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The research paper should comprise of following sections or elements –
– Paper should include abstract, introduction, and Conclusion sections.
– Paper should describe current challenges in the drug innovation for the large and small pharmaceutical firms engaged in developing new therapies.
– What is going wrong for big pharma in particular? Why aren’t they able to innovate at higher rate now?
– Discussion around how drug innovation has become challenging in light of generic competition.
– Discussion as to why it is becoming harder to invent new molecules over the years for pharma firms.
– Discussion around key FDA guidances and regulations that may have caused decline in innovation.
– Comparative summary of drug approvals over 3 decades.
– Discussion as to how drug firms may overcome challenges listed in the paper.
– What are the key benefits of following recommendation of the paper (corroborated with facts and figures).
– Discussion around future trend in the drug discovery and innovation. Are biologic drugs the new thing?


How to manage innovation over the next decade


Abstract 2

Introduction. 3

Current challenges in the drug innovation for the large and small pharmaceutical firms. 3

Reasons for big pharmaceutical companies’ failure to innovate at a higher rate. 4

How drug innovation has become challenging: The threat of generic competition. 5

Difficulties encountered by pharmaceutical firms in efforts to invent in new molecules. 6

FDA guidelines and regulations: A recipe for decline in innovation. 7

Conclusion. 8

Recommendations. 8

References. 10


This paper examines trends in the development and approval of new drugs. The pharmaceutical industry continues to face the problems of high costs of new drug development, FDA’s regulatory regime, and competition from generic drugs. At the same time, consumers’ expectations regarding drug efficacy and safety have continued to increase. This explains why it has become increasingly harder for drug firms to invent new molecules during the last three decades. One of the solutions to these problems is mergers and acquisitions involving biotechnology and pharmaceutical companies. Moreover, FDA scientists should cooperate with industry researchers with a view to improve efficacy and enhance productivity in the industry.


Pharmaceutical companies, both large and small, have in recent years been encountering numerous challenges. The rate innovation has gone down. This is attributed partly to a rapid increase in the cost of new drug development. Some of the other factors that may have contributed to this situation include competition from generic drugs and barriers imposed by the Food and Drug Administration (FDA).


The aim of this paper is to examine what may have gone wrong in the pharmaceutical industry. An analysis of drug approvals during the last three decades is made to determine whether a decline in new drug development has indeed occurred. The paper also examines the issue of new drug development. The other issues that this paper investigates include rising competition from generic drugs, FDA regulations, difficulties in inventing new molecules by pharmaceutical companies, and an emerging trend towards preference for biologic drugs.

Current challenges in the drug innovation for the large and small pharmaceutical firms

One of the main causes of the current decline in the development of new therapies by pharmaceutical companies is the high cost of new drug development. Adams (2006) estimates this cost to be between $500 million and $2 billion. This rising cost comes at a time when the pharmaceutical industry is grappling with numerous problems relating to R&D productivity (Paul & Mytelka, 2010). Moreover, patent expirations have contributed to major revenue losses, healthcare systems are cost-constrained, and regulatory requirements from the FDA have become increasingly demanding (Vernon & Golec, 2010).

Kaitin (2010) argues that the paradigm of innovation in the pharmaceutical industry has not changed much during the last 30 years. This applies to both small and large pharmaceutical companies. During this time, virtually all research-based industries have radically modified their R&D processes. According to Kaitin (2010), the drug development process being used in the pharmaceutical industry is risky, slow, inefficient, and very expensive.

The inefficiencies of the drug development process have greatly hindered innovation. According to Kaitin (2011), this is evident in the small number of drug approvals made during the first decade of the twenty first century. Between 2000 and 2009, an average of 25 new approvals was being made annually (Kaitin, 2011). According to Kaitin (2011), this is the lowest annual average rate of drug approval to be reported during the last 25 years. However, on the positive side, the percentage of priority drugs reported during this time, at 50 percent, represented a 30-year high. In Kaitin’s view, these changes indicate that a fundamental shift is taking place in the pharmaceutical industry.

Reasons for big pharmaceutical companies’ failure to innovate at a higher rate    Scholars seem to agree that many things have gone wrong in big pharmaceutical industry as far as innovation is concerned (Reichert, 2003; Bower, 2007; Mazzucato, 2008; Danishefsky, 2010; Athreye & Kale, 2009; Ashburn, 2004; Pollard, 2007; Khanna, 2012) . However, not all of them agree that the level of innovation has gown down (Overington, 2006; Bumol & Watanabe, 2001; Nightingale, 2004; Reiss, 2001; Graul, 2007). Nevertheless, the dominant perception is that the level of innovation in the pharmaceutical industry has been declining over the last three decades. Schmid (2005) is one of the scholars who opt to take a cautious stance, arguing that this could well be a myth. He however agrees that a number of factors have emerged that can contribute to a decline in innovation such as the rising cost of discovering and developing new medicines (Schmid, 2005). In the end, Schmid (2005) argues that although fluctuations in launches of new drugs have occurred, absolute numbers indicate that the number of FDA-approved medicines have continued to rise.

Kola (2008) touches on the issue of perception alongside intricacies of R&D and regulatory hurdles. According to Kola (2008), the latter two factors have a far-reaching influence on the number of new drugs being registered by regulatory authorities. To address some of these problems, many large pharmaceutical companies have resorted to the formation of mergers (Ornaghi, 2009). This way, the companies hope to be able to survive the difficulties that arise from R&D processes, which sometimes last up to 13 years (Gassmann & Reepmeyer, 2005). According to Gassmann & Reepmeyer (2005), another reason why the big pharmaceutical companies are not able to innovate at a high rate is that the market has become increasingly fragmented, meaning that risk of market failure has increased. Gassmann & Reepmeyer (2005) also reiterate the problem of escalating costs of R&D.

How drug innovation has become challenging: The threat of generic competition

In recent years, a new problem has emerged. This problem has a lot to do with competition from generic drugs (Overbye, 2005; Koh & Yau, 2003; Roijakkers, 2006; Munos, 2009; Drews, 2003; Acemoglu, 2004). To make matters worse, this competition has increased over different dimensions (Grabowski, 2007). In the first dimension, many drugs pass off as generic drugs. Many of these drugs are of modest value in terms of annual average sales (Schweizer, 2005; Zhang, 2008; Kaitin, 2003; DiMasi, 2010). Another dimension relates to a rapid increase the number of generic entrants especially in the case of drugs with larger sales and shorter periods of market exclusivity (Grabowski, 2007). Moreover, competition relates to a phenomenon in which “blockbuster” drugs whose annual sales exceed $1 billion continue to experience a reduction in periods of market exclusivity (Grabowski, 2007).

According to Frank (2007), generic drugs constitute 63 percent of all prescriptions for drugs in the US. These drugs pose a threat of competition because they are sold at lower prices. By buying these drugs, consumers are able to save billions of dollars annually (Frank, 2007). This means that the pharmaceutical industry is going through a challenging time especially considering that well-known drugs, including Fosamax (aledronate) and Imitrex (sumatriptan) lost their patent protection between 2007 and 2010 (Frank, 2007).

Difficulties encountered by pharmaceutical firms in efforts to invent in new molecules

In recent times, it has become increasingly difficult for pharmaceutical companies to invent new molecules (Haffner & Janet, 2002; Kneller, 2010; Walsh, 2005; Schwartsmann, 2002). Pammolli & Magazzini (2011) point out that this has led to a productivity crisis in this industry. Ironically, the understanding of the molecular basis of the occurrence of diseases has continued to improve. This has led to an increase in the number of feasible therapeutic targets to be used in developing innovative agents. According to Pammolli & Magazzini (2011), this means that therapeutic innovation is becoming more challenging, leading to a reduction in the number of new molecules produced every year.

The difficulties being encountered also have a lot to do with the guidelines that the FDA has been imposing on the process of drug development (DiMasi, 1995; Woolf, 2010)). Marchetti (2007) observes that although a large number of molecules that require further testing continue to be generated, the process that is currently being used is rather inefficient. The rate of approval by the FDA tends to be low while costs are normally high (Marchetti, 2007; Kaitin, 1997). In 2003, the FDA stated that there was an urgent need for the introduction of new toolkits to enhance efficiency in the critical development path through which the molecules are produced.

FDA guidelines and regulations: A recipe for decline in innovation

One of the reasons why innovation in the pharmaceutical industry is on a decline is the regulatory framework imposed by FDA. As Abrams (2012) points out, FDA regulatory scientists have been reluctant to work together with industry scientists with a view to promote innovation. According to Abrams (2012), synergy is lacking because these two entities are not working together to safeguard public health while at the same time promoting innovation in the industry.

Carpenter (2002) adds that the FDA has been criticized for being reluctant to approve some drugs while being very quick to approve others. According to Carpenter (2002) the process of reviewing drug is akin to the bureaucratic learning process. The FDA is to blame for shifting waiting costs on a case-specific basis. However, this tendency is being influenced by firms, politicians, the media, and disease-specific organizations (Carpenter, 2004; Carpenter, 2012; DiMasia, 2003; Reichert, 2003; DiMasi, 2000). Nevertheless, Carpenter (2012) also observes that, on average, FDA review times have been decreasing.

The FDA’s move towards the introduction of strict guidelines may have been greatly influenced by a trend in which societal expectations point towards the need for a higher level of drug efficacy and safety. In the context of this expectation and a downward trend in productivity, it is not surprising that the level of innovation in the pharmaceutical industry has continued to decline. This view is shared by Woodcock (2012) who argues that the introduction of the Critical Path Initiative has greatly contributed to this phenomenon. This is also ironic because the intent of this initiative was to modernize drug development by incorporating advanced imaging technologies and genomics into the process (Spellberg, 2004).


In conclusion,  the rate at which new drugs are being developed is still regarded as the most critical measure of innovation in the pharmaceutical industry. This explains why many researchers have decried the slowdown of new drug approvals during the past three decades. During this time, competition from generic drugs, high cost of new drug development, and obstacles posed by FDA regulations have been the biggest challenges in efforts to increase the level of new drug development.


One of the ways of overcoming these challenges is for drug firms to bridge the existing gaps in the innovation processes. Partnerships in innovation can also help boost productivity while reducing costs. Pharmaceutical companies should also look into ways of diversifying their options as a way of building a balance research portfolio that will ultimately lead to persistent discovery of new drug molecules. Moreover, FDA scientists should work in cooperation with industry researchers with a view to improve efficacy and enhance productivity in the industry. Finally, more mergers and acquisitions involving biotechnology and pharmaceutical companies should be pursued. This will lead to long-term benefits across business segments and value chain components. These efforts should be made in the context of the contemporary trend in which biologic drugs are increasingly becoming dominant in the areas of drug discovery and innovation.


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