Everyone in biopharma knows that manufacturers are spending more to develop drugs that earn less than they did ten years ago, but a new study has put some eye-popping numbers on the industry’s dwindling returns. A review of 450 New Molecular Entities spanning a decade and a half found two distinct eras of drug R&D – one of abundance and one of scarcity, hinging on the September, 2004 withdrawal of Merck’s Vioxx.

The study, by consultancy Oliver Wyman, looked at sales and revenue figures, along with R&D costs, for all 450 NMEs approved by FDA between 1996 and 2010 and found “striking differences,” starting with the number of new drugs approved. From 1996-2004, which the study’s authors dub the “Era of Abundance,” FDA approved an average of 36 NMEs per year. From 2005-2010, the “Era of Scarcity,” the average dropped to 22 – a 40% decline overall.

Looking at sales figures for the fifth year the drugs were on the market, Oliver Wyman found a 15% drop between the two periods – from an average of $515 million in fifth-year sales per drug for the 1996-2004 period to $430 million for the 2005-2010 period. That drop, combined with the dearth of new drugs in the “Era of Scarcity,” meant average fifth-year sales produced by the industry were nearly halved, going from $18.3 billion a year to $9.4 billion.

Meanwhile, R&D costs have almost doubled, going from an average of $65 billion for 1996-2004 to $125 billion for 2005-2010. Which means that drug companies are spending a lot more on R&D and getting a lot less in return. In the “Era of Abundance,” companies reaped an average of $275 million in fifth-year sales for every $1 billion spent on R&D, while in the “Era of Scarcity,” they saw just $75 million in fifth-year sales on the same investment.

Regardless of the reason – greater FDA scrutiny after the Vioxx debacle, cyclical downturn in the cycle of medical innovation, a shift from mass-market blockbusters to more narrowly-targeted and harder-to-develop specialty drugs – the squeeze means pharmas must do more than simply cut costs, said the consultancy, counseling more attention to payers and “treat drugs as rare,” taking a harder-nosed approach to portfolio management, among other things.

“Drug companies are clearly doing a lot of things right,” said study author Jerry Cacciotti. “Most have maintained strong net income levels, and the industry as a whole has grown 6% a year for the last five years. But our study shows that in the activity that counts the most, bringing valuable new drugs to market, the industry is in worse shape than has been publicly acknowledged.”