It's absolutely true that risk aversion is not the only thing holding back drug trials. But it's definitely part of the problem.

Think about insulin. In 1921 Banting and Best had the idea. It was in a patient's arm by 1922. And they won the Nobel Prize by 1923.

http://www.nobelprize.org/educational/medicine/insulin/discovery-insulin.html

Early in 1921, Banting took his idea to Professor John
Macleod at the University of Toronto, who was a leading
figure in the study of diabetes in Canada. Macleod didn't
think much of Banting's theories. Despite this, Banting
managed to convince him that his idea was worth trying.
Macleod gave Banting a laboratory with a minimum of
equipment and ten dogs. Banting also got an assistant, a
medical student by the name of Charles Best. The
experiment was set to start in the summer of 1921.

...

In January 1922 in Toronto, Canada, a 14-year-old boy,
Leonard Thompson, was chosen as the first person with
diabetes to receive insulin. The test was a success.
Leonard, who before the insulin shots was near death,
rapidly regained his strength and appetite. The team now
expanded their testing to other volunteer diabetics, who
reacted just as positively as Leonard to the insulin
extract.

The news of the successful treatment of diabetes with
insulin rapidly spread outside of Toronto, and in 1923 the
Nobel Committee decided to award Banting and Macleod the
Nobel Prize in Physiology or Medicine.

That was before the FDA gained the power of premarket approval, a time when pharma moved at the speed of software. Nowadays that past is characterized as a time of patent medicines and scam artists. But if you actually get into the history books you'll see that description is like characterizing the modern internet as a giant repository of spam and scams. In other words, absolutely that spam/scam stuff existed (and indeed crystals and faith healing persist to the present day), but real innovation in drugs also occurred at the same time.

The fundamental point there is that Banting and Best could do empirical human trials. You can't predict what a novel drug will do without humans who are willing to risk their lives. In computers these people are called early adopters.

If risk aversion was slowing pharma innovation then we'd
see a lot of potentially efficacious compounds failing
safety trials. Instead what we see is that the cost to
discover candidate compounds before they're ever tested on
humans.

Yes, the thing is that drug companies face a significant penalty with the FDA if they fail a safety trial. It's not just a one off, it influences the FDA's perception of them as a "reputable" company. If the FDA thinks of you as disreputable or a cowboy, they will inspect the hell out of you and issue Form 483s [0] till the cows come home. And that's not even including the PR impact and the market sell-off should you ever actually have a TGN 1412 incident[1].

So there is a very significant economic risk to "failing fast" in pharma. Over and above the hit to brand, if the PR fallout is bad enough the FDA has a number of tools with which to criminalize failure. The Park Doctrine[2] is what they do for "off-label marketing", and they would escalate considerably if they felt public opinion demanded it.

Anyway, this is why drug companies are doing all these simulations and iterating primarily around drug molecules that are known to be safe. No one ever got fired for buying IBM, and no one ever got fired for trying molecules compliant with Lipinski's rule of five[3]. Sure, that's still a pretty wide class of molecules, but "radical innovation" in compounds is just not going to fly with the FDA.

After all, it took the FDA more than a decade to begin considering adaptive clinical trials[4] in lieu of the standard Phase I/II/III design. How long will it take them to agree that aging could be treated as a disease, or to allow the development of enhancing drugs?

These things probably won't happen until there's some sort of major conflict in which enhancing drugs become the difference between victory and defeat. Then the floodgates will open.

[0] http://blog.fdazilla.com/2011/09/fda-will-issue-10000-483s-i...

[1] http://en.wikipedia.org/wiki/TGN1412

[2] http://www.gatewayfda.com/fda-regulations/under-park-doctrin...

[3] http://en.wikipedia.org/wiki/Druglikeness

[4] http://jnci.oxfordjournals.org/content/102/16/1217.extract