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Assessing the Drug Industry’s R&D Performance
Total spending on health-related research and development by the drug industry and the federal government has tripled since 1990 in real terms. However, the number of innovative new drugs approved by the Food and Drug Administration each year has not shown a comparable upward trend. NME approvals shot up for a few years in the mid-1990s and then fell again; on the whole, such approvals have consistently ranged between about 20 and 30 per year. Measured by the number of drugs approved per dollar of R&D, the innovative performance of the drug industry appears to have declined. However, if new drugs were of higher quality than older drugs, on average, that improvement would partly or fully make up for a decline in the raw number of drugs per R&D dollar. Drug quality is multidimensional and difficult to measure, however. As a result, no careful and comprehensive estimate exists to show how changes in quality have affected the industry’s actual R&D performance. Other factors have contributed to the impression that the pharmaceutical industry’s innovative performance has declined. Over the past decade, a growing share of the industry’s R&D output has consisted of incremental improvements to existing drugs rather than new molecular entities. Performance measures that consider only entirely new drugs—such as the number of NME approvals per year—miss that shift and undervalue the industry’s R&D output. Moreover, comparing output per R&D dollar over long spans of time can be misleading because of shifts in the types of drugs being developed. Notwithstanding concerns about innovative performance and how to measure it, the range of illnesses for which drug therapies exist has never been broader, and techno-logical advances have yielded new drug treatments of increasing sophistication, convenience, and effectiveness.
Even so, it is difficult to determine whether the returns to society from the money spent on drug R&D have declined or not. There are several possible reasons why the industry’s R&D performance could have slipped. Companies may not yet have fully mastered the complex new research technologies with which they work; the pool of relatively inexpensive research discoveries may be temporarily depleted, pending further advances in basic science; and strong consumer demand for new drugs may have encouraged firms to invest in R&D beyond the point of diminishing returns. Furthermore, the frequency with which leading drug companies have merged with one another over the past decade—which may have resulted partly from a decline in the number of new drugs in development—has sparked concerns about the industry’s R&D productivity. According to some observers, large firms tend to be less innovative than smaller firms. Those mergers have had little initial effect on the combined firms’ total R&D spending, although the ultimate impact on the introduction of innovative new drugs remains uncertain.
If the industry’s R&D performance has slipped, recent advances in basic sciences (such as molecular and cellular biology and biochemistry) could eventually reverse that trend by stimulating the development of more new drugs. In addition, new-drug approvals could increase simply because of the rising number of potential new products that have entered the development pipeline in recent years, according to drug companies. The greater commer-cialization of basic R&D and the increased specialization that has occurred in the drug industry may also enhance productivity. At the same time, though, the greater role of the private sector in basic R&D may have made the pace and direction of progress in drug development more dependent on financial factors in the industry.