FIGURE 2-2 The number of new drugs approved per billion dollars spent has declined steadily on a logarithmic scale for more than a half-century.

NOTE: FDA, U.S. Food and Drug Administration; HIV, human immunodeficiency virus; PDUFA, Prescription Drug User Fee Act; R&D, research and development.

SOURCE: Scannell et al., 2012.

components in integrated circuits was doubling approximately every year. In the pharmaceutical industry, the output per billion dollars spent has consistently decreased by half every 9 years since 1952.

To remain in the pharmaceutical business, companies and investors need to make money. But the return on capital investment is diminishing to the point that the existing financial model is no longer sustainable, Davies said. The average return on capital after 5 years’ sales is currently about $75 million per billion dollars invested, which is clearly not sustainable. A recent report in Forbes magazine estimated that some companies are spending upward of $12 billion per launched product (Herper, 2012). As FitzGerald noted, “catastrophe rather than opportunity usually drives radical change … and this model is about to change.”

According to Davies, the pharmaceutical industry invested an estimated $125 billion in research and development across the industry (Hewitt et al., 2011). An estimated 5 percent of this amount was spent specifically on genetic and genomic research, or about $6 billion including partnerships, acquisitions, and internal research. Companies have slightly different levels and strategies of investment, with some investing more heavily in internal research and some more heavily in external research. As discussed later in this summary and in a prior Roundtable on Translating Genomic-Based Research for Health workshop (IOM, 2011), academic partnerships have become popular, though ways of esti-

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