Almost Half of Big Pharma Companies Hit Negative R&D Productivity

Steven Paul’s “How to improve R&D productivity: the pharmaceutical industry’s grand challenge” published in Nature Reviews Drug Discovery in 2010 is one of the highest cited and most frequently quoted papers analyzing the productivity of pharmaceutical R&D. Everyone who is serious about improving pharmaceutical R&D productivity read it at least once. Back in 2010, the researchers estimated the cost per drug – from hit identification to approval – to be around $1.8 Billion, and the average time to approval to be around 13 years.

In 2016, the group led by Joseph DiMasi at Tufts University published a study showing that the cost per approval had reached around $2.8 Billion in 2013. This study is commonly referred to as the “Tufts Cost Study” and its popularity reflects the influential work that Joseph DiMasi is contributing to the field of pharmaceutical R&D productivity, having authored multiple influential works in the field.

Surprisingly, pharmaceutical R&D productivity is hardly studied in academia, likely due to lack of funding and prohibitive costs of individual therapeutic programs. These costs are spread over time, and there are many programs that fail due to fundamental challenges in biology, chemistry, and clinical trials. Moreover, many programs are shut down for strategic reasons, or due to organizational restructuring, an area I will try to cover in the following articles.

The “St Gallen Consortium”, led by professors Oliver Gassman of the University of St. Gallen and Alexander Schuhmacher of Technische Hochschule Ingolstadt , is one of the few academic initiatives that sheds light on pharmaceutical R&D spending. Their deep insights into pharma R&D productivity published in the top-tier scientific journals are rapidly gaining international attention, and the consortium’s most recent revelations were just published in Drug Discovery Today, in a bombshell article titled “Analysis of pharma R&D productivity – a new perspective needed“.

Big Pharma’s 20-year R&D efficiency is $6.16 Billion Per New Drug

Yes, the new study revealed that over the past 20 years, from 2001 to 2020, big pharma companies increased their R&D spending by 6% annually, launched 251 drugs, which is almost half of all drugs approved by the FDA, and spent a gargantuan $6.16 Billion per drug approval. Schuhmacher and colleagues, comprehensively analyzed the R&D spending, output, and commercial returns of the 16 largest pharma companies from 2001-2020. It paints a concerning picture of massive R&D investment yielding few innovative drugs and limited financial payoffs.

As highlighted in another recent study, most new drugs approved for the top 20 pharma companies actually originate from small biotech firms, and not internal R&D. But the total internal spending on drug discovery continues to balloon, reaching an average of $6.7 billion annually per company.

7 out of 16 Big Pharma Companies Had Negative R&D Productivity

Only 9 of 16 companies achieved positive R&D productivity based on the commercial returns from their new drugs versus R&D costs. The other 7 companies had negative R&D productivity but used mergers and acquisitions to compensate financially. Takeda was the only company with sustained negative productivity.

This new data should dispel any illusion that throw-more-money-at-it is a viable R&D strategy for pharma giants. It emphasizes the urgent need for transformation through open innovation networks, enhanced trial simulation, and truly integrating advanced analytics. Absent these shifts, murky productivity likely persists despite the tech hype.

With growing economic and political pressure over drug prices, the industry must pursue fundamental changes to its approach, not just tout AI as a magic solution. Patients need pharma to deliver more real value from R&D, not just higher costs. This study is a wake-up call to finally get serious about reinventing innovation models to achieve sustainable productivity.

More More Research into Pharmaceutical R&D is Needed

While researching for this article, I tried to search for even more comprehensive studies providing granular insights into the costs of therapeutic programs in the big pharma companies and in the other biotechnology companies. For example, when investigating how many preclinical candidates the average big pharmaceutical company delivers using solely internal R&D in small molecules and biologics, and how much that costs internally – I failed to find the answer. These numbers are rarely disclosed or announced. In contrast, Insilico Medicine, the company I founded and know well, nominated 9 preclinical candidates in 2022 alone, 14 in total since 2020, four of which entered human clinical trials, and one of which has entered Phase II at the time of the writing. This was achieved using the commercially available generative AI platform, a network of contract research organizations (CROs), and a fully automated robotics laboratory. How does it compare to the R&D efficiency in big pharma in terms of the speed, cost, quality, and novelty is very hard to estimate.

The pharmaceutical industry is one of the largest industries on the planet with annual revenues of roughly $1.3 trillion in 2020 . The automotive, oil and gas industries have generated more revenue, but while we certainly can live longer with fewer cars, we cannot live longer without more effective drugs. The negative R&D productivity in pharma is affecting everyone on the planet. Understanding the fundamental reasons for this inefficiency is crucial to tackling this problem at its core.

So why are there so few or no academic studies showing this high degree of R&D granularity? The simple reason – even some of the pharma executives do not know the answer. Before writing this article, I asked a couple of my high-level friends in pharma, and they struggled to provide the exact answer. The large consulting firms publishing in the area are usually concerned with the largest cost item – clinical trials and are often deeply conflicted. Imagine that you are the head of R&D, and a consulting firm comes up with a recommendation to shut down the internal preclinical R&D and to focus only on in-licensing and clinical trials. Would you hire that consulting firm again? Consulting firms are likely to present solutions that satisfy the stakeholders – a consensus scenario that the requesting parties want to hear and pay for.

In order to improve pharmaceutical R&D productivity, we need more academic groups to enter the field and to develop a deeper understanding of the industry problems at the macro- and program-level. We also need to see more activist investors pressing for greater accountability, more disclosure of R&D performance in quarterly reports, and deeper insights into internal research efforts. Finally, academic research groups studying R&D productivity need greater support and funding to help cut the rapidly increasing costs of pharma R&D, and to help build a leaner and faster biotechnology ecosystems.