submission of an NDA typically follows a long period of research and 

development. To develop a new drug, researchers and scientists identify 

and test numerous chemical compounds for their potential to treat 

disease. On average, drug sponsors can spend over 13 years studying the 

benefits and risks of a new compound, and several hundred millions of 

dollars completing these studies before seeking FDA’s approval. About 1 

out of every 10,000 chemical compounds initially tested for their potential 

as new medicines is found safe and effective, and eventually approved by 

FDA, making the drug discovery and development process complex, time 

consuming, and costly. Although high costs and failure rates make drug 

discovery and development risky, creating a safe and effective new drug 

can be rewarding for both the sponsor and the public. A highly successful 

new drug can generate significant annual sales, and can provide cures or 

 1

A drug sponsor is the person or entity who assumes responsibility for the marketing of a

new drug, including responsibility for complying with applicable provisions of laws, such 

as the Federal Food, Drug, and Cosmetic Act and related regulations. The sponsor is 

usually an individual, partnership, corporation, government agency, manufacturer, or 

scientific institution. 

Page 1 GAO-07-49 New Drug Development
help treat the symptoms of diseases and illnesses affecting millions of 

people. 

Significant scientific advances have raised new hope for the prevention, 

treatment, and cure of serious illnesses. For example, the decoding, or 

sequencing of the human genome, advances in medical imaging, and new 

technologies that enable drug researchers to rapidly synthesize numerous 

compounds, created expectations that the pharmaceutical industry would 

soon be producing an increasing number of new and innovative drugs to 

more effectively treat disease. However, over the past several years it has 

become widely recognized throughout the industry that the productivity of 

its research and development expenditures has been declining; that is, the 

number of new drugs being produced has generally declined while 

research and development expenses have been steadily increasing. 

Similarly, FDA and analysts reported that pharmaceutical research and

development investments were not producing the expected results and 

that innovation in the pharmaceutical industry had become stagnant.2

 In 

addition, FDA reported that the industry was predominantly submitting 

NDAs for variations of existing drugs, rather than for new and innovative 

drugs, such as new molecular entities (NMEs)—potentially innovative 

drugs containing active chemical substances that have never been 

approved for marketing in the United States in any form. In response to 

the declining productivity of drug development, FDA launched two 

separate initiatives—one in 2003 and another in 2004—to help facilitate 

drug development.3

 In its 2004 initiative, it specifically cited an urgent need 

to improve the drug development process and to enhance collaboration 

among the government, industry, and academia. 

You raised questions regarding the numbers of new drugs being produced, 

and in particular, those drugs representing important therapeutic advances

in effectively treating disease—such as NMEs. This report provides 

(1) data regarding trends in the pharmaceutical industry’s reported 

research and development expenses as well as trends in the number of 

NDAs and NDAs for NMEs submitted to, and approved by, FDA; and 

(2) experts’ views on factors accounting for these trends, and their 

 2

For example, see FDA, Innovation or Stagnation: Challenge and Opportunity on the

Critical Path to New Medical Products (March 2004). 

3

See FDA, Improving Innovation in Medical Technology: Beyond 2002 (Jan. 31, 2003) and 

FDA, Innovation or Stagnation: Challenge and Opportunity on the Critical Path to New 

Medical Products (March 2004). 

Page 2 GAO-07-49 New Drug Development
suggestions for expediting the drug development process and increasing 

the productivity of research and development efforts. 

To determine trends in the pharmaceutical industry’s reported research 

and development expenditures, we obtained information from the 

Pharmaceutical Research and Manufacturers of America (PhRMA)4

 for the 

period 1993 through 2004, and adjusted it for inflation to 2004 dollars.5

 We 

did not independently verify these amounts; however, many researchers 

have cited these data as the best available information. To identify trends 

in the number of submissions and approvals of NDAs, we obtained and 

analyzed data from FDA on all 1,264 NDAs submitted to the agency for 

review from January 1, 1993, through December 31, 2004. The information 

we reviewed on these 1,264 NDAs included their status—whether the 

applications had been approved, withdrawn, or were still under FDA’s 

review. In addition, we obtained FDA’s initial assessment of the NDAs’ 

review priority, whether the NDAs were for NMEs, specific dates 

documenting when an NDA was submitted, and all of FDA’s decisions 

regarding the applications. We also discussed the results of our data 

analyses with FDA officials to obtain their perspective on drug 

development trends. 

To determine factors underlying new drug development trends, we 

interviewed experts from the pharmaceutical industry, academia, and a 

public interest group who possess knowledge of issues that have had an 

impact on drug development. We also interviewed some pharmaceutical 

industry analysts who had previously published reports on drug 

development issues. In addition, we organized a panel of experts—with 

assistance from the National Academy of Sciences (NAS)—that included 

experts from academia, the pharmaceutical industry, and patient 

advocates. We held this panel in order to provide a forum where widely 

recognized experts could collectively discuss drug development issues. 

The panel was not designed to build consensus on any of the issues 

discussed. The panelists provided their individual views, which do not 

necessarily reflect those of the organizations with which they were 

 4

PhRMA represents pharmaceutical research and biotechnology companies.

5

We obtained PhRMA’s data for this period to correspond with data we obtained from FDA.

In 1992, FDA implemented a new system for classifying NDAs, and in 1993, specified timeframe goals for reviewing NDAs were established. We therefore obtained data beginning

with 1993 to generally correspond to these changes, and requested data through 2004, 

which was the most recent year with a complete set of NDA submission data at the time of

our request. 

Page 3 GAO-07-49 New Drug Development
affiliated or the NAS. We asked these experts to identify factors affecting 

the development of new drugs, and in particular, innovative drugs such as 

NMEs. As part of the panel discussion, we asked them to identify 

incentives or actions that could expedite drug development and enhance 

the development of drugs that offer therapeutic advances in effectively 

treating diseases. Further, we reviewed and analyzed previously published 

reports and articles issued by pharmaceutical industry analysts, academic 

researchers, and the federal government. We reviewed these reports and 

articles to identify factors influencing drug development, and suggestions 

for expediting this process. Detailed information on our methodology is in

appendix I and a list of the panelists is in appendix II. We conducted our 

work from July 2005 through October 2006 in accordance with generally

accepted government auditing standards. 

Although the pharmaceutical industry has reported substantial increases

in annual research and development costs, the number of NDAs submitted 

to, and approved by, FDA has not been commensurate with these 

investments. From 1993 to 2004, the industry reported that annual 

research and development expenses steadily increased from nearly 

$16 billion to nearly $40 billion in real terms—a 147 percent increase.6

 In 

contrast, the number of NDAs submitted annually increased at a lower 

rate—38 percent over this period—and generally declined over the past 

several years. The number of NDAs submitted annually increased from 74 

to 129, or by 74 percent, between 1993 and 1999, and generally declined 

after 1999. In 2004, sponsors submitted 102 applications to FDA—a 

21 percent decrease from the 1999 level. Similarly, the number of NDAs 

submitted to FDA for NMEs increased by only 7 percent over this period, 

and generally declined since 1995. From 1993 through 1995, the number of 

NDAs submitted for NMEs increased, but declined by 40 percent between 

1995 and 2004. The percentage of NDAs submitted that were for NMEs 

also generally declined after 1995. These submission trends indicate that 

the productivity of research and development investments has declined. 

Regarding approval trends, FDA eventually approved most NDAs—961 or 

76 percent overall—and the percentage approved each year has remained 

relatively constant. However, the overall number of NDAs—and NMEs in 

particular—approved annually has generally been declining since 1996,

which corresponds with the decline in submissions. 

Results in Brief 

 6

Real growth reflects growth after the effects of inflation are removed. 

Page 4 GAO-07-49 New Drug Development
Results from the discussion among panel members, our interviews with 

drug development experts and analysts, and our review of academic and 

industry reports identified several factors affecting the types of drugs 

being developed, and the length, costs, and failure rates of drug 

development. These factors include limitations on the scientific 

understanding of how to translate chemical and biological discoveries into

safe and effective drugs; business decisions by the pharmaceutical 

industry that influence the types of drugs developed; uncertainty regarding 

regulatory standards for determining whether a drug should be approved 

as safe and effective; and certain intellectual property protections that can

discourage innovation. Together, these factors have been cited as affecting 

the cost and length of the drug development process, as well as the types 

of drugs being produced. Faced with these issues, some of the panelists, 

other experts we contacted, and the literature we reviewed, suggested 

ways to expedite drug development and find more innovative drugs. These 

include generating greater numbers of scientists who possess the skills 

needed to translate drug discoveries into effective new medicines; 

restructuring regulation of the drug review process to allow for 

conditional approval of drugs for therapeutic areas that currently lack 

effective treatments based on shorter clinical trials using fewer numbers 

of patients; and altering the length of patent terms to encourage 

innovation. Some of the experts have cautioned that adequate measures to 

ensure safety need to be implemented along with any changes to expedite

the regulatory review process. 

In its comments on a draft of this report, HHS provided clarifications, 

which we incorporated as appropriate. 

FDA is responsible for helping to ensure the safety and effectiveness of 

drugs marketed in the United States. It oversees the drug development 

process, reviews drug sponsors’ applications for the approval of new 

drugs, and monitors the safety and efficacy of drugs once they are 

available for sale. As part of its responsibilities, FDA assists drug sponsors 

in designing clinical trials to test drugs on humans, reviews proposals for 

conducting such trials, and approves drugs for sale in the United States 

based on its determination that a drug’s clinical benefits outweigh its 

potential health risks, and is safe and effective. Prior to a manufacturer’s

marketing of a drug, FDA reviews drug labels and accompanying materials 

to ensure they are consistent with applicable laws and regulations. Among 

other things, labels must include information on the drug’s usage, for 

example, the medical conditions and patient populations for which it has 

been tested and approved as safe and effective. 

Background 

Page 5 GAO-07-49 New Drug Development
The process of bringing a new drug to the market consists of four main 

stages—drug discovery, preclinical testing, clinical trials which involve 

testing on volunteers, and FDA review. During these stages, scientists 

from the government, academia, and the private sector conduct extensive 

research and testing to identify safe and effective medicines. The entire 

drug discovery, development, and review process takes, on average, 

15 years to complete. 

The Drug Discovery,

Development, and Review 

Process 

During the first stage—commonly referred to as drug discovery—

numerous researchers from pharmaceutical companies, academia, and 

government search for and identify promising chemical entities, or 

compounds, capable of curing or treating diseases. During the second 

stage—preclinical testing—these compounds are tested in laboratories 

and in animals to predict whether a drug is likely to be safe and effective 

on humans. Most compounds fail during these first two stages; according 

to PhRMA, only 5 in every 10,000 compounds, on average, successfully 

completes these two stages. In general, these two stages typically take a 

total of 61⁄2 years to successfully complete for a particular compound. 

If the compound is found to be promising, a drug sponsor may decide to 

test it as a new drug on humans, and proceeds to the third stage—clinical 

trials. Before doing so, a sponsor must submit an investigational new drug 

application (IND)7

 that summarizes the data that have been collected on

the compound and outlines plans for the clinical trials.8

 Generally, clinical 

trials may begin 30 days after FDA receives the IND, unless FDA orders a 

delay. FDA does not issue a formal approval to the sponsor regarding an 

IND submission, but it can prohibit the start of a clinical trial if, for 

example, it determines that human volunteers would be exposed to an 

unreasonable and significant risk of illness or injury. As described below, 

the clinical trial stage consists of three phases, known as Phase 1, 2, and 3

clinical trials. 

 7

Drugs studied under INDs are compounds that are under development and essentially 

provide the pipeline of drugs that ultimately become the subjects of NDAs that are

submitted to FDA for approval. 

8

There are two classes of INDs—commercial and noncommercial. Commercial INDs are 

submitted primarily by companies whose ultimate goal is to submit an NDA to obtain 

marketing approval for a new product. Noncommercial INDs are filed for noncommercial 

research purposes. For example, a physician might submit a research IND to study

potential medicinal uses for an unapproved drug. In this report, all references to INDs refer

to commercial INDs. 

Page 6 GAO-07-49 New Drug Development
In Phase 1 clinical trials, sponsors typically conduct safety studies on 

about 20 to 100 healthy volunteers. Potential side effects are identified and 

various dosage levels are determined. In Phase 2 clinical trials, the drug is 

typically tested on approximately 100 to 500 volunteers who have a 

particular disease to determine the drug’s effectiveness. In Phase 3 clinical 

trials, the drug is typically tested on about 1,000 to 5,000 volunteers, to 

determine the drug’s safety and effectiveness. According to PhRMA, on 

average, one out of every five drugs successfully completes all three 

clinical testing phases—that is, is found safe and effective by the drug 

sponsor and submitted as an NDA to FDA for review and approval. On 

average, the three phases of the clinical trial stage take a total of 7 years to 

successfully complete. 

The fourth and final stage is the FDA review stage, which covers FDA’s 

review and final approval of NDAs. The review process begins when a 

sponsor submits an NDA to FDA. The NDA contains scientific and clinical 

data submitted by the sponsor intended to demonstrate that the drug is 

safe and effective for its proposed use. FDA evaluates data contained in 

the NDA to determine whether the drug meets these standards and if it 

should be approved.9

 For those NDAs that are approved, it typically takes 

about 11⁄2 years to complete the review process and obtain FDA’s approval. 

Figure 1 shows the amount of time, on average, for a successful new drug 

to move through and complete the four stages. It also illustrates that for 

every 10,000 compounds initially identified, only one, on average, will be 

found safe and effective, and be approved by FDA. 

 9

For more information on the FDA review and approval process, see for example, GAO, 

Food and Drug Administration: Effect of User Fees on Drug Approval Times, 

Withdrawals, and Other Agency Activities, GAO-02-958 (Washington D.C.: September 17, 

2002). 

Page 7 GAO-07-49 New Drug Development
Figure 1: The Drug Discovery, Development, and Review Process 

Stage 1

Drug discovery

Stage 2

Preclinical

Stage 3

Clinical trials

Stage 4

FDA review

6.5 years 7 years 1.5 years

10,000

compounds

1

FDA

approved

drug

250 compounds 5 compounds IND submitted

NDA submitted

Phase 1

20–100 volunteers

Phase 2

100–500 volunteers

Phase 3

1,000–5,000 volunteers

Source: Pharmaceutical Research and Manufacturers of America.

Upon receipt of an NDA, FDA will classify it in two ways—by its chemical 

type and its therapeutic potential. First, an NDA is classified into chemical 

types, one of which is an NME.10 Because NMEs contain active chemical 

substances never before approved for marketing in the United States, 

industry analysts and FDA generally consider them innovative. The other 

six classifications consist of non-NMEs, which are typically considered 

less innovative because they represent modifications to drugs already on 

the market. In most cases, the sponsor submitting an NDA for a non-NME 

has altered the original medicine to produce a drug with different features, 

such as a new dosage form or route of administration. Second, FDA 

classifies an NDA by its therapeutic potential. In doing so, FDA compares 

the NDA to existing products already on the market. Those that appear to 

have relatively significant therapeutic benefits in the treatment, diagnosis, 

 10FDA classifies NDAs into seven chemical types. These classifications are (1) NME, 

(2) new salt of previously approved drug (not a new molecular entity), (3) new formulation

of previously approved drug (not a new salt or a new molecular entity), (4) new

combination of two or more drugs, (5) already marketed drug product - duplication 

(i.e., new manufacturer), (6) new indication (claim) for already marketed drug (includes 

switch in marketing status from prescription to over the counter), and (7) already 

marketed drug product—no previously approved NDA—for example, according to an FDA

official, a drug marketed prior to the creation of FDA, such as aspirin. 

Page 8 GAO-07-49 New Drug Development
or prevention of a disease are classified as priority.11 Those with little or no

additional therapeutic benefits compared to existing products are 

classified by FDA as standard. As figure 2 shows, an NDA can be classified

in one of four ways—priority NME, priority non-NME, standard NME, or 

standard non-NME. 

Figure 2: FDA Classification of NDAs by Chemical Type and Therapeutic Potential 

Source: GAO. 

FDA classifies the NDA by analyzing 

the chemical type and therapeutic potential. 

NDA 

Chemical Type 

(NME or non-NME) 

Therapeutic Potential 

(Priority or Standard) 

Priority NME Priority non-NME Standard NME Standard non-NME 

In response to concerns that FDA was taking too long to review and 

approve NDAs, the Prescription Drug User Fee Act (PDUFA)12 was 

enacted in 1992. It provided FDA with additional resources in the form of 

user fees from the pharmaceutical and biotechnology industries to speed 

up the process of reviewing applications for new drugs and biological 

products, and established performance goals for FDA, including 

 11FDA’s Manual of Policies and Procedures notes that the priority designation is intended to

direct overall attention and resources to the evaluation of applications that have the 

potential for providing significant therapeutic advances as compared to “standard” 

applications. It also states that the priority determination is based on conditions and 

information available at the time the application is filed. It is not intended to predict a

drug’s ultimate value or its eventual place in the market. 

12Pub. L. No. 102-571, 106 Stat. 4491. 

Page 9 GAO-07-49 New Drug Development
completing its review of a certain percentage of applications within 

certain time frames.13 PDUFA authorized FDA to collect these fees to 

supplement its annual appropriation for salaries and expenses, and use the 

additional funds to review applications more quickly.14 PDUFA was 

amended and reauthorized in 1997 and 2002 for an additional 5 years and

established new performance goals for various aspects of the drug review

process. For example, current goals state that FDA should complete its 

initial review and act on 90 percent of all priority NDAs within 6 months 

and 90 percent of all standard NDAs within 10 months. FDA uses these and 

other review time goals to assess its review timeliness, and issues an 

annual report on its performance to the President and Congress.15

The review process may span several review cycles. The first cycle begins

when the NDA is submitted to and filed by FDA, indicating that the 

application is sufficiently complete to permit a substantive review. The 

first cycle ends when FDA has completed its review and responds by 

issuing an action letter to the sponsor. This could mean that FDA 

approved the application; told the sponsor it was approvable, but that 

more information was needed; or told the sponsor that the NDA contained 

significant weaknesses and was not approvable. If the application is 

approved in the first cycle, the total approval time is the length of that 

cycle. For those NDAs not approved during the first review—both 

approvable and not approvable—the second cycle begins when the 

sponsor files an amendment and resubmits the application and it is filed 

by FDA. The resubmission often contains additional studies, analyses, 

data, or clarifying information to address concerns raised by FDA in the 

previous review. As with the first cycle, this cycle ends when FDA has 

completed its review and issues an action letter to the sponsor. If the 

 13Biological products, or biologics, are derived from living sources—such as humans, 

animals, and microorganisms—as opposed to being chemically synthesized, and include

vaccines and blood products. 

14Under PDUFA, companies pay three types of user fees to FDA—application fees, 

establishment fees, and product fees. In most cases, a company seeking to market a new 

drug in the United States must pay an application fee to support the agency’s review

process. Generally, companies also pay an annual establishment fee for each facility in 

which their products subject to PDUFA are manufactured and an annual product fee for

marketed drugs for which no generic versions are available. For more information on 

PDUFA user fees see GAO, Food and Drug Administration: Effect of User Fees on Drug 

Approval Times, Withdrawals, and Other Agency Activities, GAO-02-958 (Washington 

D.C.: September 17, 2002). 

15See: FDA, FY 2004 Performance Report to the President and the Congress for the 

Prescription Drug User Fee Act.

Page 10 GAO-07-49 New Drug Development
review process takes two or more cycles, the total approval time includes 

the time spent during the review cycles, plus the additional time the 

sponsor uses to address the issues raised by FDA. 

FDA Response to 

Concerns Over the 

Number of Drugs 

Developed 

Over the past several years, numerous industry analysts and FDA noted a 

decline in the submission of applications for NDAs overall, and for 

innovative drugs, such as NMEs.16 In light of this, in January 2003, FDA 

launched a broad initiative to improve the development and availability of

innovative medical products, including new drugs.17As part of this 

initiative, FDA sought to reduce: (1) the number of drugs requiring more 

than one review cycle, (2) overall approval times, and (3) development 

costs. To help accomplish this, FDA sought to improve the development 

and review process by educating drug sponsors on the type and extent of 

scientific data that must be present in the NDA’s initial submission. Noting 

the decline in the number of NDAs, in 2004 FDA proposed a second, more 

targeted, initiative—known as the critical path initiative—to form a 

collaborative effort between government, industry, and academia.18 In 

doing so, FDA cited an urgent need for a new product development “tool 

kit” to enable researchers to more effectively translate basic research 

discoveries into safe and effective products. Such tools include better 

techniques of identifying safety problems as early as possible and better 

methods for demonstrating medical effectiveness; tools, which according 

to FDA, could help reduce the failure rates of drug development and 

increase the number of NDA submissions. 

 16For example see: American Enterprise Institute-Brookings Joint Center, Shortening Drug 

Approval Times via Industry Funding of the FDA: Did Legislation Help or Hurt? 

(Feb. 16, 2005). 

17FDA, Improving Innovation in Medical Technology: Beyond 2002 (Jan. 31, 2003). 

18FDA, Innovation or Stagnation: Challenge and Opportunity on the Critical Path to New 

Medical Products (March 2004). 

Page 11 GAO-07-49 New Drug Development
Overall, our analyses of drug development data revealed that increases in 

research and development expenditures from 1993 through 2004 have not

led to a commensurate increase in NDAs submitted to FDA, including 

those classified as NMEs. Although the pharmaceutical industry reported a 

147 percent real increase in annual research and development 

expenditures from 1993 through 2004, and an increasing number of INDs 

are being submitted to FDA, the number of new drugs developed has not 

grown in a similar manner. Compared to industry-reported research and 

development expenditures, the number of NDAs and NDAs for NMEs 

submitted to FDA over the period increased at a lower rate—by 38 percent 

and 7 percent respectively—which indicates that the productivity of the 

research and development investments has been declining. Furthermore, 

the majority of NDAs submitted to FDA were for non-NMEs, and thus 

represented modifications to existing drugs rather than newer and 

potentially more innovative drugs. FDA has consistently approved most of 

the NDAs submitted, with approval rates nearing 80 percent overall, and 

has been approving applications much more quickly in recent years. 

However, the actual numbers of drugs approved annually has been 

declining, reflecting the trends in NDA submissions. 

According to PhRMA and industry analysts, research and development 

expenditures are key to the development of new and innovative medical 

products, including pharmaceuticals. During the drug discovery and 

preclinical stages, research and development expenditures fund efforts to 

identify new compounds that could ultimately become INDs. Research and 

development expenditures during the clinical trial phases fund the studies 

needed to prove a drug is safe and effective, leading to a potential NDA 

submission. Our review of annual research and development expense data

reported by PhRMA and IND submission data reported by FDA indicate 

that there have been substantial and consistent increases in these 

expenses over the past decade, and that the number of INDs submitted to 

FDA has been increasing. However, we found that these investments have 

not led to a commensurate increase in the number of NDAs and NMEs, 

and thus, the productivity of these investments has declined. 

Drug Development 

Trends Are Not 

Commensurate with 

Research and 

Development 

Expenditures 

The Productivity 

Associated with Research 

and Development 

Expenditures Has Recently 

Declined 

Figure 3, which shows the number of INDs that sponsors submitted to 

FDA from 1986 through 2005, indicates that there have been fluctuations in

Page 12 GAO-07-49 New Drug Development
the number of INDs submitted each year.19 However, in general, sponsors 

have been submitting an increasing number of INDs since 1986. Figure 3 

also shows a 45 percent increase in IND submissions over the last 2 years. 

Figure 3: IND Submissions, 1986-2005 

0

200

250

300

350

400

450

500

550

600

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Number of submissions

Year submitted

Source: GAO analysis of FDA data.

Note: The data in this figure are for commercial INDs. 

Despite the trends of increasing IND submissions and steady increases in 

research and development expenses, we found that the number of NDAs 

submitted to FDA has generally been declining over the past several years.

Figure 4 shows the annual research and development expenses reported 

by PhRMA for 1993 through 2004 (adjusted for inflation to 2004 dollars), 

and the total number of NDAs (including those for NMEs) and NDAs for 

 19We chose this time period for two reasons. First, because we obtained NDA data 

beginning with 1993 and it takes 7 years, on average, to successfully complete clinical 

trials, trends emerging from INDs submitted in 1986 could be reflected in NDA submission 

trends beginning in 1993. Second, 2005 was the most recent year for which we could obtain 

complete data from FDA.

Page 13 GAO-07-49 New Drug Development
NMEs submitted to FDA during the same period.20 As figure 4 shows, 

annual research and development expenses grew consistently over the 

period. In 1993, the inflation-adjusted expenses were nearly $15.7 billion, 

and grew to an estimated $38.8 billion in 2004—a 147 percent real increase 

over the period.21 Our analysis also revealed that inflation-adjusted annual

growth rates of the research and development expenses ranged from a low 

of just over 2 percent from 2001 to 2002, to over 11 percent from 1999 to 

2000. 

 20Pharmaceutical Research and Manufacturers of America, Pharmaceutical Industry

Profile 2005 (Washington, D.C.: Pharmaceutical Research and Manufacturers of America, 

2005). Each year, PhRMA surveys its membership and requests information on the amount

its members spent on research and development. According to PhRMA, these expenses 

include both domestic expenses and expenses incurred abroad. Domestic expenses include 

those incurred within the United States by PhRMA member companies. Expenses abroad 

include expenses incurred outside of the United States by U.S.-owned PhRMA member

companies and expenses incurred outside the United States by the U.S. divisions of foreignowned PhRMA member companies. Expenses incurred outside the United States by the

foreign divisions of foreign-owned PhRMA member companies are not included. We did not 

independently verify these amounts. However, these data have been repeatedly cited, and

they represent the best available information. For example, see Kaiser Family Foundation,

Prescription Drug Trends (October 2004). 

21According to our analysis of PhRMA’s data, total research and development expenditures

were 17 percent of total sales in 1993, and were 16 percent in 2004. 

Page 14 GAO-07-49 New Drug Development
Figure 4: Research and Development Expenses (Constant 2004 Dollars), Total NDA, and NDA for NME Submission Trends, 

1993-2004 

Dollars in billions Numbers submitted

Year

Source: GAO analyses of PhRMA and FDA data.

0

5

10

15

20

25

30

35

40

0

20

40

60

80

100

120

140

160

180

200

Research and Development expenditures

Total NDA submissions

NDA for NME submissions

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

In contrast to the steady and large increase in research and development 

expenditures, we found that the number of NDAs submitted annually 

increased at a lower rate—38 percent over this period—and has generally

declined over the past several years. As figure 4 shows, there was initial 

growth followed by a general decline in submissions of all NDAs, including 

NDAs for NMEs, to FDA. For NDAs, figure 4 shows that the number 

submitted to FDA, in general, grew from 1993 through 1999. In 1993, 

sponsors submitted 74 NDAs to FDA. In 1999 this number grew to 129—a 

74 percent increase from 1993. After 1999, however, NDA submissions 

generally declined, and in 2004, sponsors submitted 102 NDAs, which 

represented a 21 percent decrease from 1999 levels. Figure 4 also shows 

that the number of NDAs submitted to FDA for NMEs increased slightly 

over this 12-year period—by 7 percent. In addition, Figure 4 shows that the 

number of NMEs submitted to FDA peaked in 1995, and, for the most part, 

then began to decline. Although sponsors submitted 50 NMEs in 1995, this 

number fell to 30 in 2004, which represented a 40 percent decline. It 

Page 15 GAO-07-49 New Drug Development
should be noted that submissions of NDAs for NMEs increased during the 

last 2 years of this time frame—rising from 23 in 2002, to 28 in 2003, and 30 

in 2004. 

Because it may take several years from the time research and development 

investments are made until the time a sponsor submits an NDA to FDA for 

approval, expenses in any given year are generally not related to NDA 

submissions in that year. Additionally, given the uncertain nature of 

research and development efforts, it is unlikely that expenditures and NDA 

submissions would grow at the same rate. However, given a 147 percent 

increase in research and development expenditures over the 12-year 

period, many analysts and experts assumed that the trend in NDA 

submissions would also generally be one of consistent increases. The NDA 

submission trends, combined with IND submission trends, indicate that 

the industry faces challenges in successfully completing the clinical testing 

stage, leading up to the submission of an NDA. 

Most NDAs Were for 

Modifications to Existing 

Drugs 

In addition to determining the overall trends in the number of NDAs and 

NMEs submitted to FDA, we used FDA chemical type and therapeutic 

potential classifications—NME, non-NME, priority, and standard—to 

make a general assessment of the level of innovation of the NDAs 

submitted. Any one NDA—regardless of whether it is for an NME or was 

granted priority status by FDA—may eventually turn out to be an 

innovative and uniquely therapeutic product. However, FDA and industry 

analysts use the chemical type and therapeutic potential classifications to 

make a general assessment of the innovative potential of NDAs at the time 

of submission. We used the four classifications as outlined in table 1 to

rank the innovative potential of NDAs.22

 22Based on our interviews with FDA officials and our review of prior studies, we

determined there was a general consensus that the most important factor in assessing the 

innovative potential of an NDA was whether or not it was an NME. 

Page 16 GAO-07-49 New Drug Development
Table 1: Ranking of Innovative Potential of NDAs Using Chemical Type and 

Therapeutic Potential Classifications

NDA submission type Level of potential innovation

Priority NME 1

Standard NME 2

Priority non-NME 3

Standard non-NME 4

Source: GAO analysis of FDA chemical type and therapeutic potential classifications. 

Note: The ranking of 1 represents the highest innovative potential, and 4, the lowest. 

Based on how FDA classified the 1,264 NDAs submitted from 1993 through 

2004, we determined the proportion of NDAs submitted by each of the four

classifications. As figure 5 shows, 68 percent of the NDAs were classified 

as non-NMEs—those representing modifications to existing drugs, while 

the remaining 32 percent of the NDAs submitted were NMEs. The figure 

also shows that 12 percent of NDA submissions were for drugs in the 

priority NME classification—those representing the highest potential level 

of innovation. 

Figure 5: Proportion of 1,264 NDAs Submitted by Innovation Potential, 1993-2004 

Source: GAO analysis of FDA data.

Standard NME

Priority non-NME

Priority NME

Standard non-NME

12%

8%

20%

60%

Page 17 GAO-07-49 New Drug Development
Based on FDA’s classification of the 1,264 NDAs, we determined the 

percentage submitted each year that were NMEs and priority NMEs. 

Regarding NMEs, figure 6 shows that during the period 1993 through 2004,

there was variation from year to year in the percentage of NDAs submitted 

that were NMEs. Figure 6 shows that this percentage ranged from a high of 

43 in 1995 to a low of 24 in 2002. It also shows that although this

percentage had generally declined since 1995, it increased from 2002 

through 2004. 

Figure 6: Percent of NDAs Submitted that were NMEs, 1993-2004 

0

5

10

15

20

25

30

35

40

45

50

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

Percentage

Year submitted

Source: GAO analysis of FDA data.

Regarding priority NMEs, figure 7 shows that in general, the percentage of 

NDAs that were priority NMEs ranged from between 10 and 15 percent 

during the 12-year period. Figure 7 also shows that this percentage ranged

from a high of 15 in 2003, to a low of 5 in 2001. Finally, it shows that after a 

steep reduction in 2001, this percentage increased the following 3 years to 

levels similar to those previously experienced. 

Page 18 GAO-07-49 New Drug Development
Figure 7: Percent of NDAs Submitted that were Priority NMEs, 1993-2004 

0

2

4

6

8

10

12

14

16

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

Percentage

Year submitted

Source: GAO analysis of FDA data.

The results of our analyses indicate that the reported increases in research 

and development expenditures during the period have not led to a 

commensurate increase in the innovative potential of NDAs submitted to 

FDA. These findings are consistent with FDA’s conclusions in its 2003 and 

2004 reports. In its January 2003 report on improving innovation in 

medical technology—including drugs—FDA found that data regarding 

application submissions showed a trend toward decreased numbers of 

applications for truly innovative products, including NMEs.23 The report 

also concluded that the trends were of concern to FDA because at the 

same time, it had seen a substantial increase in the number of applications 

for new products, including new drugs in areas where comparable 

products already existed—such as non-NME NDAs. Further, these same 

trends, which suggested stagnation in innovation, were noted as a basis for 

FDA’s launch of the critical path initiative in 2004.

 23FDA, Improving Innovation in Medical Technology: Beyond 2002 (Jan. 31, 2003). 

Page 19 GAO-07-49 New Drug Development
We reviewed the status of all 1,264 NDAs submitted from January 1, 1993, 

through December 31, 2004, to determine approval trends. Our review 

found that as of September 2005, FDA had approved 961, or 76 percent of 

the NDAs submitted. Further, we found that FDA approval times have 

been decreasing and that approval times were consistently shorter for 

priority NDAs. We also found that most of the NDAs approved from 1993 

through 2004 were for non-NMEs, or modifications to drugs already on the 

market. Finally, reflecting the declining number of NDA submissions, we 

found that the numbers of NDAs and NMEs approved each year have 

generally been declining.

FDA Approves Most NDA 

Submissions, and Approval 

Times Have Been 

Decreasing 

The status of the 1,264 NDAs as of September 2005, shown in figure 8, 

indicates that FDA had approved the majority of them, and the remaining 

were either still under FDA review or had been withdrawn by the 

sponsors. 

Figure 8: Status as of September 2005 for the 1,264 NDAs Submitted, 1993-2004 

Source: GAO analysis of FDA data.

Withdrawn

(90)

Ongoing

(213)

Approved

(961)

17%

7%

76%

In addition to determining the overall approval rate over the period, we 

calculated approval rates for each year the NDAs were submitted. We 

found that approval rates were consistently above or near 80 percent for 

years 1993 through 2000. Approval rates for the later 4 years—and years 

2003 and 2004 in particular—were lower because many of the NDAs 

Page 20 GAO-07-49 New Drug Development
submitted—34 of the 106 submitted in 2003 and 51 of the 102 submitted in 

2004—were still under FDA review at the time of our analyses.

24

We also calculated the length of time it took FDA to approve each of the 

961 NDAs, and determined the trends in average approval times based on 

the year the NDAs were submitted. Our analysis showed that the average 

time it has taken FDA to approve NDAs submitted in recent years is 

generally lower than for those submitted in earlier years. For example, we

found that it took FDA, on average, 669 days to approve NDAs submitted 

in 1993, but only 442 days to approve those submitted in 2002—a 

34 percent decrease.25 This decrease is due, in part, to the fact that FDA 

has been approving an increasing number of NDAs in one or two review 

cycles, which has helped cut overall approval times. 

Additionally, we found that approval times for priority NDAs were 

consistently lower than for standard NDAs. This was due, in part, to the 

fact that for those priority NDAs approved, FDA approved 63 percent of 

them in one review cycle, compared to 46 percent for the standard NDAs. 

Figure 9 shows the average approval times for priority and standard NDAs 

based on the year they were submitted, from 1993 to 2004. It should be 

noted that PDUFA was in effect during the period covered in figure 9. 

During that time FDA collected user fees and was subject to PDUFA 

performance goals. 

 24FDA provided us with this information in September 2005. Therefore, many of the NDAs

submitted in 2003 and 2004 were still under review at the time of our analyses. 

25Because many of the applications submitted during 2003 and 2004 were still under review 

at the time we performed our analyses, the average approval times for these years are

artificially lower. Therefore, we did not use average approval times for these years to make

any comparisons to earlier years. 

Page 21 GAO-07-49 New Drug Development
Figure 9: Average Approval Times as of September 2005 for 961 Priority and Standard NDAs Submitted and Approved, 

1993-2004 

0

100

200

300

400

500

600

700

800

Standard

Priority

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

Days

Year submitted

Source: GAO analysis of FDA data.

Note: NDA approval times include the time taken by FDA to review the application as well as time 

needed by the sponsor to address FDA’s concerns. In addition, 85 of the 208 the applications 

submitted in 2003 and 2004 were still under review at the time of our analyses, and thus average 

approval times for these years may increase if they are eventually approved. 

Previous studies have indicated that implementation of PDUFA’s user fees 

and performance review goals have been a contributing factor to the 

quicker review times. For example, in 2002, we reported that fees 

collected under PDUFA had provided FDA with additional resources that 

have helped the agency expedite the approval of new drugs by reducing

review times.26 In addition, an October 2000 study by the Tufts Center for 

 26GAO, Food and Drug Administration: Effect of User Fees on Drug Approval Times,

Withdrawals, and Other Agency Activities, GAO-02-958 (Washington D.C.: September 17, 

2002). 

Page 22 GAO-07-49 New Drug Development
the Study of Drug Development concluded that user fees contributed to a 

51 percent drop in average approval times from 1993 through 1998.

27

To categorize the innovative potential of the drugs submitted and 

approved during the period, we applied the same four-level ranking scale

discussed earlier to the 961 NDAs that FDA approved. Based on our 

analysis, we found that, similar to the submission trends, most of the 

NDAs approved were for non-NMEs. Figure 10 shows the proportion of 

the NDAs categorized by innovative potential. 

Figure 10: Proportion of 961 NDAs Submitted and Approved by Innovation Potential

Source: GAO analysis of FDA data.

Standard NME

Priority non-NME

Priority NME

Standard non-NME

14%

9%

19%

58%

We also obtained historical data on the numbers of NDAs overall, as well 

as NDAs for NMEs that FDA has approved regardless of when they were 

submitted.28 In doing so, we reviewed FDA’s published data on its annual 

approvals of NDAs, including NDAs for NMEs for the years 1993 through 

 27Tufts Center for the Study of Drug Development, Impact Report, Analysis and Insight 

into Critical Drug Development Issues, Vol. 2 (October 2000). 

28These data reflect the total number of NDAs and NDAs for NMEs approved annually from 

1993 through 2005, and are used to show trends in the numbers of NDAs and NDAs for 

NMEs FDA approved during those years. 

Page 23 GAO-07-49 New Drug Development
2005.

29 Figure 11, which is based on these data, shows that FDA approved 

an increasing number of NDAs and NDAs for NMEs from 1993 through 

1996. After that time, however, reflecting the declining number of NDA 

submissions, annual approvals declined, and returned to levels not seen 

since the early 1990s. Also, there was a spike in the number of approvals in

2004, but approvals were lower once again in 2005. 

Figure 11: Total NDA and NDA for NME Approvals, 1993-2005 

Number of approvals

Year

Source: GAO analysis of FDA data.

0

20

40

60

80

100

120

140

NDA for NME approvals

Total NDA approvals

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

 29FDA Center for Drug Evaluation and Research, 1997 and 2004 Reports to the Nation, 

Improving Public Health Through Human Drugs, and FDA’s 2005 new drug approval 

listings on its Web site (http://www.fda.gov/cder/rdmt/ndaaps05cy.htm downloaded 

March 3, 2006 and http://www.fda.gov/cder/rdmt/nmecy2005.htm downloaded March 3,

2006). 

Page 24 GAO-07-49 New Drug Development
According to experts, a variety of factors have contributed to the declining 

productivity of pharmaceutical research and development efforts by 

making it more difficult for the industry to successfully complete clinical 

testing and submit NDAs for approval. These factors include limitations on 

the scientific understanding of how to translate chemical and biological 

discoveries into safe and effective drugs, business decisions by the 

pharmaceutical industry, uncertainty regarding regulatory standards for 

determining whether a drug should be approved, and intellectual property 

issues, such as the length of patent terms. According to experts, these 

factors have impacted the length, costs, and failure rates of drug 

development, as well as the innovative potential of NDAs being submitted 

to FDA. Although experts agreed that declining productivity may be a 

cyclical occurrence that will ultimately be reversed, they also 

acknowledged that they need to address the recent increase of clinical

trial failure rates—from 82 percent during the period 1996 through 1999, to

91 percent during the period 2000 through 2003. As a result, they have 

proposed suggestions to expedite drug development and improve the 

overall productivity of research and development efforts. 

We found a general consensus that difficulties in effectively translating 

basic research discoveries into new and effective medicines have 

contributed to increased failure rates during clinical testing. In turn, this 

has led to increased costs of drug development. Difficulties in 

understanding the science of disease have historically challenged 

researchers. However, according to experts, these difficulties have been 

growing over the past several years as the volume of drugs in clinical trials

and the complexity of the diseases to be addressed have increased. As a 

result, the inability of drug sponsors to consistently predict the efficacy of

compounds, including those for complex diseases, has resulted in an 

increasing number of clinical failures and overall development costs. In 

addition, the inability of drug sponsors to effectively utilize new 

technologies and a shortage of highly trained researchers who possess the 

ability to effectively translate basic discoveries into new drugs, were seen 

as factors that further contribute to the increased clinical failures and 

costs. 

Experts Identified 

Factors Contributing 

to Declining 

Productivity in Drug 

Development and 

Offered Suggestions 

for Improvement 

Lack of Scientific 

Understanding in Treating 

Diseases Contributes to 

Increased Failure Rates 

and Increased Research 

and Development 

Expenditures 

During the panelists’ discussion, it was generally agreed that the inability 

to effectively predict which compounds will be successful when tested in

humans, combined with the greater numbers of compounds in clinical 

testing, have contributed to the increased number of drugs failing clinical 

testing and rising expenditures. Panelists commented that compounds 

which were thought to be effective treatments during preclinical testing in

Page 25 GAO-07-49 New Drug Development
animals can ultimately fail when tested in humans because available 

animal models used to estimate a compound’s effectiveness have limited

ability to predict whether they will be effective in treating humans.30 This 

issue was also highlighted in a joint report issued by the Association of 

American Medical Colleges (AAMC) and FDA, which found that although

animal models can be useful by providing biological insights, there is still a 

lack of understanding when it comes to extrapolating results from animal 

models to human studies.31

According to industry analysts, the pharmaceutical industry’s increasing 

focus on developing drugs for complex and chronic diseases such as 

cancer has also contributed to higher failure rates, slower drug 

development, and increased costs. Because many of these diseases have 

not been fully studied, knowledge of how drugs impact relevant cells 

remains incomplete. For example, scientists have rarely been able to 

develop cancer therapies that exclusively eliminate cancer cells without 

also destroying healthy tissues. As a result, many cancer drugs have failed

in clinical testing because of adverse side effects. Analysts have noted that 

in order to document the safety and efficacy of drugs used to treat 

complex and chronic diseases, longer studies with larger patient 

populations are required, which increases both development time and 

costs. Similarly, analysts reported in 2003 that therapies for complex and 

chronic conditions are generally more costly to test, as they typically 

require more complex patient care and longer monitoring periods.32

Over the past decade, new technologies including genomics and highthroughput screening have provided tools for researchers to discover and 

test compounds.33 According to industry analysts, the use of these 

 30For example, a panelist who was an industry representative explained that his company 

had compounds in development that were intended to affect the central nervous system 

and which successfully entered the brains of animals during preclinical testing. However,

after testing the drugs in clinical trials—at a cost of $10 to $12 million a study—researchers 

found that the drugs did not enter the brain in humans. 

31The Association of American Medical Colleges, Food and Drug Administration, Center for

Drug Development Science at the University of California San Francisco, Drug 

Development Science: Obstacles and Opportunities for Collaboration Among Academia,

Industry and Government (January 2005). 

32Joseph A. DiMasi, Ronald W. Hansen, and Henry G. Grabowski, “The Price of Innovation: 

New Estimates of Drug Development Costs”, Journal of Health Economics, Vol. 22 (2003). 

33Genomics is used to study how various genes interact with drug compounds, and highthroughput screening allows researchers to conduct hundreds of tests at once through a

combination of modern robotics and other specialized laboratory hardware.

Page 26 GAO-07-49 New Drug Development
technologies has led to increasing expenses without a commensurate 

increase in the number of drugs developed. These analysts have found that 

although companies have invested substantial resources in acquiring 

technologies that have generated vast quantities of newly discovered 

biological data, company researchers are still learning whether the data 

will lead to potentially valid drug candidates, resulting in compounds and 

drugs that have failed in either preclinical or early clinical testing. While 

the panelists generally agreed that the productivity of the pharmaceutical 

industry is currently declining, they stressed that this trend may be part of

a cycle that will reverse itself, as researchers improve their ability to 

exploit these technologies. 

Furthermore, a shortage of physician-scientists, also known as 

translational researchers—who possess both medical and research 

degrees and thus the expertise needed to translate discovery-stage 

research into safe and effective drugs—was seen by panelists and other 

experts as a fundamental barrier to increasing the productivity of drug 

development. During the panel discussion, it was generally agreed that a

shortage of translational researchers was a key factor contributing to the 

declining productivity of pharmaceutical research and development 

efforts, particularly with the increasing use of new technologies and the 

shift in research focus to more complex diseases. In addition, analysts 

have reported on this decline, and cited research which found that the 

number of physician-scientists declined by 22 percent from 1983 to 1998.34

Experts attribute this shortage to a variety of factors, including lengthy 

training and relatively lower compensation for physicians who are 

scientists, compared to those in clinical practice. In addition, researchers, 

including those in academia, have noted that academic institutions have 

not taken the initiative to provide financial incentives, such as

scholarships, for medical students to pursue these research interests. 

The Business Environment 

Drives Drug Development 

Decisions 

Experts generally agreed that business considerations greatly influence 

the industry’s priorities of what drugs to pursue. The conflicting pressures 

of avoiding risk and producing a high return on investment, in addition to 

the recent mergers of pharmaceutical companies, have shaped business 

decisions and affected productivity. 

 34See, for example, Ajit Varki and Leon E. Rosenberg, “Emerging Opportunities and Career

Paths for the Young Physician-Scientist”, Nature Medicine, Vol. 8, No. 5 (May 2002). 

Page 27 GAO-07-49 New Drug Development
Over the past 10 years, the trend in the pharmaceutical industry has been 

to focus on developing drugs that produce a high return on investment, 

which has reduced the numbers and types of drugs produced. This 

strategy has led pharmaceutical companies to pursue development of 

blockbuster drugs, which are usually for large patient populations and 

have the potential to reach $1 billion in annual sales. Blockbuster drugs 

may be developed to the exclusion of other drugs for more limited 

populations that generate much less revenue. Drug development experts 

and several panelists reported that companies frequently choose to stop 

developing drugs that do not offer the same revenue-generating potential

as blockbuster drugs, even though they could be highly innovative and 

offer therapeutic advances. According to an industry consultant we 

contacted, pharmaceutical companies have annual sales thresholds in 

place which play a key role in determining which drugs to continue 

developing.

35 The emphasis on developing blockbuster drugs has been 

highlighted by numerous industry analysts, who have noted that the 

number of blockbuster drugs being sold has more than doubled over the 

past several years. This strategy can also diminish the amount of resources 

available to develop therapies to treat more limited patient populations 

and less visible diseases.36 Due to increased competition among 

companies, the blockbuster strategy has also been cited as a factor leading 

to increased costs from late-stage development failures. According to 

researchers we interviewed from the Tufts Center for the Study of Drug 

Development, although companies have pursued drugs that they believed

had huge market potential, they later discovered that the potential for 

substantial revenue no longer existed for some of these drugs because 

competitors had already begun marketing similar drugs. Tufts researchers 

stated that such companies subsequently discontinued production of what 

they thought would be blockbuster drugs, and that often times these 

decisions were made late in Phase 3—the most complex and costly 

phase—and thus companies discontinued development after incurring 

substantial costs. 

 35For example, the industry consultant indicated that because shareholders expect large

companies to develop drugs that produce revenues of at least $200 to $500 million per drug 

per year, they frequently stop the development of drugs not expected to meet this 

threshold.

36Congress provided incentives to expedite the development of drugs for rare diseases with 

the enactment of the Orphan Drug Act in 1983, such as tax credits for clinical testing 

expenses. 26 U.S.C. § 45C. Although companies have been producing drugs under these 

provisions, the panelists noted that, in certain instances, the industry does not view these 

incentives as sufficient to encourage development. 

Page 28 GAO-07-49 New Drug Development
Industry analysts have also reported that with increased development 

costs and complexity, and with more competition, companies prefer to 

produce drugs that require little risk taking but still offer the potential for

high revenues. This strategy has created an emphasis on producing “me 

too” drugs—drugs which have a very similar chemical formulation to 

drugs already on the market. These drugs are less risky to develop because 

the safety and efficacy of the drugs on which they are based have already

been studied. According to one panelist, an industry representative, 

because the length, complexity, and expense of developing a single drug 

have all increased dramatically over the last 10 to 15 years, companies 

must choose fewer drugs to develop. As a result, they will often follow a 

business model that involves choosing drugs that are easy to develop, with 

a large market that will produce a large return on investment. 

Some experts and analysts who are critical of the pharmaceutical industry 

often state that the emphasis on “me too” drugs reduces innovation 

because such drugs do not offer any significant therapeutic benefits over 

products already being sold.37 For example, they state that companies have

produced different drugs all designed to combat depression or reduce 

cholesterol, and that such “me too” drugs have similar therapeutic 

benefits. As a result, these critics assert that this strategy diverts resources 

from developing drugs that offer greater innovative potential. However, 

industry analysts report that “me too” drugs benefit consumers by offering 

alternative and safer therapies. For example, they indicate that the side 

effects and efficacy of these drugs can vary from person to person, which 

gives physicians more options in treating their patients. In addition, 

analysts report that “me too” drugs increase competition, which can lower 

the price of drugs in the market. 

Another major business strategy that has affected the success of drug 

development since the early 1990s is mergers and acquisitions in the 

pharmaceutical industry.38 According to industry analysts, the industry 

pursued mergers and acquisitions because it anticipated it would increase 

the productivity of research and development. Instead, they noted that 

 37For example, see Marcia Angell, The Truth About the Drug Companies: How They

Deceive Us and What to Do About It (Random House, 2004). 

38A merger occurs when two firms agree to combine and form a single new company. An

acquisition occurs when one company purchases another company and establishes itself as

the new owner. Examples of some of the largest mergers and acquisitions include Astra

with Zenica (1999), Glaxo Wellcome with SmithKline Beecham (2000), and Pfizer with 

Pharmacia (2003). 

Page 29 GAO-07-49 New Drug Development
with the rise in research and development costs, the newly formed 

company often reviews its combined inventories of potential products and 

selects only the most promising compounds for further development. For 

example, after consolidating their research efforts, the company may 

choose to discontinue one of the individual company’s previous research 

areas because the projected financial benefits of the product lines fail to

meet the new company’s revenue expectations. In addition, analysts have 

found that mergers and acquisitions may also result in additional pressure 

to develop a blockbuster drug because investors expect the combined 

company to generate a substantial growth in revenue. According to a 

summary of a winter 2002-2003 Tufts survey39 of 35 clinical research 

organizations, merger and acquisition activity was cited as a large barrier 

to drug development.40 Due to mergers and acquisitions, nearly 50 percent 

of these organizations reported that drug development projects were 

cancelled during the 2 years prior to the survey, and that 90 percent 

experienced project delays. 

Factors in the Operating 

Environment Affect Drug 

Development Outcomes 

Based on the results of discussion among panel members, our interviews 

with drug development experts, and our review of prior studies, we 

identified several other factors that affect the numbers, types, and costs of

drugs being developed. These factors affect the operating environment in 

which drug sponsors make their decisions, and play a role in shaping 

development priorities. They include sponsors’ uncertainty over how they 

are to implement requirements for the safety and efficacy of new drugs, 

and the impact of intellectual property protections on pharmaceutical 

innovation. 

We found that uncertainties regarding regulatory requirements concerning

both drug safety and effectiveness can impact the success of drug 

development efforts. During the panel discussion, there was general 

agreement that the lack of precise FDA regulatory standards that outline 

what constitutes a safe and effective drug is a factor when making drug 

development decisions—weighing the safety of drugs against their 

Regulatory Uncertainty Can 

Hamper Drug Development 

 39Tufts Center for the Study of Drug Development, Impact Report, Vol. 5, No. 4 

(July/August 2003). 

40Clinical research organizations contract with drug sponsors to implement aspects of 

clinical trials, such as the design of a protocol, selection or monitoring of investigations, 

evaluation of reports, site monitoring visits, statistical analysis, and preparation of reports

to FDA. 

Page 30 GAO-07-49 New Drug Development
potential therapeutic benefits. Panelists generally agreed that because 

there are no precise standards for making these decisions, sponsors and 

FDA must address them on a case-by-case basis. As a result, it was 

indicated that this uncertainty may lead a drug sponsor to abandon a drug

rather than risk significant development expenditures. Panelists also 

indicated that this uncertainty creates risk-averse behavior that can reduce

the prospects for innovative therapies. During the panel discussion and 

interviews, FDA officials acknowledged that the regulatory standards are 

not precise and that it needs to have flexibility to address safety and 

efficacy issues as they arise. For example, FDA officials stated that they

may discover a new drug-to-drug interaction that could affect the safety 

risks of an NDA under review, and in such a case, they would utilize the 

new information to address previously unknown safety issues. 

We also identified a perception held by some drug development experts 

and industry analysts that FDA, in response to several events involving 

drug safety, has increased its review requirements during the drug 

development process. Some analysts believe that these increased review 

requirements have contributed to the increased time and costs of drug 

development by requiring more complex and costly studies. Some analysts

have reported that safety concerns during the 1990s—which led FDA to 

request that manufacturers withdraw pharmaceuticals including

fenfluramine and dexfenfluramine (known as Fen-Phen) in 1997, Propulsid 

and Rezulin in 2000, and Baycol in 2001—impacted FDA’s review 

requirements.41 For example, a 2004 report completed for the European 

Commission—the executive body of the European Union—found that the 

withdrawals of these pharmaceuticals from the market affected FDA’s 

implementation of its regulatory standards.42 According to this study, FDA 

began to demand more complex clinical trials that called for more testing 

on: (1) how drugs interact with each other, (2) the effect of drugs on liver 

toxicity, and (3) the relationship of drugs to cardiac risk. In addition, 

according to several drug development experts and some industry 

analysts, FDA has been requiring more lengthy and complex clinical trials, 

which call for more patients and increased costs. For example, according

to one analysis, the average number of patients participating in clinical

 41Propulsid and Fen-Phen were withdrawn due to increased risk of potentially fatal heart 

problems; Rezulin was withdrawn due to increased risk of liver failure; and Baycol was

withdrawn due to increased risks of potentially fatal muscle damage. 

42Innovation in the Pharmaceutical Sector, a Study Undertaken for the European

Commission (Charles River Associates, London: November 2004).

Page 31 GAO-07-49 New Drug Development
trials per NDA increased by 19 percent during the period 1995 to 2001, as

compared to the period 1990 to 1994, due, in part, to increasing federal 

regulations.43 In its comments on a draft of this report, HHS acknowledged 

that FDA may be increasing data requirements in some instances. 

However, it stressed that in many cases, the increase in the amount of data 

submitted results from a sponsor’s decision to provide support for new 

claims or to better position its product relative to existing products. 

Our review of studies and interviews with several experts revealed that 

there is a lack of consensus among FDA, industry, and academia as to 

what can constitute a valid measurement for proving the effectiveness of 

drugs for many diseases. As a result, these sources indicate that drug 

development can be more complex, lengthy, and costly than necessary, 

because drug sponsors are unsure how to demonstrate a drug’s 

effectiveness. Drug sponsors rely on end points—or objective 

measurements—to evaluate effectiveness. Clinical end points demonstrate 

the effectiveness of a drug on a human, such as a medication that can be

proven to prevent strokes. However, it can be easier to prove a drug’s 

efficacy by using valid biomarkers as surrogate end points (e.g., showing a 

medicine is effective in reducing blood pressure instead of proving it will 

prevent strokes).44 FDA has approved many drugs to treat the HIV/AIDS 

virus using surrogate end points. However, due to the uncertainty among

FDA, industry, and academia over when it is appropriate to use surrogate 

end points, expanding their use has been difficult, and has been 

recognized by FDA as one issue that needs to be addressed. For example, 

in its March 2004 paper outlining the critical path initiative, FDA 

concluded that adopting new biomarkers and surrogate end points for 

effectiveness standards can drive rapid clinical development, and that 

efforts are needed to develop them to help guide drug development.45 This 

issue was also extensively addressed in the joint report issued in 2005 by

 43B. Hirschhorn, Understanding the Development of the Clinical Study Budget While 

Avoiding Bumps and Pitfalls (Temple University, Philadelphia, Pa.: 2004). 

44A biomarker is a physical characteristic that can be objectively measured, such as blood 

pressure. A surrogate end point is a laboratory measurement or a physical sign that can

predict the effect of a medicine on a disease. In 1992, FDA issued regulations that allow for 

the accelerated approval of new drugs for serious or life-threatening diseases based on

surrogate end points that are reasonably likely, based on scientific evidence, to predict 

clinical benefit. 21 C.F.R. § 314.510. 

45FDA, Innovation or Stagnation: Challenge and Opportunity on the Critical Path to New 

Medical Products (March 2004). 

Page 32 GAO-07-49 New Drug Development
FDA and the AAMC in response to FDA’s critical path initiative.46 That 

report identified a need to clarify guidance governing the level of evidence

required to support the use of biomarkers and surrogate end points. In 

March 2006, FDA published a report outlining six areas to help increase 

productivity in drug development.47 One of these areas included 

developing new biomarkers which, according to FDA, could increase the 

safety of new drugs, reduce the costs of clinical trials, and expedite drug 

development. According to FDA’s senior manager for its critical path 

initiative, the agency is currently working with industry and academia to 

develop biomarkers and other tools to enhance the drug development 

process. 

During our review, we found a wide variety of views among consumer 

advocates, drug development experts and analysts, and industry 

representatives regarding how the protection of intellectual property 

affects innovation in drug development. Intellectual property protections 

are designed to help encourage innovation by providing financial 

incentives to engage in research and development efforts. 

Intellectual Property 

Protections Have Affected Drug 

Development 

One form of intellectual property protection is a patent, which provides its 

owner with the right to exclude others from making, using, or selling an 

invention for 20 years.48 In the United States, the U.S. Patent and 

Trademark Office issues patents. Typically, companies that develop brandname drugs obtain a patent on the active ingredient used in the drug. 

Patents are seen as playing a key role in drug development, because they

allow pharmaceutical companies to charge prices that allow them to 

recover their investments made in discovering and developing a new drug

and earn a profit. Drug manufacturers typically apply for patents for 

compounds while their medicinal properties are still being developed and 

evaluated. Therefore, the quicker companies are able to develop a new 

drug and receive market approval from FDA, the more time they have to 

sell their drugs without facing competition. The amount of patent 

 46The Association of American Medical Colleges, Food and Drug Administration, Center for

Drug Development Science at the University of California San Francisco, Drug 

Development Science: Obstacles and Opportunities for Collaboration Among Academia,

Industry and Government (January 2005). 

47FDA, Innovation or Stagnation, Critical Path Opportunities Report (March 2006). 

48Traditionally, the length of patent terms was 17 years. This was amended to 20 years in 

1994 with the enactment of the Uruguay Round Agreements Act. See 35 U.S.C. § 154 (a)(2). 

Page 33 GAO-07-49 New Drug Development
protection remaining after receiving FDA market approval is known as the 

effective life of a patent.

Through both their reports and our interviews with them, consumer 

advocates and some pharmaceutical industry analysts expressed concerns

that certain intellectual property protections do not encourage 

innovation.49 First, they contended that companies can easily obtain new 

patents by making minor changes to existing products regardless of 

whether the drugs offer significant therapeutic advances. Second, they 

indicated that pharmaceutical companies may develop new uses for 

previously approved drugs that have no patent protection and receive an 

additional 3 years of “market exclusivity.”50 According to these sources, 

these intellectual property protections enable companies to earn 

significant profits while reducing the incentive to develop more innovative 

drugs. These sources pointed to the relatively high percentage of nonNMEs, and standard NMEs in particular, that have been approved over the 

past decade as evidence that development efforts have focused on making

changes to existing drugs. Some analysts specifically highlighted the 

practice commonly known as producing line extensions—deriving new 

products from existing compounds by making small changes to existing 

products, such as changing a drug’s dosage, or changing a drug from a 

tablet to a capsule. According to analysts, these changes are typically

made to blockbuster drugs shortly before their patents expire. Some 

analysts also concluded that this practice redirects resources that 

otherwise could be applied to developing new and innovative drugs. 

In contrast, the pharmaceutical industry contended that due to the rising 

costs and complexity of developing new drugs, these intellectual property 

protections are crucial to maintaining drug development efforts.51 Drug 

 49For example, see National Institute for Health Care Management, Prescription Drugs and

Intellectual Property Protection, Finding the Right Balance Between Access and

Innovation (August 2000). 

50This protection was added to the Federal, Food, Drug, and Cosmetic Act with enactment 

of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the

Waxman-Hatch Act. Among other things, it bars FDA from approving an application to 

market a generic copy of certain drugs, for a 3-year period, if the clinical investigations 

relied upon by the applicant for approval were not conducted by or for the applicant, and 

the applicant has not been authorized to rely upon such studies. 21 U.S.C. § 

355(c)(3)(E)(iii). 

51For example, see PhRMA White Paper, Delivering on the Promise of Pharmaceutical

Innovation: The Need to Maintain Strong and Predictable Intellectual Property Rights 

(April 2002). 

Page 34 GAO-07-49 New Drug Development
sponsors and industry analysts also indicated that new drugs produced by 

modifying existing compounds are the result of incremental innovation, 

and such drugs can result in important therapies. For example, by 

changing a medicine to reduce its dosage schedule requirements, some 

industry analysts indicated that patients are more likely to comply with 

their prescription’s instructions. Finally, some analysts assert that the 

revenues generated from incremental innovation are needed to fund the 

more risky ongoing research and development efforts, which can lead to 

new innovations. 

Drug Development 

Experts Offered 

Suggestions to Improve 

Productivity and 

Innovation 

While panelists indicated that the productivity of drug development is 

currently in a downward cycle, and that the cycle would eventually 

reverse, they were uncertain when this would occur. Therefore, they 

recognized the importance of taking steps to develop and implement 

initiatives to increase the number, and innovative potential, of drugs being 

produced. To help accomplish this, the panelists and other experts—

including representatives from the pharmaceutical industry, academia, 

public interest groups, and FDA—made a variety of suggestions to reduce 

the costs, increase the speed, and encourage innovation in drug 

development. While not every expert mentioned every one of the 

suggestions below, or ranked them in a particular order, we found that 

certain suggestions were highlighted in the panel’s discussion, our 

interviews, and academic and industry reports as having the potential to 

improve the productivity of drug development. However, some of these 

experts also cautioned that any change that expedites the drug

development process should be tempered with appropriate measures to 

ensure that safety is not compromised. These suggestions include: 

• Collaborative efforts among the government, industry, and academia to:

• Design a system to collect and analyze data on why drugs fail during 

clinical testing. For example, a team of FDA and pharmaceutical 

representatives could review FDA and company databases to obtain 

examples of drug failures and then perform a systematic analysis of the 

causes of these failures. This effort would need to ensure protection of 

each company’s proprietary information on specific drugs. Such an 

effort may provide new information to prevent multiple companies 

from making the same or similar mistakes and may increase efficiency

in clinical trials. 

• Develop inventories of validated biomarkers and surrogate end points 

to use when testing the safety and efficacy of drugs in development. 

Page 35 GAO-07-49 New Drug Development
According to experts, to increase the utilization of validated surrogate 

end points, government, industry, and academia could also work 

together to clarify FDA’s guidance and the level of scientific evidence

needed to support the use of biomarkers and their validation as 

surrogate end points. 

• Identify diseases in great need of treatment, and implement an 

expedited regulatory process using conditional approval to decrease 

the time needed to develop drugs to treat these diseases. According to 

experts, a new expedited process would require less detailed study and 

information and allow for more limited clinical trials. Therefore, 

experts said that an expedited process would help lower the cost of 

creating drugs for these diseases, and serve as an incentive to increase 

drug development for such diseases. To help ensure safety, the drugs 

would have conditional approval—they would initially be distributed to 

certain populations whose usage of the drug can be studied and 

carefully monitored before wider distribution would be allowed.52

• Academia could place a greater emphasis on developing research 

scientists with knowledge of translational medicine by providing financial

incentives, such as scholarships, for students to pursue this discipline. 

Private and public partnerships could also create these incentives to 

develop such scientists. One of the panelists suggested that academia, 

industry, and FDA formally develop a paper that describes the skills most 

needed by this new type of translational scientist and develop funding and 

training mechanisms that would specifically support these individuals. 

• The federal government could consider providing financial incentives or

disincentives to affect the innovative potential of drugs produced by the 

industry. The government could achieve this by extending or reducing the 

period of patent protection associated with a drug based on its therapeutic 

value. One of the panelists suggested that a patent could be extended to 25

or 30 years for drugs considered innovative, or offering high therapeutic 

potential; while patents for drugs offering less innovative benefits could be 

only 10 years. 

 52Although FDA has an accelerated approval process for new drugs to treat serious or lifethreatening conditions, the suggestion of the panelists was made in the context of 

broadening this process to accommodate other illnesses. Under the accelerated approval

process, drugs designed to treat serious or life threatening conditions may be approved

conditionally, that is, the applicant may be required to conduct further drug studies

following approval to market the drug, to verify and describe the drug’s clinical benefits. 

Applicants are also required to submit promotional materials to FDA during specific 

timeframes. 21 U.S.C. § 356; 21 C.F.R. §§ 314.510, 314.550. 

Page 36 GAO-07-49 New Drug Development
Developing new drugs is complex, risky, and challenging. It is also 

important to the health and well-being of society, and can provide 

substantial financial rewards to companies. Recent trends reveal the 

number of drugs developed has not been commensurate with research and 

development investments by the pharmaceutical industry. While experts 

believe these trends are part of a cycle that can be reversed, there is no 

clear expectation of when the industry will become more productive—that

is, producing greater numbers of new drugs, and more specifically, those 

representing significant therapeutic advances. The extent to which 

scientific, business, regulatory, and intellectual property issues related to

drug development can be addressed will largely determine if and how 

quickly these trends can be reversed. Addressing this challenge will 

require effective collaboration between government, industry, and 

academic institutions. 

HHS provided comments on a draft of this report. HHS’s comments appear 

in appendix III. Among its general comments, HHS officials stated that our 

ranking of the innovative potential of NDAs based on FDA’s chemical type 

and therapeutic potential classifications was misleading. Specifically, HHS 

disagreed with our premise that an NDA classified as a standard NME 

should be ranked as more innovative than one classified as a priority nonNME. It noted classification as an NME is not necessarily commensurate 

with innovation and gave an example of a priority non-NME that could 

offer more therapeutic potential than a standard NME. We noted in our 

draft, that any one NDA—regardless of whether it is for an NME or was 

granted priority status by FDA—may eventually prove to be an innovative 

and uniquely therapeutic product. However, our discussions with FDA 

officials and our review of prior studies—including those conducted by 

FDA—revealed a general consensus that the most important factor in 

assessing the innovative potential of an NDA at the time of submission was 

whether or not it was an NME. For example, FDA has highlighted the 

declining number of NDAs for NMEs as an indicator of the stagnation of 

innovation. In its 2003 initiative, it reported a decline in the number of 

submissions of NDAs for NMEs in both the priority and standard 

classifications and noted this was an indication of decreases in the 

submission of applications for truly innovative new products.53

Concluding 

Observations 

Agency Comments 

 53See FDA, Improving Innovation in Medical Technology: Beyond 2002 (Jan. 31, 2003). 

Page 37 GAO-07-49 New Drug Development
HHS’s general comments also noted that statutory changes may be needed 

to implement the experts’ suggestion to expedite FDA’s regulatory process 

by instituting a new system of conditional approval. Although we noted in 

the draft report that FDA has authority to issue conditional approvals for 

certain drugs to treat serious or life-threatening conditions under its 

current accelerated approval program, we agree that, depending on the 

specific parameters of any new system, statutory changes could be 

necessary. 

Further, HHS’s general comments included additional clarifications. For 

example, HHS expressed concern that our explanation of why FDA could

only provide data on NDAs through 2004 could be misleading and imply 

that FDA is not good at tracking its data. In response, we clarified the 

report to reflect that FDA provided data on NDAs through 2004 

specifically at our request, as this was the most recent year with a 

complete set of NDA submission data at the time our request was made. 

We also made other clarifications in response to HHS’s general comments. 

In addition, HHS provided us with technical comments, which we 

incorporated throughout the report, as appropriate. 

As agreed with your offices, we plan no further distribution of this report 

until 30 days after its date. At that time, we will send copies of this report 

to the Secretary of HHS, the Acting Commissioner of FDA, appropriate 

congressional committees, and other interested parties. We will also make 

copies available to others upon request. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staff has any questions, please contact me at (312) 220-7600

or at aronovitzl@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made major contributions to this report are listed in 

appendix IV.

Leslie G. Aronovitz 

Director, Health Care 

Page 38 GAO-07-49 New Drug Development
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To determine trends in the pharmaceutical industry’s reported research 

and development expenditures, we obtained research and development 

expenditure information from the Pharmaceutical Research and 

Manufacturers of America (PhRMA). We obtained this information for the 

period 1993 through 2004, adjusted for inflation to 2004 dollars. We did not 

independently verify these expenditure data; however, many researchers 

have cited these data as the best available information, and they 

represented the best available information at the time of our study.1

To determine the trends in the number of submissions and approvals of 

NDAs, we requested that the Food and Drug Administration (FDA) provide 

information on all 1,264 new drug applications (NDA) submitted to FDA 

from January 1, 1993, through December 31, 2004.2

 We chose this time 

period because it generally corresponds to changes FDA implemented to 

its process for reviewing NDAs. Specifically, in 1992, FDA implemented a 

new system for categorizing NDAs, using the priority and standard 

designations and in 1993, FDA implemented time-frame goals for 

reviewing NDAs. At the time we requested these data—July 2005—

information through 2004 was the most current year for which FDA could 

provide complete data. We also compared the trends in the numbers of 

NDAs and NDAs for new molecular entities (NME) submitted to FDA to 

the trends in the research and development expenditures over the same 

12-year time frame. 

For each of the NDAs, we requested and obtained descriptive and status 

information—such as each NDA’s unique number, its review designation 

(either priority or standard), whether it was for an NME, and all of the 

dates documenting when drug sponsors provided information to FDA and 

when FDA made decisions during the review and approval process. After 

receiving this information, we performed a series of data analyses to 

identify trends in the submission and approval of NDAs, and calculated 

approval time frames for the NDAs. In calculating approval time frames, 

 1

For example, see Kaiser Family Foundation, Prescription Drug Trends, (October 2004) 

and National Institute for Health Care Management, Issue Brief, Factors Affecting the

Growth of Prescription Drugs Expenditures (July 1999). 

2

In addition to requesting information on NDAs, we initially requested information on 

applications for biological products, which are derived from living sources (such as 

humans, animals, and microorganisms) as opposed to being chemically synthesized. 

However, based on the data FDA provided, there were only 60 applications over the 12-year 

period. Therefore, we determined that it would not be meaningful to perform trend 

analyses on such a small number, and we limited the study’s scope to NDAs. 

Page 39 GAO-07-49 New Drug Development
Appendix I: Scope and Methodology 

we included both the time FDA spent reviewing the NDAs and any 

additional time needed by the sponsor to address any FDA review 

concerns. 

In addition to obtaining data on the 1,264 NDAs submitted from January 1, 

1993, through December 31, 2004, we obtained information from FDA on 

the number of NDAs and NDAs for NMEs the agency approved each year 

from 1993 through 2005. We used this information to analyze NDA and 

NDA for NME approval trends, regardless of the years these NDAs were 

submitted. We also obtained information from FDA on the number of 

investigational new drug applications (IND) filed with the agency each 

year from 1986 through 2005.3

 We chose this time period for two reasons. 

First, because it takes 7 years, on average, to successfully complete 

clinical trials, trends emerging from INDs submitted in 1986 could be 

reflected in NDA submission trends beginning in 1993. Second, 2005 was 

the most recent year with complete data, and these IND data provided an

indication of the productivity of research and development expenditures 

for the drug discovery and preclinical testing phases in more recent years.

We performed various tests of data reliability, including obtaining 

information about the data collection and management system and its 

controls that FDA uses to ensure the data are reliable, and corroborating 

the data by comparing them to other published information. Based on our 

work, we believe the data we used were sufficiently reliable for the 

purpose of our report. 

To determine factors affecting new drug development, and to obtain 

experts’ suggestions to expedite the process, we took several steps. First, 

we interviewed various experts from FDA, the pharmaceutical industry,

health care organizations, a consumer group, and academia, who possess 

knowledge of issues that have had an impact on drug development. 

Specifically, we interviewed officials from FDA’s Center for Drug 

Evaluation and Research and the Critical Path Institute—which was 

founded by FDA, the University of Arizona, and SRI International, an 

independent, nonprofit research institute. In addition, we spoke to experts 

from PhRMA and other pharmaceutical industry analysts, including an 

independent consultant to the pharmaceutical industry. We also 

 3

There are two classes of INDs—commercial and noncommercial. Commercial INDs are 

submitted primarily by companies whose ultimate goal is to submit an NDA to obtain 

marketing approval for a new product. Noncommercial INDs are filed for noncommercial 

research purposes. In this report, all references to INDs refer to commercial INDs. 

Page 40 GAO-07-49 New Drug Development
Appendix I: Scope and Methodology 

interviewed representatives from the American Medical Association, the 

Association of Clinical Research Organizations, and the National Institute 

for Health Care Management. Finally, we interviewed officials from Public 

Citizen, a consumer advocacy group, and experts at six academic 

institutions—Boston University, the University of California-Davis, the 

University of Medicine and Dentistry of New Jersey, the University of 

Minnesota, Tufts University, and Vanderbilt University. Second, we 

analyzed reports and articles by pharmaceutical industry financial 

analysts, academic researchers, consulting firms, and the federal 

government to obtain information regarding factors impacting drug 

development and potential solutions to address them. 

To supplement information from our interviews and review of studies, we 

contracted with the National Academy of Sciences (NAS) to convene a 

balanced, diverse panel of experts. At our request, these experts discussed 

key factors accounting for the drug submission and approval trends from 

1993-2004, factors impacting new drug development, and potential 

solutions that either the pharmaceutical industry, academia, or the 

government can take to enhance new drug development. We worked 

closely with NAS to identify and select potential panelists who 

represented industry, government, advocacy groups, and academia who 

could adequately respond to our questions about the drug development 

process as well as the FDA regulatory review process. In keeping with 

NAS policy, the panelists were invited to provide their individual views, 

and the panel was not designed to build consensus on any of the issues 

discussed. After the expert panel was conducted on January 27, 2006, in

Washington, D.C., we analyzed a transcript of the panel’s discussion to 

identify each expert’s views on key questions. The views expressed by the 

panelists do not necessarily reflect the views of the organizations with 

which they were affiliated or the NAS. A list of the experts who 

participated in this panel is contained in appendix II. We also reviewed 

applicable laws and regulations as part of our work. We conducted our 

work from July 2005 through October 2006 in accordance with generally

accepted government auditing standards. 

Page 41 GAO-07-49 New Drug Development
Appendix II: National Academy of Sciences Appendix II: National Academy of Sciences Expert Panel Participants 

Expert Panel Participants 

At our request, the National Academy of Sciences arranged an expert 

panel discussion of new drug development issues. The panel discussion 

was held on January 27, 2006, and the panelists and their affiliations as of 

the date of the panel are listed below: 

Moderator: 

Edward Holmes, M.D., Dean, School of Medicine, University of California, 

San Diego 

Panelists: 

Jerry Avorn, M.D., Professor of Medicine at the Harvard Medical School 

and Chief of the Division of Pharmacoepidemology and 

Pharmacoeconomics at Brigham and Women’s Hospital 

Peter Corr, Ph.D., Senior-Vice President for Science and Technology at 

Pfizer Inc. 

William E. Evans, PharmD., Director and Chief Executive Officer at St 

Jude Children’s Research Hospital 

Garret A. FitzGerald, M.D., Chair of the Department of Pharmacology and 

Director of the Institute for Translational Medicine and Therapeutics at the 

University of Pennsylvania School of Medicine. 

Elaine Gallin, Ph.D., Program Director of the Medical Research Program at 

the Doris Duke Charitable Trust 

Peter K. Honig, M.D., Senior Vice-President of Risk Management at Merck

Research Laboratories 

John K. Jenkins, M.D., Director of the Office of New Drugs, Center for 

Drug Evaluation and Research at the Food and Drug Administration (FDA) 

David Korn, M.D., Senior Vice-President for Biomedical and Health 

Sciences Research at the Association of American Medical Colleges 

Jeffrey Leiden, M.D., Ph.D. President & Chief Operating Officer of the 

Pharmaceutical Products Group at Abbott Laboratories 

Page 42 GAO-07-49 New Drug Development
Appendix II: National Academy of Sciences 

Expert Panel Participants 

John Marler, M.D., Associate Director for Clinical Trials at the National 

Institute of Neurological Diseases and Stroke at the National Institutes of 

Health 

Musa Mayer, author, breast cancer survivor, patient advocate, patient

representative to the FDA’s Oncologic Drugs Advisory Committee, and

patient consultant to the FDA’s Cancer Drug Development Program 

Suzanne Pattee, J.D., Vice-President of Public Policy & Patient Affairs at 

the Cystic Fibrosis Foundation 

Cecil Pickett, Ph.D., President of the Schering-Plough Research Institute 

Page 43 GAO-07-49 New Drug Development
Appendix III: Comments from the Department of Health and Human Services 

Page 44 GAO-07-49 

Appendix III: Comments from the 

Department of Health and Human Services 

 New Drug Development
Appendix III: Comments from the Department of Health and Human Services 

Page 45 GAO-07-49 New Drug Development
Appendix III: Comments from the Department of Health and Human Services 

Page 46 GAO-07-49 New Drug Development
Appendix IV: 

A

GAO Contacts and Staff 

cknowledgments 

Page 47 GAO-07-49 

Appendix IV: GAO Contacts and Staff 

Acknowledgments 

GAO Contact Leslie G. Aronovitz, (312) 220-7600 or aronovitzl@gao.gov

In addition to the contact named above, Geraldine Redican-Bigott, 

Assistant Director; Shirin Hormozi; Julian Klazkin; David Lichtenfeld; and 

Stephen Ulrich made major contributions to this report. 

New Drug Development

Acknowledgments 

(290476) 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER