The economics of new drugs: can we afford to make progress in a common disease?

The concept of personalized medicine is beginning to come to fruition, but the cost of drug development is untenable today. To identify new initiatives that would support a more sustainable business model, the economics of drug development are analyzed, including the cost of drug development, cost of capital, target market size, returns to innovators at the product and firm levels, and, finally, product pricing. We argue that a quick fix is not available. Instead, a rethinking of the entire pharmaceutical development process is needed from the way that clinical trials are conducted, to the role of biomarkers in segmenting markets, to the use of grant support, and conditional approval to decrease the cost of capital. In aggregate, the opportunities abound.