The hard (declining) numbers of approved NMEs in the past 10 to 15 years tell a powerful story. But is it the whole story?
By now, you’ve likely heard the news that the number of new molecular entities (NMEs) approved by the FDA has fallen over the past decade. But a new study by global management consulting firm Oliver Wyman sheds some new light on the data, claiming that not just the number of NMEs, but in fact the overall productivity of R&D in general, is what’s really suffering.
The study, “Beyond the Shadow of a Drought: The Need for a New Mindset in Pharma R&D,” looked at 450 NMEs approved by the FDA between 1996 and 2010. According to the data, two eras, roughly separated by the Vioxx withdrawal in September 2004, emerge: the Era of Abundance from 1996 to 2004, and the Era of Scarcity from 2005 to 2010. The drop in number of NMEs between the two eras is 40 percent—quite a massive divide.
But perhaps more alarming than the decrease in actual NMEs alone is the decrease in value of those that do make it to market. According to the study, sales for a single drug in it’s fifth year on the market dropped from an average of $515 million to $430 million between the two eras—a more than 15 percent decline. “The R&D productivity problem isn’t limited to the decline in the number of new drugs. We are also challenged because the value of new drugs produced is less,” says Jeff Hewitt, a partner in Oliver Wyman’s Health and Life Sciences practice and one of the authors of the study. “Not only do we have fewer blockbusters, but the smaller products are not making up the difference.”
Even as quantity of NMEs and profit from NMEs continues to fall, the cost of R&D continues to rise. According to the study, “R&D expenditures almost doubled over the study period—from an average of $65 billion per year in the Era of Abundance to $125 billion per year in the Era of Scarcity. But those dollars produced significantly less. In the Era of Abundance, drug companies produced an average of $275 million in fifth-year sales for every $1 billion they spent on R&D. In the Era of Scarcity, the [dollars produced] figure was $75 million.”
In light of these numbers, what should pharma do going forward? The study highlights a new mindset in which not just the number of NMEs, but the ROI and quality of each NME, is factored in. As Jerry Cacciotti, a partner at Oliver Wyman and one of the study’s authors, notes: “Drugs will remain rare. Strategy will be set differently. The bar on innovation is higher; drugs must be used to reduce overall cost in the healthcare system; and companies will further increase their focus in disease areas.”