2010 was a bleak year for new drug development. Figures released by the European Medicines Agency (EMA) show a substantial decline in the number of approved drugs for human use in 2010, based on evaluations of marketing authorisation applications. Only 38 positive opinions were issued and 41 applications were finalised by October, 2010. The figures could yet increase by the end of 2010 but seem unlikely to match those of 2009, when there were 117 positive opinions and 125 finalised applications. Additionally, some highly anticipated new drugs proved to be expensive failures in 2010, including ocrelizumab for rheumatoid arthritis and systemic lupus erythematosus, several disease-modifying treatments for Alzheimer's disease, and motavizumab for prophylaxis of serious respiratory syncytial virus disease.The declining trend has been a growing concern within the drug industry as well as among clinicians and drug regulators. When wrapping up his 10 years as chief of the EMA, Thomas Lönngren criticised the drug industry, saying that of the estimated US$85 billion spent globally each year on drug research and development (R&D), around $60 billion was wasted when one calculated how few new molecular entities were produced. He also pointed out that the industry failed to invest enough effort into developing drugs where there is the greatest need—for key and unmet areas of public health—such as infections with multidrug-resistant bacteria and disorders of the CNS.Despite ballooning research spending and great progress in science and biotechnology, why is there still an innovation deficit? Undoubtedly, drug discovery is a big challenge, as for every new drug that is approved on average $1 billion is spent on research, 10 years of development are required, and nine of every ten drugs fail. With the blockbuster pipeline drying up, increasing drug development costs, and higher regulatory standards for drug approval, innovation has become even more difficult.It is unlikely that big drug companies will keep spending more highly on R&D. On the contrary, budgets are likely to be scaled back in the present high-cost, ever low-yield environment. As Andrew Witty, Chief Executive of GlaxoSmithKline, told The Economist, “shareholders are not prepared to see more money invested in R&D without tangible success. If anything, based on a rational allocation of capital, R&D should now be consuming less resource.” To boost innovation and break the R&D bottleneck at a time when money is tight, perhaps the right question to ask is not how much investment is needed, but how can efficiency be improved by avoiding waste and failures?One prescription is to transform the unsustainable R&D model. At present, too many steps are pursued by academia and industry without effective collaboration, which can lead to expensive mistakes. The failure of promising drugs for Alzheimer's treatment in clinical trials questioned the validity of a single potential drug target for this condition, and called for research into multiple disease targets. Another lesson learned is that companies should share their experiences to avoid repeating errors. As similar planning and methodological problems occur in different trials, more collaboration between drug companies and clinical researchers could lead to more standardised randomised trial protocols, reduced errors, and decreased costs. Indeed, big companies have realised the importance of cooperation, as partnerships with academics, biotechnology companies, and even competitors are being strengthened gradually. Merck, Eli Lilly, and Pfizer have planned a joint Asian Cancer Research Group that will help speed up research on new drugs to treat gastric and lung cancers in the region.There are also other important roles in the drug discovery ecosystem, such as drug discovery by academics, which provides balance between the dominant drug companies' focus on the major diseases of affluence and unmet needs in the developing world. Moreover, the industry is dependent on universities' basic scientific research achievements to help fill the drug pipeline. What is missing at the academic level is a network of people with heterogeneous talents from a range of disciplines such as clinical pharmacology, cell biology, and genetics, who can work together to bridge the translational and interdisciplinary divides.Finally, governments must ensure sufficient funding for research into new medicines, especially for curiosity-driven science. Basic research might not have an immediate effect on medical treatments, and because of the short-term nature of research based on academic review cycles and shareholder dividends it is always difficult to get adequate funding. However, history shows us that in many instances it is such “untargeted” research that has led to major scientific advances.