Eroom’s Law: The Number of New Drugs Produced per $1B of R&D

Chapter 21 explains Eroom’s law, which describes the exponential decline in pharmaceutical R&D productivity since the 1950s. Unlike Moore’s law, where costs per technological unit fall, Eroom’s law shows that the number of new drugs developed per billion dollars of R&D has dropped by nearly three orders of magnitude over 70 years, with an average annual decrease of 8.4%. This trend stems from multiple factors: stricter regulations following the 1962 thalidomide disaster, rising clinical trial costs, and the depletion of easily discoverable drugs. Additional causes include industry consolidation, a focus on costly “blockbuster” drugs, increased liability risks, and strong patent protections enabling high pricing. While biotech firms briefly boosted productivity in the 1980s and 1990s, recent growth has focused on cancer treatments and orphan diseases with small markets. Overall, Eroom’s law highlights the growing complexity and expense of drug development compared to other technologies that advance exponentially.