Drug Development Stages: The Complete Guide from Discovery to Approval
A definitive walkthrough of every stage in the pharmaceutical development process—with timelines, costs, success rates, and strategic deal implications at each phase.
The Long Road to Market
Bringing a new drug from initial concept to patient access is one of the most complex, expensive, and time-consuming endeavors in modern industry. On average, it takes 10-15 years and costs $1.3-2.6 billion—with only about 7-12% of drugs entering clinical trials ultimately receiving approval. Understanding each stage of this process is critical for investors, business development professionals, and anyone evaluating pharmaceutical assets.
The Drug Development Pipeline
Drug development follows a structured, regulatory-driven process that can be divided into eight major stages. Each stage serves a specific purpose, involves different stakeholders, and carries distinct risk profiles.
Drug Development at a Glance
Stage 1: Drug Discovery & Target Identification
Drug discovery begins with identifying a biological target—a protein, gene, or pathway implicated in a disease. Researchers then screen thousands of compounds to find molecules that interact with the target in a therapeutically useful way.
Key Activities
- Target identification & validation: Using genomics, proteomics, and disease biology to find druggable targets. CRISPR gene editing has accelerated this process significantly.
- Hit identification: High-throughput screening (HTS) of compound libraries—testing 100,000-1,000,000+ molecules against the target. AI-driven drug discovery platforms like Recursion and Isomorphic Labs are reducing this from months to weeks.
- Lead optimization: Refining "hit" compounds to improve potency, selectivity, metabolic stability, and drug-like properties through medicinal chemistry.
- Proof of concept: Demonstrating the compound's mechanism works in cell-based assays and basic animal models.
AI Is Transforming Discovery
Stage 2: Preclinical Development
Preclinical development evaluates the drug candidate's safety, pharmacokinetics (how the body processes the drug), and pharmacodynamics (what the drug does to the body) before human testing. This stage is heavily regulated and must follow Good Laboratory Practice (GLP) standards.
Required Studies
ADME Studies
Absorption, Distribution, Metabolism, and Excretion profiling to understand how the drug behaves in the body.
Toxicology Studies
Acute and chronic toxicity testing in at least two species (typically rodent and non-rodent) to establish safe starting doses for humans.
Formulation Development
Developing a stable, manufacturable drug form (tablet, injection, etc.) suitable for clinical trials—Chemistry, Manufacturing, and Controls (CMC).
Efficacy Models
Animal models of disease to demonstrate that the drug has the intended therapeutic effect—pharmacology studies.
Preclinical Attrition
Stage 3: IND Application
Before testing a new drug in humans, sponsors must file an Investigational New Drug (IND) application with the FDA (or CTA with the EMA, or IND with the NMPA in China). The IND includes all preclinical data, the proposed clinical trial protocol, investigator information, and CMC details.
The FDA has 30 days to review the IND. If no clinical hold is issued, the sponsor may proceed with Phase 1 trials. Approximately 85% of IND applications proceed without a clinical hold.
IND Application: Key Components
| Section | Contents |
|---|---|
| Animal Pharmacology & Toxicology | All preclinical data demonstrating reasonable safety for first-in-human testing |
| Manufacturing Information (CMC) | Drug composition, manufacturing process, quality controls, stability data |
| Clinical Protocol | Detailed Phase 1 trial design including objectives, patient population, dosing, and endpoints |
| Investigator Information | Qualifications and experience of the principal investigator(s) |
| Previous Human Experience | Any prior human data (if applicable—common for repurposed drugs) |
Stage 4: Phase 1 Clinical Trials
Phase 1 is the first test in humans. The primary objective is to evaluate safety, tolerability, and pharmacokinetics—not efficacy. Participants are typically healthy volunteers (except in oncology, where Phase 1 enrolls patients with advanced cancer).
Phase 1 Design Types
- Single Ascending Dose (SAD): Small groups receive progressively higher single doses to find the maximum tolerated dose (MTD).
- Multiple Ascending Dose (MAD): Groups receive multiple doses at increasing levels to assess steady-state pharmacokinetics and safety over time.
- Food effect studies: Evaluate how food impacts drug absorption.
- Drug-drug interaction studies: Assess potential interactions with commonly prescribed medications.
Phase 1 Success Rate
Stage 5: Phase 2 Clinical Trials
Phase 2 is the critical proof-of-concept stage. For the first time, the drug is tested in patients with the target disease to evaluate whether it actually works. This is where the majority of drugs fail—and where the most important go/no-go decisions are made.
Phase 2a (Dose-Finding)
Smaller studies focused on optimal dosing. Tests multiple dose levels to find the sweet spot between efficacy and safety. Often uses adaptive trial designs.
Phase 2b (Proof of Concept)
Larger, more rigorous studies with the selected dose(s) to establish efficacy signals. Randomized, placebo-controlled designs. Results inform the Phase 3 trial design.
The Phase 2 Valley of Death
Stage 6: Phase 3 Clinical Trials
Phase 3 trials are the pivotal, registration-enabling studies that form the basis of the regulatory submission. They are large, randomized, controlled trials designed to definitively demonstrate efficacy and monitor adverse reactions in a broad patient population.
Phase 3 is the most expensive stage of drug development, typically requiring multiple trial sites across dozens of countries. The FDA generally requires two adequate and well-controlled Phase 3 trials for approval, though a single trial with highly compelling results may suffice.
Phase 3 Design Elements
- Randomized Controlled Trial (RCT): Patients are randomly assigned to the study drug or a comparator (placebo or active control).
- Double-blind: Neither patients nor investigators know who receives the drug vs. comparator, minimizing bias.
- Multi-center, multi-national: Conducted across 100-500+ sites globally to demonstrate efficacy across diverse populations.
- Primary endpoints: Must be clinically meaningful—overall survival, progression-free survival, disease-specific outcomes, or validated surrogate endpoints.
- Statistical rigor: P-value < 0.05 is the standard threshold, with pre-specified statistical analysis plans (SAPs) to prevent data manipulation.
Phase 3 Economics
Stage 7: Regulatory Review & Approval
After successful Phase 3 trials, the sponsor submits a New Drug Application (NDA) for small molecules or a Biologics License Application (BLA) for biologics to the FDA. In Europe, a Marketing Authorisation Application (MAA) is submitted to the EMA. In China, the equivalent submission goes to the NMPA.
Regulatory Review Timelines by Agency
| Agency | Submission Type | Standard Review | Priority Review |
|---|---|---|---|
| FDA (U.S.) | NDA / BLA | 10-12 months | 6 months |
| EMA (Europe) | MAA | 12-15 months | 150 days (accelerated) |
| NMPA (China) | NDA | 12-18 months | 130 working days |
| PMDA (Japan) | NDA / BLA | 12 months | 9 months (SAKIGAKE) |
The FDA approved 50 novel drugs (NMEs) in 2024 and 55 in 2023, maintaining a steady pace of innovation. The approval rate for drugs that reach the NDA/BLA stage is approximately 85-90%.
Stage 8: Post-Market Surveillance (Phase 4)
After approval, the drug enters Phase 4—post-marketing surveillance. The FDA and EMA may require additional studies to monitor long-term safety, evaluate use in special populations (pediatric, geriatric, pregnant), or explore new indications.
Adverse event reporting is mandatory. The FDA's MedWatch system and EMA's EudraVigilance collect real-world safety data. In rare cases, serious safety signals discovered post-market can lead to label changes, restricted access (REMS programs), or full market withdrawal.
Post-Market Withdrawals
Accelerated Pathways & Special Designations
Regulatory agencies offer several expedited pathways for drugs addressing serious or life-threatening conditions with unmet medical need. These can significantly compress development timelines.
Fast Track
FDACriteria: Serious condition + unmet medical need
Benefit: More frequent FDA meetings, rolling review (submit sections as completed instead of all at once)
Time savings: Saves 2-4 months on review
Breakthrough Therapy
FDACriteria: Preliminary evidence of substantial improvement over existing treatments
Benefit: Intensive FDA guidance, organizational commitment, rolling review. Most valuable designation.
Time savings: Can save 1-3 years overall
Accelerated Approval
FDACriteria: Surrogate or intermediate endpoint reasonably likely to predict clinical benefit
Benefit: Approval based on surrogate endpoints (e.g., tumor shrinkage) before full survival data is available.
Time savings: Can save 2-5 years
Priority Review
FDACriteria: Significant improvement in safety or effectiveness
Benefit: 6-month FDA review target instead of standard 10-12 months.
Time savings: Saves 4-6 months on review
PRIME
EMACriteria: Substantial clinical advantage for unmet medical need
Benefit: Enhanced interaction and early dialogue with EMA. European equivalent of Breakthrough Therapy.
Time savings: Saves 6-12 months
SAKIGAKE
PMDA (Japan)Criteria: Innovative drug with clear medical need, developed primarily in Japan
Benefit: Priority consultation, 6-month review, longer post-market re-examination.
Time savings: Saves 3-6 months
Business Development Implications by Stage
Understanding where an asset sits in the development pipeline directly determines its valuation, deal structure, and attractiveness to potential partners or acquirers.
Asset Valuation & Deal Dynamics by Development Stage
| Stage | Typical Deal Type | Upfront Range | Risk Profile |
|---|---|---|---|
| Discovery | Research collaboration, option-to-license | $5-50M | Very high (~5% PoS) |
| Preclinical | Licensing with milestones | $10-100M | High (~10% PoS) |
| Phase 1 | Licensing or co-development | $25-200M | High (~15-20% PoS) |
| Phase 2 (positive) | Licensing, co-promotion, acquisition | $100M-1B+ | Moderate (~30-40% PoS) |
| Phase 3 | Acquisition, licensing, co-commercialization | $500M-5B+ | Lower (~50-65% PoS) |
| Approved / Marketed | Acquisition, geographic licensing | $1B-20B+ | Low (commercial risk) |