Much has been written about the pharmaceutical industry’s challenge with R&D productivity during the past decade. Yet the number of innovative new drugs approved by the U.S. Food and Drug
Administration (FDA) has accelerated significantly over the past few years—an important measure of the output of the pharmaceutical R&D process.
In 2012, the FDA approved 39 innovative new drugs—the highest level in a decade. decreasing probability of success, and higher costs to discover and develop drugs. The decline has created the so-called patent cliff where biopharmaceutical companies have struggled to develop innovative new drugs to replace the blockbusters that have lost, or will soon lose, their exclusivity.
This promising surge has prompted many to ask whether it has been just a temporary uptick or perhaps even the beginning of a new phase of higher output and productivity. In this article, we show that both the industry and the FDA have played key roles in the higher levels of approvals.
We also examine what will be necessary to sustain these levels.
For the better part of the past decade, several related trends have driven a long-term decline in pharmaceutical R&D productivity: for example, there have been fewer new drug approvals,
In response, biopharmaceutical companies have undertaken fundamental initiatives to improve their productivity and return on investment. For example, they have focused their portfolios on disease areas with high unmet needs, culled low priority assets aggressively, controlled program costs by offshoring routine activities to lower-cost countries, and reduced their fixed costs by outsourcing to CROs. Other companies have abandoned R&D entirely and focused on inlicensing products. Meanwhile, investors have waited patiently to see signs of green shoots.
Until recently, those shoots have been limited to a small number of innovative biopharmaceutical companies.
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The number of new molecular entities (NMEs) approved by the FDA in a given year is one measure of the biopharmaceutical industry’s innovation output. Exhibit 1 shows that, during the past 20 years, the average annual number of innovative new drug approvals has been about
28. These approvals have seen several cycles of peaks and troughs, including a notable high of
53 in 1996 and a low of 17 in 2002. For much of the past decade, the number has lagged in the low to mid 20s. The pattern is consistent with the industry-wide decline in R&D productivity.
Exhibit 1 | New drug approval rate over time
Number of NME/NBE approvals
35
28
22
-20%
+24% new drugs. Innovative therapies approved in the past few years promise major advances in the fields of oncology, cardiovascular disease, type 2 diabetes, and hepatitis C—just to name a few. Other work has assessed trends and further segmented the number of approvals by the level of innovation apparent in the drug.
Our goal in this article is to understand the drivers of the recent surge in new drug approvals and to assess whether those drivers can propel consistently high rates of approvals in the future.
Our analysis of drug approvals uses a metric that can help with that assessment. We have identified three key components: the number of filings (labeled as “n”), the FDA approval rate
(“p”), and the regulatory review time (“t”). The new drug approval rate is proportional to n and p and inversely proportional to t. We systematically assessed each of those three components to understand its contribution to the recent increase in approval rates. Let’s review each in turn:
20-year average,
1993-2012
Prior 5 years,
2006-10 average
2011-12 average
The number of approvals accelerated in 2011 and 2012, to about 24 percent above the longterm average of 28. This boost prompted many to wonder whether past and present efforts to improve R&D productivity are beginning to pay off and if the downward trend in R&D productivity has been stemmed for good.
After millions of dollars in investment, many years of time and effort, and numerous trials and subjects treated, a biopharmaceutical company may elect to file a new drug application
(NDA) or biologics license application (BLA) with the FDA for a product that the company believes meets U.S. approval requirements.
Filing an application with the FDA is a major milestone for the many professionals who have worked to discover and develop the product, as well as a time of great hope for patients and healthcare providers.
In recent years, much has also been written about the quality and quantity of innovative
Exhibit 2 shows that the annual number of innovative new drug filings has averaged about 35 for the past 20 years. That number
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has fluctuated between a high of 50 in 1995 and a low of 23 in 2010. In 2011 and 2012, the number increased significantly to 39 and 41, respectively—about 13 percent higher than the
20-year average.
Exhibit 2 | The contribution of filings to the increase in new drug approvals
Number of NME/NBE filings
40
36
31 +13%
-13%
Exhibit 3a | The contribution of FDA approval rates to the increase in new drug approvals
NME/NBE approval rate
Percent of NME filings approved by FDA
88
75
70
80
20-year average:
79%
1993-97 1990-2002 2003-07 2008-12
20-year average,
1993-2012
Prior 5 years,
2006-10 average
2011-12 average
When the FDA receives an application, it assigns a cross-functional team of subject matter experts to review it and approve the product or to issue a complete response letter. In general, approval rates tend to be quite high since biopharmaceutical companies typically submit applications only when they believe they will meet the approval requirements. Another closely watched metric is the first action approval rate, which is the percentage of applications approved on the first action date.
Exhibit 3a shows that the FDA approval rate for
NMEs has averaged 79 percent over the past
20 years. From 2008 through 2012, the average approval rate was 80 percent. Over the past
20 years, the five-year average approval rate has fluctuated between a high of 88 percent between 1993 and 1997 and a low of 70 percent between 2003 and 2007.
Exhibit 3b shows that the average first action approval rate was about 45 percent during the past two decades. The rate reached a 20-year high of 79 percent in 2012. The 2011–2012 rate of
77 percent was about 71 percent higher than the
20-year average. Although first action approvals don’t necessarily affect the overall approval rate, they provide faster access to innovative therapies.
Exhibit 3b | The contribution of FDA review times to the increase in new drug approvals
NME/NBE first action approval rate
Percent of approved NME/NBEs approved on first action date 77
45
20-year
average,
1993-2012
50 +11%
Prior 5 years,
2006-10 average
2011-12 average
+71%
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The FDA has undertaken a number of steps to enhance the first action approval rate over time.
In the era that began with 1993’s Prescription
Drug User Fee Act (PDUFA), the FDA and the pharmaceutical industry agreed to performance goals for FDA application review timelines. Along with filing an application, the biopharmaceutical sponsor pays a user fee to help defray FDA review costs. In addition, the FDA now offers expedited pathways to shorten the approval time for innovative therapies that treat unmet medical needs. In particular, the priority review program shortens PDUFA performance goals from 10 months to six. These approaches have significantly reduced review times in the PDUFA era.
Exhibit 4a shows that the top quartile and median times to approval have remained relatively constant.
Not surprisingly, they are close to the PDUFA goals of about six to 10 months for priority and standard reviews, respectively. A further look at the distribution of review times demonstrates that, consistent with the increase in first action approval rates, the
75th percentile decreased in 2011–2012 compared to the 10-year average. Hence, while the median review time has stayed roughly the same, the tail of applications has recently decreased. Exhibit
4b shows the cumulative distribution of approval times. The distribution for 2011–2012 is greater than or equal to the 10-year distribution, indicating, on average, faster review times for drugs approved in 2011-2012 compared to the 10-year average.
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0
0
Exhibit 4b | New drug approval times
Cumulative probability
1.00
0.90
Priority review
Priority review +
3 month extension
Standard review
Standard review
+ 3 month extension
0.80
250 500
Past 10 years
2011–2012
750 1000
Time to approval, days
Exhibit 4a | New drug approval times
Number of days from NME/NBE filing to approval
593
304
185
397
302
183
One way to understand this improvement is to view new drug filings under FDA review as workin-process inventory. Currently, about two-thirds of approvals are made within a year of first submission.
In many ways, the shortened processing time and reduced work-in-process inventory at the FDA in recent years is akin to just-in-time inventory management with a high first-pass quality rate.
There is little or no backlog of work-in-process inventory that could boost output in future periods.
78
2003–12
102
2011–12
Based on that breakdown of the components of
NME approval rates, we conclude that the surge in 2011–2012’s new drug approvals was driven by an increase in the number of NME filings by
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biopharmaceutical companies and a decrease in average review times, which was primarily due to higher first action approval rates. In other words, both the industry and the FDA played vital roles in the recent surge.
The increase in the number of NME filings could represent a positive sign toward more innovative output by pharmaceutical companies. At the same time, the FDA’s shorter review times could reflect a combination of factors, including the agency’s increased ability to meet PDUFA review timeline performance goals and to communicate better with sponsors by, for example, setting clear expectations for approval requirements.
Decreased review times may also reflect improvements in companies’ ability to prepare applications that meet FDA standards and avoid lengthy multiple cycles of review. Both of these factors are positive news; they also point to the fact the biopharmaceutical industry and the FDA are now able to collaborate more closely to bring innovative new therapies to patients.
approval rate of 79 percent, that number of filings would result in about 32 annual NME approvals.
Even if the industry were to maintain its current rate of filings, there would be downward pressure on the number of approvals from current levels.
Alternatively, maintaining the current level of innovative new drug approvals would require an NME filing rate above the current levels of about 40 per year.
So if we look at current NME filings with PDUFA dates and also review the industry pipeline for assets that are currently finishing Phase 3 trials, we can see the potential to sustain annual new drug approval totals at slightly above the 20-year average of about 28 annual approvals. While that is clearly not the same pace as the banner year of 2012, it is still a significant boost over the lean years in the early 2000s, from a quantity perspective at least. That improvement in pace provides new therapeutic options to patients with unmet medical needs. In addition, it may be sufficient to boost the pharmaceutical industry and reignite real growth.
So are we seeing the beginning of a longer term trend? Or is the surge in approval rates just a temporary uptick? As noted, both the industry and the FDA contributed to the increase in new drug approvals in 2011 and 2012. But the number of approvals over the long term is dictated primarily by the number of industry filings; overall FDA approval rates are at or near their long-run average and first action approval rates have increased significantly without much more room to increase further. Under the current
FDA review paradigm, it is difficult to envision significant additional uplift in the number of approvals resulting from further improvements to approval rates and review times.
Some final observations: we also believe that the increased use of novel trial designs and regulatory approaches, such as the FDA’s breakthrough therapy designation, has the potential to meaningfully accelerate clinical development programs. In turn, such initiatives may decrease overall cycle times for the industry, which could be another way of sustaining higher NME filing rates over the short term and medium term.
Editor’s note: All analyses in this article were conducted using publicly available data on
FDA’s website.
Here is what the math looks like. Over the past two years, the industry has submitted 40 NME filings per year, on average. Using the average
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October 2013
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