R&D Productivity: Not So Bad After All?

01 Jan 2004

• By Melanie Senior

Falling Big Pharma R&D productivity is often cited as the industry's Achilles heel. Yet simply counting the number of drug launches each year versus R&D spend doesn't give a true picture of the industry's productivity, argue analysts at CSFB. Productivity is not falling, they say, but gains just aren't visible yet. In five years, large pharmaceutical companies-particularly those in Europe-may emerge from this fog with renewed strength.

Most observers blame declining R&D productivity—bigger spending, fewer results—for the drug industry's woes. The latest estimates from industry consultants Bain & Co. put the cost of developing a new drug at $1.7 billion, largely due to an increasing number of clinical failures. (See "Rebuilding Big Pharma's Business Model," IN VIVO, November 2003 Also see "Rebuilding Big Pharma's Business Model" - In Vivo, 1 November, 2003..) Average return on investment: about 5%, lower than the cost of capital.

But analysts at CSFB in London argue that this view of R&D productivity oversimplifies the issues and obscures the reality...