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Introduction

The development of novel therapeutics involves complex decisions about where to focus resources and investment. In principle, investment in therapeutic development should target the diseases and conditions with the highest unmet need and burden on societies and individuals. However, both public and private funders and investors developing therapeutics consider disease burden and unmet need in the context of myriad competing considerations and goals, such as limited funding; balancing advances in basic, translational, and clinical science; advocacy from patient groups; the likelihood of regulatory approval; payer reimbursement; market competition; and overall return-on-investment. These competing practical and financial priorities do not always align with unmet needs, underscoring the critical question of to what extent investments in new treatments correspond to the areas of greatest unmet need.

Furthermore, how to fairly allocate resources for drug development among potential beneficiaries involves ethical considerations and value judgments, about which there is not universal agreement and for which a multitude of defensible approaches exist. Because resources are limited and must be balanced with development in other sectors of society, and because public and private actors have different priorities, risk tolerance, and responsibilities, fairly allocating resources for drug development is a critical issue with multiple potential approaches (Millum, 2024).

Investments in therapeutic development have substantially increased the number of drugs entering the market, particularly in the last 2 decades (Austin and Hayford, 2021). This period has seen breakthroughs that have improved, even transformed, patient care—including targeted cancer

therapies like Gleevec and Herceptin, the development of novel cell and gene therapies, and highly effective GLP-1 receptor agonists. These advances represent significant innovation, but not all drugs fit that category. Studies conducted in the United States, Canada, and Europe indicate that many drugs that received marketing approval over the past 50 years were not considered pharmacologically or therapeutically innovative or did not demonstrate substantive improvements in efficacy or safety over the standard of care. The incentive for incremental improvements is not always aligned with their actual benefit for society. Some drugs are reimbursed at high prices despite demonstrating only marginal improvements (Austin and Hayford, 2021; Darrow et al., 2020; Kaitin et al., 1991; Kergall et al., 2021; Morgan et al., 2005; Rodwin et al., 2021; Wieseler et al., 2019). Although, even modest improvements in delivery, route of administration, or frequency of administration are important as they can enhance adherence, improve health outcomes, and address unmet need. In addition, the development of “me-too” or follow-on drugs, though not innovative, can increase competition and lower prices, or expand indications to new patient populations. However, there is a role for both innovation and incremental improvements in therapeutic developments that address unmet need. Investments in research and development (R&D) for innovation as well as incremental improvements could be better aligned with disease burden and unmet need in the United States (see Chapter 4).

In addition, many diseases and conditions continue to cause high disease burden and have substantial unmet need. Some diseases and conditions have no available therapies, and oftentimes existing, approved therapies are only modestly effective or have important safety risks. Unmet needs are often exacerbated by health disparities across population groups. These disparities are commonly associated with differences between groups in disease occurrence, health insurance coverage, care affordability, and access and quality of health care services and treatments. The current system of drug development needs adjusting to better align our investments in therapeutics with areas of unmet need.

PHARMACEUTICAL DEVELOPMENT AND THE DRUG DEVELOPMENT CYCLE

The development cycle for drugs is a lengthy process. Drug development typically begins with basic science research. Although basic science research is conducted by private companies, much is done by investigators at academic centers with funding from the National Institutes of Health (NIH) or other public sources. Translational research begins to build on basic science research and identify human applications. Once the research is advanced enough to identify potential product applications, which can be a difficult

hurdle to clear in order to attract private investment, universities license promising technology to private companies to support technology transfer, or scientists may form biotech start-ups, requiring some early investment of capital. Occasionally, academic scientists will create public–private partnerships (PPPs) to advance their products, especially for products that may be perceived as not having a profitable market. Preclinical development focuses on in vitro and in vivo studies, manufacturing process development, and toxicology studies. Once initial studies are completed for a promising drug candidate, preclinical data are compiled for an investigational new drug (IND) application to seek permission from the Food and Drug Administration (FDA) to begin testing an experimental drug in humans. An IND filing is a key milestone for drug development and for investors. The drug then undergoes a series of clinical trials to determine safety and efficacy, while in parallel the manufacturing process is refined and improved for commercialization.

Phase I through phase III clinical trials involve progressively larger patient populations and become increasingly expensive and time consuming, requiring substantial capital investment primarily from venture capital firms or established pharmaceutical companies. Clinical trial data are submitted in a new drug application or a biologics license application to FDA for approval, which is another key milestone in drug development. In the commercial and postmarketing phases, pricing and reimbursement negotiations occur with payers, and product revenue begins to deliver return on investment. Sometimes there are phase IV studies or studies to collect clinical trial data for postapproval confirmation of short- and long-term benefits and safety, or expansions for other indications. (See NASEM, 2022, 2023, for further descriptions of this drug development cycle.)

Drug development requires a substantial investment of time (often over a decade from initial discovery to market approval) and money (approximately $1.1 billion per new molecular entity, including the costs of successful R&D programs as well as failures) (Sertkaya et al., 2024; Wouters and Kesselheim, 2024). Most candidate drugs fail in clinical trials; it has been estimated that approximately 1 in 10 assets entering phase I trials ultimately meets the statutory standard of safety and effectiveness to support approval (Austin and Hayford, 2021). However, the cost of R&D and the probability of product success varies by disease category (Sertkaya et al., 2024). Given the high level of investment required and the high risk of the pharmaceutical development process, decision making about where to invest time and capital is critical and occurs with each phase of the process from discovery through approval. Many factors contribute to financial and personnel investment decisions, but whether capital for R&D comes from venture capital firms or established pharmaceutical companies, the entities are profit seeking, so expectations about the timing and amount of returns on investment are of utmost importance.

To aid in decision making, companies use various types of analysis. For example, net present value forecasts are used to analyze the potential return on investment, accounting for the likely volume of use, the net pricing of and expected reimbursement for the envisioned product, and the duration of its patents or market exclusivity. Drivers for investment decisions also include such factors as the size of the target patient population, disease severity, profile of existing competing products, and more. Unmet need and disease burden can factor into these assessments when accounting for market trends, gaps, and competitive products, but a lot of decision making is related to return on investment, which can leave gaps where resources are not directed toward some areas of unmet need.

The United States prizes the role it plays in technological innovation and has been a powerhouse of innovation in pharmaceutical development. However, the level of investment does not always yield the desired health outcomes and high-value therapeutics. To better address U.S. health needs, it is important to direct investments that can create larger health care gains without sacrificing financial returns. Recognizing the value of innovation, the committee’s goal is to better align investment with disease burden and unmet need.

COMMITTEE TASK AND APPROACH

Several years ago, a group was convened to discuss health care costs and proposed strategies to reduce costs without harming patients. During those conversations, questions were raised about whether investments in therapeutics are made where they are most needed. However, given the relative lack of data for quantifying public and private investments in therapeutic innovation, it became clear that there was an opportunity to delve more deeply into that question. Therefore, with support from Gates Ventures and the Peterson Center on Healthcare, the National Academies of Sciences, Engineering, and Medicine (the National Academies) formed the Committee on Strategies to Better Align Investments in Innovations for Therapeutic Development with Disease Burden and Unmet Needs. The sponsors charged the committee to develop strategies to improve investment in innovation to reduce gaps in disease burden and unmet need (Box 1-1).

The Committee’s Interpretation of the Charge

The committee approached its statement of task with the overall goal to design policies that would lead society to invest in innovation (including public and private investments) up to the point where the marginal cost equals the expected marginal social benefit of those investments. In other words, U.S. policies should help ensure that all cost-effective innovations

can make it to market, and that resources are not being spent on projects that are expected to have little benefit in terms of saving lives and improving health. The marginal cost part of this equation is relatively straightforward, although it is challenging to get such data in practice, as one can theoretically approach cost as the sum of private and public investment. However, the expected social benefit of these investments is much more complicated. This social benefit depends on the estimated reduction in disease burden that the R&D investment could cause and on a judgment about how to value that disease burden reduction, which includes challenging ethical questions about how to value different kinds of health gains and inequality reductions. While there have been efforts to quantify social benefit as a monetary value, such valuations are beyond the scope of this report.

As discussed in detail in Chapter 2, there are various ways to measure disease burden and unmet need, depending on values and priorities. (See Box 1-2 for definitions for key terms used throughout this report.) Therefore, the committee does not prescribe a single approach for calculating disease burden and unmet need nor does it provide a definitive list of diseases or therapeutic areas where investments should be directed. Instead, the committee sought to provide a framework for accomplishing such a task. The committee reviewed current evidence relating to mismatch between U.S. disease burden and investments, as described in Chapter 3; however, much of this report is dedicated to advancing a clearer understanding of the contours of assessing burden and unmet need and developing guidance for conducting this assessment systematically and on an ongoing basis. In addition, disease exemplars are used throughout the report to highlight areas of mismatch between U.S. disease burden and public and private innovation in therapeutic development. These exemplars are not meant to be an exhaustive list of areas of mismatch but instead highlight some of the challenges in our current system to align investments in therapeutic development with U.S. disease burden and unmet need.

The committee focuses its analysis on U.S. disease burden and U.S. investment in accordance with the statement of task. However, the committee acknowledges that therapeutic research and development is a global endeavor. As such, global disease burden likely contributes to investment decisions in the U.S. market, particularly among multinational companies or organizations focused on global health. Moreover, research occurring in other countries can contribute to therapeutic innovations for American patients without being reflected in U.S. investments. While quantifying these factors’ effects on the mismatch of investment and unmet need in the United States is beyond the scope of this committee, it is important to recognize that the international context is intertwined with U.S. therapeutic funding and innovation.

The committee found that the concept of access is intimately linked with both therapeutic innovation and unmet need. For example, “a back-of-the-envelope calculation suggests that U.S. consumers account for about 64 to 78 percent of total pharmaceutical profits” (Goldman and Lakdawalla, 2018, p. 4), and the drug pricing and market access environment is a major determinant of product success. Therefore, to the extent that drug pricing and access affect innovation, the committee considered this to be within its scope. On the other hand, while the committee recognizes that unmet need is often driven by broader social, economic, and behavioral determinants that influence patient access and the appropriate use of existing therapeutics, an adequate assessment of the policies and practices that address these determinants was beyond the scope of this report, as indicated in the statement of task. However, the effects of these factors on access and health outcomes have been the subject of considerable attention elsewhere in the literature, including recent National Academies reports (NASEM, 2018, 2019, 2023).

The committee thought carefully about whether medical devices, preventatives (e.g., vaccines), and diagnostics were in scope for this report. The committee considered medical devices to be out of scope for its charge given that the regulatory and reimbursement mechanisms differ from those for drugs and including these devices would have expanded the scope too broadly for the committee to address comprehensively within the given time frame. However, the committee recognizes that there are unique considerations for diagnostics that merit further discussion within the scope of this report, such as when therapeutic innovation is particularly limited by a lack of diagnostic innovation. Some conditions would benefit from more granular distinctions in the patient population afforded by better diagnostics, which could allow for more targeted therapies, as well as enhanced efficiency in generating evidence of safety and efficacy. In certain conditions for which early detection and treatment is essential, such as degenerative diseases, novel diagnostics to accurately provide a timely patient diagnosis could result in better therapeutics and fewer unmet needs. Therefore,

although pharmaceuticals were the primary focus of the report, diagnostics are mentioned throughout the report where a lack of significant investment in innovation for the development of novel diagnostics serves as a barrier to aligning therapeutic innovation with unmet need and disease burden.

Similarly, this report does not concentrate on vaccines and other preventatives, although preventatives can be critical for addressing disease burden or unmet need. Even though preventatives, medical devices, and such treatments as physical or behavioral therapy were determined to be out of scope for this report, they are often intertwined with therapeutic innovation and it is important to recognize that pharmacological therapies are not the only, or necessarily the best, way to address disease burden or unmet medical need in many cases.

Committee Approach

The Committee on Strategies to Better Align Investments in Innovations for Therapeutic Development with Disease Burden and Unmet Needs consisted of 16 members with a broad range of expertise, including health economics, data science, epidemiology, health policy, biomedical/pharmaceutical sciences, therapeutic development (including those with experience in the biopharmaceutical industry and the investment community), regulatory oversight, health law, bioethics, social and behavioral sciences, clinical care, and health disparities. Appendix B provides brief biographies of the committee members and staff.

The committee deliberated during seven hybrid meetings, many working group calls, and multiple ad hoc meetings between March 2024 and March 2025. Additionally, the committee held three virtual public webinars and invited speakers to offer comments or make presentations to inform the committee’s deliberations. Speakers provided valuable input on a broad range of topics, including investment decision making, data and artificial intelligence, regulatory barriers and solutions, and more. Appendix A includes public session agendas, and Appendix D provides more information about the study’s methods.

The committee also completed an extensive search of the peer-reviewed literature and the gray literature, including publications by private organizations, advocacy groups, and government entities. In addition, the committee established an online system to collect perspectives from patients and patient groups, clinicians, investors, regulators, policy makers, federal agencies, entrepreneurs, inventors, innovators, and researchers. This “call for perspectives” was posted on the project website, announced at all public meetings, and shared with project sponsors; it included a survey of questions covering patient experiences, clinical insights, investment, regulatory issues, research challenges and solutions, and more.

As noted in this committee’s meeting timeline, the majority of the committee’s deliberations as well as the writing of this report occurred in a different policy environment from the one into which it is being released. The federal policy landscape for biomedical research is in the midst of a rapidly evolving and unprecedented period of change, altering the federal funding architecture upon which the innovation ecosystem has operated for the past several decades. Despite the uncertainty that accompanies this dramatic period of change, the committee maintains the strong position that alignment of investment in innovation with unmet need is an essential and persistent goal and presents recommendations accordingly. Public investment in research and related regulatory activities is incredibly efficient. For example, for every $1 the United States invests in NIH, $2.56 worth of economic activity is generated (United for Medical Research, 2025). Cutting government funding for research will impede innovation, limit opportunities for private entities that rely on publicly funded research, and ultimately stall economic activity. Therefore, the report is unwavering in acknowledging that there is a strong public interest in sustaining the U.S.’ position as the global leader in biomedical innovation.

REFERENCES