Pfizer’s Failure and the Future of Drug Development

Many people are walking away with a wrong impression from Pfizer’s torcetrapib’s clinical trial being canceled over the weekend. Drugs stocks are up, because investors think they’re all in play with Pfizer, facing patent expirations and an emptying product pipeline, now seemingly forced to do a major acquisition.

But there is another side. The other side is that despite tocetrapib being crucial to Pfizer, despite it being touted by company execs two days before the trial was canceled, despite Pfizer running this trial with the best and the brightest, the trial failed.

And it happens all the time. Because what people forget is that Phase III drug failures happen regularly, something like 42% of the time, according to a McKinsey study. Granted, most of the time it’s about placebo problems — a drug doesn’t actually do anything — but safety failures, like this one, are common too.

So here’s the thing: Drug development remains, as ever, a total crapshoot. Despite billions being spent on targets, platforms, and the like, and despite VCs’ rediscovered semi-ardor for the sector, you can spend hundreds of millions of dollars on a compound, only to have scarcely better than a 50/50 shot at making it through a Phase III trials.

Far from boosting other drug development companies, you might think the news would take down the whole sector. Drug development is, in a word, broken.


  1. What’s the success rate for VCs? Isn’t it below 10%?
    How different is drug development from wild-catting? Or VC investments?
    If anything, the amount of process and regulation makes it seem like a miracle that 50% plus of trials succeed.
    Of course, you’ll probably stipulate that the VC industry is also, in a word, broken.

  2. Well, true enough, VC is broken too. But that is sort of apples and oranges: I’m saying that of the stuff that makes it to Phase III, 42% fails. That’s fairly staggering, in that we have already been through preclinical, Phase I, and Phase II trials, probably spending on the order of $300m already.

  3. Brent Buckner says:

    Paul, I could as easily take your evidence as showing that drug development is *difficult*, as opposed to “broken”.

  4. It’s the scientific method: disprove an hypothesis. If anything is broken it is R&D’s ability to weed out faulty hypotheses before they affect the stock prices. Researchers are under great pressure to produce the next wonder drug, become billionaires and heros.
    I just avoid the whole sector. I might except JNJ for its diversification but it is probably subject to the same distortions. Biomedical research riskier is much less linear than electro-mechanical development. Always has been and always will be.

  5. Brent — Well, then you’re more of an optimist than I am. When I see the kind of money being spent, and consider the supposed advances in targets, compounds, efficacy, potency, etc., over the last few decades, and then I see a major pharma miss so badly on a Phase III trial, where 70% of the costs are incurred, my conclusion is that drug development is beyond difficult. It’s broken, no more than a very expensive lottery ticket.

  6. Brent Buckner says:

    Paul: I have no objection to expensive, low-probability, high-payout lottery tickets when they have positive economic value (cf. Taleb). Reference stuff on drug development not meeting its cost-of-capital over the past 20 years and I’ll be more likely to join you in pessimism.

  7. Of course it hasn’t recovered its cost of capital — that goes without saying, I would hope, in any informed discussion of modern drug development.
    What we have here is a business where the payoffs are getting smaller, the costs are getting larger, and the probability of success has changed minimally, if at all, despite billions of research dollars. Sounds broken to me.

  8. Brent Buckner says:

    Paul, I’m not claiming to be well-informed in this area. Nonetheless, you might consider that your assertions may not be as obvious to your audience as you believe.
    On the one hand, I have your statement “Of course it hasn’t recovered its cost of capital — that goes without saying”. On the other hand, googling +”drug development”+”cost of capital” gives two links to news releases from the Tufts Center for Drug Development, and then the third link (again from the Tufts Center) is:
    where I read on page 32:
    “These studies of the profitability of new drug development have not found evidence of significant and sustained excess profits. The estimated internal rates of return are quite close to the cost-of-capital. The much higher R&D cost estimates of for this study raise a question about the recent profit experience of the pharmaceutical industry. However, Grabowski and Vernon (2000) found substantial growth in pharmaceutical sales for 1990s drug cohorts. A new study [Grabowski et al., 2002] on pharmaceutical profitability using some of the cost results in this study and recent sales data is qualitatively consistent with the outcomes of the earlier profitability studies (i.e. the internal rate of return is close to the industry cost-of-capital).”