Is the Pharmaceutical Industry in a Productivity Crisis?

Rising R&D expenditures and falling counts of new drug approvals since 1996 have lead many observers to conclude that there has been a sharp decline in research productivity in the pharmaceutical industry over the past decade. A close look at the underlying data, however, suggests that these trends are greatly exaggerated: properly measured, research output is unlikely to have fallen as much as these figures imply, while trends in R&D expenditure are seriously overstated by failing to account for inflation in R&D input costs. Some of the increase in R&D investment is a necessary, indeed welcome, response to new technological opportunities and can be expected to deliver a handsome return of innovative drugs in future years. The rising cost per new drug approved is nonetheless a serious cause for concern, particularly where this is driven by transactions costs and other inefficiencies in the market for basic research, and by late-stage abandonment of drug development projects on purely economic grounds. Policies that make "small" markets more attractive, build capacity in translational medicine, reduce the cost, time, and uncertainty of regulatory review, maximize access to basic research, and encourage greater cooperation and collaborative research within the industry that can all contribute to greater R&D efficiency.