Why Has Innovation Dried Up?

At Least in the U.S – Development Spend Has Increased at the Expense of Discovery

These days you read headlines like the following.

  • “Drug Discovery in Jeopardy” – Pedro Cuatracasas, J Clin Invest. 2006 November 1; 116(11): 2837–2842.
  • “Is the HIV drug pipeline drying up?” – David Menahue, Sept. 2008, http://napwa.org.au/pl/2008/09/aids-2008-is-the-hiv-drug-pipeline-drying-up
  • “The “pipelines” of forthcoming drugs on which its future health depends have been drying up for some time”, The Economist, Mar 11th 2004
  • “Antibiotics pipeline ‘drying up,’ WHO warns”, epiNewswire, Feb. 09, 2011
  • “Big Pharma Pipeline: Why So Dry?”Saj Karsan, Seeking Alpha, Sept. 2008

Let’s go with the plumbing analogy to find out why the pipeline for new drugs is running dry.

We’ve all seen the cartoon that shows a lot of projects at the beginning of Drug Discovery shrinking like a pipe constricting down at the point of entering preclinical development, shrinking further through the stages of clinical trials ending with a few drugs approved at the end.  Here is our version.

Figure 1, A Hypothetical R&D Pipeline Based on Industry Attrition Rates by Stage, and One Launch per Year.  (Described in Attrition)

Figure 1 shows a pharmaceutical R&D pipeline based on Industry averages for attrition at each stage in the pipeline.  It suggests that for one drug to launch from the pipeline a considerably larger set of projects is needed in Drug Discovery and Preclinical Research.  89% of the projects in the pipeline need to be in Discovery and Preclinical Research.

Now let’s look at the percentage of R&D spend that goes into these stages.  Cohen pulled most of this data from past reports of the Pharmaceutical Manufacturers Association (PHRMA), Fig. 2. We back-filled the last three available years of data from PHRMA annual profiles.

Figure 2, Pharmaceutical industry percentage allocation of R&D expenditures from 1976–2008. 1976-2002 data provided by PHRMA and analyzed in F. Cohen, 2004.1  Non-clinical/preclinical is the term by PHRMA for Discovery and Preclinical Research. *Data supplied from PHRMA Profiles for 2008-2010.

What do we see in this bar chart?  We see that in the ‘70s the industry spend on R&D stages was in line with supporting a healthy pipeline.  To support a lot of projects in Discovery and Preclinical Research – almost 70% of the industry R&D budget went into Discovery and Preclinical research, in that era.  The rest funded clinical development.  But look where the Industry has gone – since 2006 the Industry has spent less than 30% of its budget on Discovery and Preclinical research.  The lion’s share of the budget now goes into the clinical stages of R&D.  (The same trend was observed by Moses et al.,2). Clinical research is getting more costly.  It is hard to imagine how the industry could use <30% of its budget to fund almost 90% of the pipeline represented by Discovery and Preclinical Research, unless it dramatically lowered the cost of each project in Discovery and Preclinical Research or totally revised its strategy for finding new drugs.

Here is another telling graph.  It shows that R&D spend has leveled off since 2007.

FIgure 3, Annual R&D Spend by PhRMA members3 and by the Total Industry4 in Billions of dollars.

So, if one needs more money to spend on clinical trials and one isn’t going to increase spending on R&D, it’s not rocket science to figure out where the extra bucks will come from – Discovery and Preclinical Research!  One could argue that a lot of innovation occurs in the clinic.  But the innovation that is drying up is the innovation that gives rise to new drug candidates – Innovation in Discovery.

There are a number of reasons why this dismal scenario came about.  The PHRMA provides the following explanations.5

a)   Many of the big money making blockbuster drugs are going off patent.
b)   Drug Development costs have gone up.
c)   The complexity of clinical trials has increased.
d)   New pharmaceutical medicines face competition after a relatively short period on the market.
e)   There are earlier and more frequent patent challenges by generic companies.
f)    Now days, nearly all first-in-class medicines being approved already had potential competitors in Phase II clinical testing.
g)   Over 70% of prescriptions filled in the U.S. are for generic drugs.
h)    Just two in 10 approved medicines produce revenues that exceed average R&D costs.

In other words, revenues for those companies pursuing innovative patentable drugs have dropped precipitously.  Generic drugs are wonderfully inexpensive but they are not new drugs. Generic drug companies do not discover new drugs.

The knock-on consequences suggest a more problematic future for innovation.  Big Pharma have decided to get out of Drug Discovery. (See “Layoffs – They’re Happening, Big Time. “) They have no idea where they’ll get a reliable supply of drug candidates.  They only know that they cannot afford to foot the tab.  If you constrict the pipeline at the front, where innovation occurs, what is the likely consequence at the back end?  The consequence, at least in the short term, is a DRY PIPELINE!

As big Pharma jettison their discovery capabilities, the assumption is that biotech and academia will fill the gap.  One might question whether academia should have or would ever have the profit motivations of industry.  At least in the near future we will also have a poor investor climate for start-ups.  Thus, until someone picks up the tab for bio/pharmaceutical drug discovery the pipeline may stay dry for quite some time.

PHRMA Chart Pack “Biopharmaceuticals in Perspective”, p. 21-27, 2010, www.pharma.org.
  1. F J Cohen “Macrotrends in pharmaceutical innovation” Nature Rev. Drug Disc. 2005, 4, p78-84.
  2. H. Moses, E. R. Dorsey, D. H. M. Matheson, S. O Their, “Financial Anatomy of Biomedical Research” JAMA 2005 294 p1333-1342.
  3. Pharmaceutical Research and Manufacturers of America, PhRMA Annual Member Survey (Washington, DC: PhRMA, 1981–2010)
  4. Burrill & Company, analysis for PhRMA, 2005–2010 (includes PhRMA research associates and nonmembers).
  5. PHRMA Chart Pack “Biopharmaceuticals in Perspective”, p. 21-27, 2010, www.pharma.org.


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