Widening Innovation-Productivity Gap in the Pharmaceutical Industry - New Challenges and Future Directions

Published: 22 Apr 2008

By Prabakar Sampath, Research Analyst, Drug Discovery Technologies
Email: prabakar.sampath@frost.com

Declining productivity and thinning R&D pipeline despite high R&D intensity is probably the most oft repeated phrase used to characterise the current research based pharmaceutical industry. R&D productivity is defined as the ratio of investment in R&D to its output. R&D expenditures account for a large portion of the overall cost structure of the industry, approximately 30-40 percent. The FDA has approved 17 new molecular entities and 2 biological applications in 2007. Unsurprisingly, as anticipated by industry experts at the beginning of last year, this is the least number of new drugs approved by FDA since 1983 (illustrated in Figure 1).

Figure 1: FDA new drug approvals by year. 1996- 2007

Rapid innovation cycles have led to advances in technology and instrumentation used in drug discovery. Despite these advances in combinatorial chemistry, screening, genomics, spectrometry and proteomics pharmaceutical companies are not producing drugs any faster than they were before such innovations came along. The key to success is to increase the pace of elimination of unpromising molecules thereby saving huge investments in the latter part of the drug discovery process. A molecule eliminated in the preclinical stage costs much less than the one eliminated is the clinical trials phase.

Figure 2: Declining R&D productivity in the pharmaceutical industry. 1996- 2007

The large number of patent expiries on blockbuster drugs coupled with the governments' desire to curb healthcare spending from costly prescription drugs has provided great opportunities for generic drug manufacturers. Frost and Sullivan estimate the global generics and biogenerics market to grow at a CAGR of 10.6% per year in the period from 2000 to 2010. The global generics market was worth US $52.14 billion in 2007. In the absence of a late stage pipeline to compensate, an average US $12 billion loss of revenue expected to be lost on patent expiries in 2008.

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