By Ben Hirschler

DAVOS, Switzerland, Jan 25 (Reuters) - Pharmaceutical industry productivity is improving as a more targeted approach to drug development yields dividends and regulators offer speedier decisions on medicines that make a real difference to patients.

That is the view of both the head of the U.S. Food and Drug Administration and drug company CEOs meeting in Davos this week at the World Economic Forum.

"The products that we have approved in the last two years do give us real cause for optimism," FDA Commissioner Margaret Hamburg told Reuters.

A total of 39 new drugs won approval last year - a record only beaten in 1996 - up from 30 in 2011, which itself was a marked improvement on the 21 cleared in 2010.

The industry badly needs a winning streak after delivering poor returns for several years due to a wave of patent expiries on older products and a notable failure to bring enough new drugs to market to replace them.

The advance reflects progress in understanding the basic science of many diseases - notably some types of cancer - as well as smarter use of tests to target treatments to specific patient groups based on genetic profile.

"Not only have we been able to approve more new drugs that have real benefits for patients but also classes of drugs that signal where we are going in areas like personalised medicine, where we've been able to use diagnostics to target sub-populations of responders," Hamburg said.

The attitude of the FDA has also helped, according to Novartis CEO Joe Jimenez.

"The FDA has really shifted back to a very disciplined scientific approach to drug approvals, so we are starting to see more drug approvals come through," he said.

These days, however, winning approval for a new medicine is not the whole story. Drug manufacturers also have to fight hard to win a place for their usually pricey new products on lists of treatments covered by insurers or state health services.

The rigour of having to prove the value, as well as clinical effectiveness, of new medicines is helping to make companies more targeted in developing drugs that have a clear edge - even is this involves zeroing in on small, niche markets, said Sanofi Chris Viehbacher.

Discovering new medicines and progressing them through the three required stages of clinical development remains, however, a complex business with a fair dose of serendipity.

"It's not like engineering where the iPhone 5 follows on from the iPhone 4. Coming up with a new drug requires skill, insight and luck," said Merck & Co Ken Frazier.

"But we are on the verge, potentially, of a new wave of pharmaceutical innovation - and I think Merck stands to be at the forefront of that new wave."

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