How to Revive Breakthrough Innovation in the Pharmaceutical Industry

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Science Translational Medicine  29 Jun 2011:
Vol. 3, Issue 89, pp. 89cm16
DOI: 10.1126/scitranslmed.3002273


Over the past 20 years, pharmaceutical companies have implemented conservative management practices to improve the predictability of therapeutics discovery and success rates of drug candidates. This approach has often yielded compounds that are only marginally better than existing therapies, yet require larger, longer, and more complex trials. To fund them, companies have shifted resources away from drug discovery to late clinical development; this has hurt innovation and amplified the crisis brought by the expiration of patents on many best-selling drugs. Here, we argue that more breakthrough therapeutics will reach patients only if the industry ceases to pursue “safe” incremental innovation, reengages in high-risk discovery research, and adopts collaborative innovation models that allow sharing of knowledge and costs among collaborators.


For the past century, the lives of Americans have been extended at the extraordinary rate of 3.25 months each year (1). Much of this can be credited to stunning advances in pharmacotherapy that have tamed numerous scourges. For the last 15 years, however, the companies that brought us insulin, antibiotics, and a host of other “wonder drugs” seem to have lost their magic touch. Despite staggering research and development (R&D) spending, breathtaking advances in the basic sciences, and bulging pipelines, the number of applications for New Molecular Entities received by the U.S. Food and Drug Administration (FDA) has plummeted from 45 in 1996 to 23 in 2010 (2).

Much of this reversal of fortune coincides with the adoption of a new research model that swept the industry in the mid-1990s. At the time, R&D divisions were largely independent of commercial activities and were free to pursue unfettered research, even if the resulting drugs targeted diseases in which their companies had little commercial expertise. In a well-meaning attempt to connect R&D to market demand, pharmaceutical companies directed their scientists to produce blockbuster drugs—ones that generate more than $1 billion in revenue per year—that would support the companies’ marketing franchises. Sophisticated portfolio management techniques (3) were implemented to smooth new-drug output, minimize financial risk, and bring order and predictability to what was considered “chaotic” scientific discovery. In this Commentary, we warn that efforts to shun risk have stalled innovation and thrust many companies into the state of precariousness that they were precisely trying to avert. We further argue that pharmaceutical firms cannot mitigate risk adequately by pursuing “safe” incremental innovation; instead, the industry should reengage in high-risk discovery research on a broad scale and only take genuine breakthroughs to the clinic (Fig. 1).

Fig. 1. Disruptive innovation: One giant leap.

The pharmaceutical industry requires a big, risky step to move forward.



Avoiding risk and defending the status quo hardly describes the behavior of the pioneers who built the pharmaceutical industry. On the contrary, for most of the last century, drug companies thrived on disruption. When Eli Lilly, the leader of the eponymous firm, decided to produce insulin in 1924, his goal was not to support his company’s prosperous business in elixirs and tonics. He instead recognized the enormous medical importance of insulin and trusted that his scientists would rise to the challenge and master the myriad problems that would surely surface along the way. There was no risk assessment, no net-present-value calculation, and no paralyzing angst over the fact that no one had ever extracted and purified a protein for therapeutic use.

This bold, visionary leadership drove the industry through much of the 20th century. Antibiotics, the Salk polio vaccine, the rise of biotechnology, and the embrace of monoclonal antibodies were some of the audacious bets that propelled the industry and vindicated its business model. Firms were driven by an entrepreneurial culture that required flair to see what new science could do for patients and by an extraordinary appetite for the daunting challenge of exploring uncharted territories. Success was far from certain, and companies that stumbled disappeared. The survivors grew larger and fewer, to gradually become “big pharma.” Their formula for success could be summarized by its four attributes: high risks, high R&D spending, high profits, and high industry concentration effected by the dynamics of the marketplace (4).

To be sure, much follow-on innovation existed during that time. This practice is not objectionable in itself because it can deliver genuine clinical breakthroughs. Aranesp, Neulasta, Zocor, Eloxatin, PegIntron, Humalog, and Augmentin are examples of drugs (5) that were not first in their class, yet brought substantial benefits over the standard of care. However, many so-called “me-too” drugs did not offer improved treatment options, and although some managed to gain a foothold in the market, they would not by themselves have sustained the industry’s extraordinary success (6).


By the 1990s, several factors combined to transform the industry business model. One was the cascade of scientific advances taking place concurrently across many fields, including biotechnology, molecular biology, genomics, computing, telecommunications, and robotics. This research spawned numerous specialized technologies that defined the new scientific frontier, including novel instrumentation, high-throughput research, and the collection of disciplines often casually referred to as the “omics” (for example, genomics and proteomics). To remain on the cutting edge, big pharma had to open its business model to outside collaborators because companies did not have sufficient expertise or resources internally to take advantage of these new technologies. Alliances became the rage, and by 2004, more than 17,000 had been created (7, 8), linking big and small pharma, universities, and other scientific institutions in a dense collaborative network. Faced with seemingly boundless opportunities, corporate R&D spending surged, the NIH budget doubled, and financial markets added vast pools of fresh capital. By 2010, more than $150 billion (9), by conservative estimates, was spent yearly on R&D by the biomedical ecosystem, including the biopharmaceutical industry and the U.S. government.

Yet the expected trove of new therapies did not materialize. Science marched on, but the resulting remarkable discoveries did not produce many new treatments. More than 1600 phase III trials sponsored by big pharma are currently ongoing, but little of this research reaches regulators. Promising scientific breakthroughs such as those in the fields of synthetic biology, tissue engineering, or stem cell research are still dismissed by big pharma as being too immature to warrant much research investment (10). During pharma’s golden years, companies would have raced to bring the products of this innovative science to market; today, company executives are largely declining the opportunity. The ingredients of success—knowledge, capital, and ingenuity—are in ample supply, but they no longer deliver much innovation.

Much of this shift, it seems, stems from the deep cultural change that swept the industry over the last 15 years. Where bold vision once ruled, cautious analytics now prevail. The industry pipeline is gushing, but much of this comprises marginal products that struggle to rise above the standard of care or even placebo: Half of phase III studies fail for lack of efficacy or safety (11, 12). Looming patent expirations and the dearth of new drugs have lowered companies’ tolerance for risk. Promising but uncertain projects that the industry would once have undertaken are steeply discounted and can no longer clear the financial hurdles they must pass to proceed. Instead, “safer” trials designed to add evidentiary support for expanded use of the industry’s best-selling drugs (13) crowd the pipeline and divert resources that were once spent blazing trails toward new cures. Big pharma is increasingly letting its academic or smaller industry partners carry out the riskier early translational research while focusing a greater share of its resources on late development, at which point much of the risk is thought to have been mitigated (14).


This division of labor has changed the face of innovation. Big pharma used to be entrepreneurs and innovators, grabbing knowledge and technologies produced by scientific research and turning them into products, regardless of the risk involved or the fit with existing business. Today, innovation is distributed across a network of partners, in which big pharma increasingly concentrates on “safer” late-stage research that leverages its scale and organizational skills (15). The problem is that reward correlates with risk. Big pharma has long enjoyed extraordinary returns because it took extraordinary risks and did not have to share the spoils (save for royalties to discoverers). Today, rewards are shared across partners, and with big pharma embracing a safer course, it may soon find that it has unwittingly traded the industry’s old success formula for a recipe for trouble, which also has four attributes: low risk, low returns, low R&D spending, and, eventually, industry fragmentation.

Pharma leaders might rightfully counter that they take a lot of risk. Because only 5% of compounds entering clinical development become commercial products, drug development is a very risky enterprise: Most of the money is spent on failures. Paradoxically, however, many of these failures stem from the drug industry’s efforts to avoid risk when our increasing awareness of the intricate complexity of human biology calls for bold new approaches. Despite the perception that marginal innovation is safe—because it rests on validated targets, proven modes of action, or well-known drug classes—it actually remains very risky. Marginal compounds run a high risk of not meeting end points, being rejected by regulators or payers, or failing commercially because they do not measure up to already-available therapeutics that likely are less costly. This strategy constitutes bad risk and should not be pursued. Instead, pharmaceutical companies should adopt radical new initiatives to substantially broaden the scope of their translational research.

One option is to participate more decisively in the collaborative networks that are spreading across the industry to explore novel sciences such as nanotechnology or synthetic biology. Another option is to form precompetitive consortia and other partnerships to share the challenges and costs of producing new knowledge about fundamental biology, pathophysiology, and disease causation and heterogeneity in humans. Lastly, companies should also co-opt new research models that can cut costs and time lines, such as Eli Lilly’s Chorus model (16) or PD2 initiative (17) or the Arch2POCM public-private partnership (1820).

The upshot is that there is no low-risk strategy in pharmaceutical R&D. There is good and bad risk that must be mitigated. The entrepreneurial model of the golden years embraces good risk but does not mitigate it well because no single company can afford to fund a pipeline broad enough to sustain the business when some drugs and projects fail. This reality causes high attrition among firms, which makes the entrepreneurial model ultimately unsustainable. Of the 255 companies that have ever registered new drugs with FDA, 109 were in existence in 1950 but only 35 remained in 2010. Of those 35, only 6 were from big pharma (21).

The current industry model, on the contrary, embraces bad risk, which it has tried to mitigate through the use of portfolio management techniques. Unfortunately, this approach is doomed. Although the reasons are technical and beyond the scope of this article (22, 23), one can intuitively see that if a portfolio includes a blockbuster, the future is likely to be bright—and if it does not, the future is likely to be grim—regardless of what else is in the portfolio. Whether or not a blockbuster graces the portfolio is determined by a rare unpredictable “black swan” event over which planners and scientists have little control. In addition, there is likely a limited future for one-size-fits-all drugs in an age of personalized medicine.


Innovation networks offers a better potential to mitigate risk because drug companies can work with numerous partners to reengage in breakthrough research and explore novel hypotheses on a scale that dwarfs what is possible in a single company. This engagement, however, should be active, with large companies providing critical funding and earmarking it for breakthrough projects. These efforts can result in portfolios of novel treatments that are broad enough to offer effective risk mitigation. For the model to be sustainable, however, drug companies must take into the clinic only projects that have an undisputable breakthrough profile backed by compelling scientific evidence. This will limit expensive clinical trials to projects that offer true therapeutic leaps. To provide resources for such a model, marginally innovative projects that do not meet the breakthrough test should be defunded.

Pharma leaders also often argue that an extension of intellectual property must be part of the package to keep pharmaceutical innovation flowing. Intellectual property is indeed essential to attract investors’ funding, but there are concerns that innovation has been ebbing despite vigorous investment (21). Spending more than $150 billion in R&D annually to get roughly 20 new drugs, many of them marginal, is a poor return to both society and investors. Policy-makers have hesitated to support extended patent protection, perhaps because of concerns that the real causes of the crisis may lie elsewhere. For pharma’s views to be more influential, the industry must do more to address its deficiencies (24); beyond reembracing disruptive innovation, the industry must lower its costs by adopting cost-sharing opportunities such as precompetitive collaboration, public-private partnerships, and the various tools and platforms of open innovation (25). The industry also needs to leverage its financial resources to reinvigorate breakthrough research across its innovation network, as Eli Lilly has started doing with its mirror funds (26).

Put simply, risk in pharmaceutical R&D is inseparable from success. As such, risk should not be avoided but be embraced and mitigated. For most of the past century, risk and success have been connected by a highly integrated entrepreneurial model that has worked many wonders but faces such dim odds that it has thinned the ranks of big pharma to the point of near extinction. In the past 15 years, the industry has fostered the development of new collaborative research models involving academia, government, and nongovernment groups that have the potential to greatly spur creativity, lower innovation costs, and mitigate risk by connecting big pharma to numerous imaginative R&D partners that can conduct high-risk, unconventional research more effectively. Yet this path has not been fully endorsed by the industry. Instead of embracing the model’s potential for sustainable disruption and the shifting of resources to unpredictable discovery research, drug companies have preferred to pursue a path that they believe lowers risk—pouring resources instead into “orderly” clinical development of minimally differentiated therapeutic agents.

Success, we suggest, must start with breakthrough science that forges paths along which innovation can flourish. Without this change in mindset, companies will continue to struggle no matter how efficient or disciplined they are and regardless of whether patent protection is extended. To keep the current innovation crisis from undoing a century of proud scientific accomplishments, the industry must reconnect with its roots and redeploy its vast resources to support the high-risk translational research that made the industry great. In essence, it must step back from endorsing the risk inherent in incremental progress and step forward to embrace risk sharing and the risk embedded in daring transformational research.


  • Citation: B. H. Munos, W. W. Chin, How to Revive Breakthrough Innovation in the Pharmaceutical Industry. Sci. Transl. Med. 3, 89cm16 (2011).

References and Notes

  1. Competing interests: The authors are recent former employees of Eli Lilly.
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