Pharmaceutical Innovation Hits the Wall: How Open Innovation Can Help

A recent article in the New York Times announced the frightening reality facing the pharmaceutical industry: within the next year, drugs with sales of more than $50 billion are coming off patent. Left unsaid was that the incredible profits associated with these sales are also coming to an end in the next twelve months, as generic pharmaceutical companies put out biochemically equivalent compounds and dramatically reduce the price these drugs will sell for.

While this is scary for the pharma companies, their workers and their shareholders, it is hardly surprising. This is a train wreck that we have seen coming for many years. The patents granted to these drugs last for 20 years from the date of filing, and since most drugs take 7-10 years to get to market, the pharma companies have known that this year was coming for the last 10-13 years. It is the logical outcome of a deeper problem, which is that pharma R&D spending has been less and less productive for many years. In fact, the New York Times article cited a study by the Pharmaceutical Research and Manufacturers of America that shows that more and more R&D spending by pharma companies is resulting in fewer and fewer drugs.

It is hard for companies to change their innovation processes, but if ever an industry needed to take a fresh look at how they innovate, it is the pharmaceutical industry.

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