Nearly 50% of Leading Pharmaceutical Companies Experience Dwindling R&D Productivity

**Heading: Declining Pharma R&D Productivity**

The pharmaceutical industry is facing a significant challenge when it comes to research and development (R&D) productivity. Big pharma companies are investing large sums of money into R&D but are seeing limited returns in terms of innovative drugs and financial payoffs. This issue has prompted researchers and industry leaders to analyze the productivity of pharmaceutical R&D and search for solutions to improve efficiency.

**The Cost of Drug Development**

In 2010, Steven Paul published a highly influential paper titled “How to Improve R&D Productivity: The Pharmaceutical Industry’s Grand Challenge.” The paper estimated the cost per drug, from hit identification to approval, to be around $1.8 billion, with an average time to approval of 13 years. Later, in 2013, Joseph DiMasi led a study that revealed the cost per approval had increased to $2.8 billion.

**The Need for Academic Research**

Despite the significant impact of declining R&D productivity, there is a lack of academic research in this area. This scarcity can be attributed to a lack of funding and the high costs associated with individual therapeutic programs. Additionally, many programs fail due to scientific challenges or strategic decisions. However, the St Gallen Consortium, led by professors Oliver Gassman and Alexander Schuhmacher, has shed light on pharmaceutical R&D spending and productivity through their research.

**New Study Highlights Big Pharma’s R&D Efficiency**

A recent study conducted by Schuhmacher and colleagues analyzed the R&D spending, output, and commercial returns of the 16 largest pharmaceutical companies from 2001 to 2020. The study revealed that over the past 20 years, big pharma companies increased their R&D spending by 6% annually, launched 251 drugs (almost half of all FDA-approved drugs), and spent an astonishing $6.16 billion per drug approval. However, only nine out of the 16 companies achieved positive R&D productivity, with the remaining seven relying on mergers and acquisitions to compensate financially.

**The Urgent Need for Transformation**

These findings dispel the notion that increasing R&D spending alone is a viable strategy for improving productivity in big pharma. The study emphasizes the need for transformation through open innovation networks, enhanced trial simulation, and integrated advanced analytics. Merely relying on AI as a solution is insufficient. The industry must pursue fundamental changes to deliver more value in R&D and address growing economic and political pressures regarding drug prices.

**The Call for More Research**

To address the issue of declining R&D productivity effectively, more comprehensive studies are needed. These studies should provide detailed insights into the costs of therapeutic programs in big pharma and other biotechnology companies. Unfortunately, such granular data is rarely disclosed. The lack of transparency in this area impedes efforts to compare R&D efficiency between different sectors. However, companies like Insilico Medicine have achieved notable success in R&D by leveraging generative AI platforms, contract research organizations (CROs), and fully automated robotics laboratories.

**Recognizing the Importance of Pharmaceutical R&D**

The pharmaceutical industry is one of the largest industries globally, with annual revenues of around $1.3 trillion in 2020. While other industries generate more revenue, effective drugs are essential for prolonging and improving quality of life. The negative R&D productivity in pharma has far-reaching consequences, impacting individuals worldwide. Understanding the reasons behind this inefficiency is crucial for finding effective solutions.

**The Need for Academic Involvement**

More academic research groups should enter the field of pharmaceutical R&D productivity to develop a deeper understanding of the industry’s challenges. This involvement will contribute to macro- and program-level analyses that can drive improvement. Additionally, there is a need for greater accountability and transparency within the industry. Activist investors can play a crucial role in pressing for better disclosure of R&D performance in quarterly reports and providing insights into internal research efforts. Furthermore, academic research groups require increased support and funding to help reduce the escalating costs of pharmaceutical R&D and foster a leaner and faster biotechnology ecosystem.

By addressing declining R&D productivity through academic involvement, accountability, and fundamental changes to innovation models, the pharmaceutical industry can achieve sustainable productivity and deliver more value to patients worldwide.

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