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The productivity crisis in pharmaceutical R&D

Key Points

  • Pharmaceutical research and development (R&D) has become increasingly challenging for various reasons, including the proliferation of plausible targets to pursue for therapeutic innovation resulting from advances in molecular biology, most of which are yet to be validated.

  • R&D investments tend to focus on new therapeutic targets, which are characterized by high uncertainty and difficulty, but lower expected post-launch competition and higher sales.

  • We find that the reorienting of investments toward high-risk/high-premium targets accounts for most of the recent decline in productivity in pharmaceutical R&D, as measured in terms of attrition rates, development times and the number of NMEs launched.

  • Our analysis also confirms the existence of important differences in the organization of national systems of innovation and regulation in pharmaceuticals. At first glance, the organizations with their headquarters based in European countries are characterized by a higher probability of market launch for compounds entering clinical development.

  • However, when the composition of research portfolios is taken into account, the apparent comparative advantage of European organizations vanishes. By controlling for portfolio composition of research investments, we do not find support to the claim of R&D productivity differences between US and European organizations, as classified according to headquarter location. These findings were confirmed by defining nationality on the basis of the location of patent inventors.

  • When we considered sales of compounds launched in the global marketplace, we found that the average market value of NMEs launched by US companies was higher than European ones.

  • However, the focus on the comparison between Europe and the United States misses an important finding that emerges from our analysis: the most productive organizations in pharmaceutical R&D at present are global companies with innovative activities located on both sides of the Atlantic.

Abstract

Advances in the understanding of the molecular basis of diseases have expanded the number of plausible therapeutic targets for the development of innovative agents in recent decades. However, although investment in pharmaceutical research and development (R&D) has increased substantially in this time, the lack of a corresponding increase in the output in terms of new drugs being approved indicates that therapeutic innovation has become more challenging. Here, using a large database that contains information on R&D projects for more than 28,000 compounds investigated since 1990, we examine the decline of R&D productivity in pharmaceuticals in the past two decades and its determinants. We show that this decline is associated with an increasing concentration of R&D investments in areas in which the risk of failure is high, which correspond to unmet therapeutic needs and unexploited biological mechanisms. We also investigate the potential variations in productivity with regard to the regional location of companies and find that although companies based in the United States and Europe differ in the composition of their R&D portfolios, there is no evidence of any productivity gap.

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Figure 1: Trends in attrition rates of drug development projects.
Figure 2: The distribution of R&D projects by potential sales and probability of success.
Figure 3: Average success rate and distribution of R&D projects according to the characteristics of the disease targeted, size of organization and research methodology.

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Acknowledgements

This work was supported by a grant from selected members of the Ad Hoc Working Group on the Economics of the Pharmaceutical Industry (AstraZeneca Pharmaceuticals LP, Novartis, Pfizer, and the National Pharmaceutical Council). Discussions with members of funding companies and with B. Munos and W. Looney are gratefully acknowledged. We also benefited from comments and suggestions from anonymous referees.

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Correspondence to Massimo Riccaboni.

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This research was funded, in part, by grants from AstraZeneca Pharmaceuticals, Novartis Pharmaceuticals, Pfizer and the National Pharmaceutical Council. The authors are solely responsible for the design, conduct and analysis of the study, and the conclusions that are drawn.

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Glossary

Knowledge production function

A function that specifies the output of new ideas by an individual, a firm, an industry or the entire economy for all combinations of research and development inputs (labour and the existing stock of knowledge).

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 the term is used here to include biologics as a shorthand for both types of new drug and also to new drugs in all the regions studied, rather than just those approved in the United States.

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Pammolli, F., Magazzini, L. & Riccaboni, M. The productivity crisis in pharmaceutical R&D. Nat Rev Drug Discov 10, 428–438 (2011). https://doi.org/10.1038/nrd3405

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