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How to improve R&D productivity: the pharmaceutical industry's grand challenge

Key Points

  • The biopharmaceutical industry is facing unprecedented challenges to its fundamental business model and currently cannot sustain sufficient innovation to replace its products and revenues lost due to patent expirations.

  • The number of truly innovative new medicines approved by regulatory agencies such as the US Food and Drug Administration has declined substantially despite continued increases in R&D spending, raising the current cost of each new molecular entity (NME) to approximately US$1.8 billion

  • Declining R&D productivity is arguably the most important challenge the industry faces and thus improving R&D productivity is its most important priority.

  • A detailed analysis of the key elements that determine overall R&D productivity and the cost to successfully develop an NME reveals exactly where (and to what degree) R&D productivity can (and must) be improved.

  • Reducing late-stage (Phase II and III) attrition rates and cycle times during drug development are among the key requirements for improving R&D productivity.

  • To achieve the necessary increase in R&D productivity, R&D investments, both financial and intellectual, must be focused on the 'sweet spot' of drug discovery and early clinical development, from target selection to clinical proof-of-concept.

  • The transformation from a traditional biopharmaceutical FIPCo (fully integrated pharmaceutical company) to a FIPNet (fully integrated pharmaceutical network) should allow a given R&D organization to 'play bigger than its size' and to more affordably fund the necessary number and quality of pipeline assets.


The pharmaceutical industry is under growing pressure from a range of environmental issues, including major losses of revenue owing to patent expirations, increasingly cost-constrained healthcare systems and more demanding regulatory requirements. In our view, the key to tackling the challenges such issues pose to both the future viability of the pharmaceutical industry and advances in healthcare is to substantially increase the number and quality of innovative, cost-effective new medicines, without incurring unsustainable R&D costs. However, it is widely acknowledged that trends in industry R&D productivity have been moving in the opposite direction for a number of years. Here, we present a detailed analysis based on comprehensive, recent, industry-wide data to identify the relative contributions of each of the steps in the drug discovery and development process to overall R&D productivity. We then propose specific strategies that could have the most substantial impact in improving R&D productivity.

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Figure 1: Dimensions of R&D productivity.
Figure 2: R&D model yielding costs to successfully discover and develop a single new molecular entity.
Figure 3: R&D productivity model: parametric sensitivity analysis.
Figure 4: Effect of Phase II and III probability of technical success on the number of Phase I entries required for one successful launch of a new molecular entity.
Figure 5: The quick win, fast fail drug development paradigm.
Figure 6: Productivity interventions yielding a substantial reduction in the cost per new molecular entity.

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The authors wish to acknowledge the seminal thought leadership on the issue of R&D productivity that A. Bingham has provided to the pharmaceutical industry. In addition, we wish to thank J.S. Andersen and T. Mason for helping frame the productivity concepts expressed in this manuscript, and G. Pisano and J. DiMasi for helpful suggestions and comments.

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Correspondence to Steven M. Paul.

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Competing interests

All authors are employees and shareholders of Eli lilly and company.

Supplementary information

Supplementary information S1 (box)

What is R&D productivity? (PDF 240 kb)

Supplementary information S2 (box)

R&D productivity model and cost of drug development estimates (PDF 404 kb)

Supplementary information S3 (box)

The Pharmaceutical Benchmarking Forum (PDF 181 kb)


New molecular entity

(NME). A medication containing an active ingredient that has not been previously approved for marketing in any form in the United States. NME is conventionally used to refer only to small-molecule drugs, but in this article we use the term as a shorthand to refer to both new chemical entities and new biologic entities.

Capitalized cost

This is the out-of-pocket cost corrected for cost of capital, and is the standard accounting treatment for long-term investments. It recognizes the fact that investors require a return on research investments that reflects alternative potential uses of their investment. So, the capitalized cost per drug launch increases out-of-pocket costs by the cost of capital for every year from expenditure to launch.

Out-of-pocket cost

This is the total cost required to expect one drug launch, taking into account attrition, but not the cost of capital.

Cost of capital

This is the annual rate of return expected by investors based on the level of risk of the investment.

Imatinib and trastuzumab

Imatinib blocks the activity of BCR–ABL, a deregulated tyrosine kinase that results from a chromosomal translocation in patients with chronic myelogenous leukaemia, and trastuzumab blocks the activity of HER2/neu, a receptor tyrosine kinase that is often overexpressed in patients with breast cancer. Patients that are most likely to benefit from each drug can be readily identified before initiating treatment on the basis of the associated biomarkers, which has been invaluable in the development of both drugs and in guiding their use.

Six Sigma

A quality management tool that is used to improve the quality of manufacturing and business processes by first identifying and removing the causes of errors or defects, as well as by minimizing variability.


A virtual approach to drug development that is primarily focused on establishing early proof-of-concept in humans (ideally in Phase I) to reduce attrition at later stages. Chorus cost estimate quoted in the text was calculated including the direct and indirect costs for 21 molecules in the Chorus portfolio from 2005–2008 and one from 2004.

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Paul, S., Mytelka, D., Dunwiddie, C. et al. How to improve R&D productivity: the pharmaceutical industry's grand challenge. Nat Rev Drug Discov 9, 203–214 (2010).

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