Since 2010, we have been tracking the returns on R&D investment that the largest biopharma companies might expect to achieve from their late-stage pipelines. This year’s analysis shows a large improvement in the average internal rate of return (IRR) on pharmaceutical innovation for our combined cohort. This suggests that the slight uptick seen last year has been nurtured to deliver more tangible growth.
Our latest report looks at the current state of R&D returns for 15 leading biopharma companies, the impact of the pandemic on R&D pipelines during 2021 and how this has expedited the adoption of digital solutions and impacted the IRR. This has left the industry well-positioned to build on the momentum and the lessons of what worked well to optimize processes and fundamentally change the drug research and development paradigm.
Projected returns from innovation continue the upward trend
Last year, we saw the ‘seeds of change’ taking root following six years of decline, although it was only a slight uptick (from 1.5 to 2.7). This trend continues, with the combined cohort experiencing a large uptick from 2020 to 2021 (from 2.7 to 7.0). Figure 1 shows the overall trend line for the IRR between 2013 and 2021 for the combined cohort indicating that the average IRR has returned to a value similar to that last seen in 2014. If emergency-approved COVID-19 related assets are excluded, the projected IRR is 3.2 per cent, showing the industry has improved its core productivity.
Cost to bring an asset to market has declined over the past three years, as peak sales forecasts increase
The combined cohort’s average cost to develop an asset was $2,006 million, a decrease of $370 million from 2020 (but nevertheless an increase of $710 million from 2013). This decrease in 2021 compared to 2020 is due mainly to the overall increase in the number of assets in the late-stage pipeline.
In 2021, the average forecast peak sales per pipeline asset for the combined cohort increased from $422 million in 2020 to $521 million in 2021. The variation in the range of forecast peak sales across companies has also increased, which is driven by the sales forecasts for COVID-19 vaccines.
The sources of innovation are increasingly external
Continuing the trend that we’ve seen for the last few years, the sources of innovation for the late-stage pipeline of our combined cohort is increasingly external. Notably this year has seen an increase in co-developed assets, from 32 per cent in 2020 to 46 per cent in 2021, meaning almost half of the assets in the late-stage pipeline are now being developed through collaborations and scientific partnerships.
Cycle time for the combined cohort has improved slightly but remains above pre-pandemic levels
Over the past few years, rising cycle times have been a continued challenge to biopharma R&D productivity, but our 2021 analysis shows an improvement to 6.9 years. During our analysis period, disruptions to routine drug development activity due to COVID-19 steadily declined. However, despite the dip, the overall cycle time for combined cohort continues to remain above 2019 levels, reinforcing the need to optimize processes or fundamentally change the drug development paradigm.
Navigating the impact of the pandemic has been an all-encompassing, a once-in-a-generation, challenge for the biopharma industry. While the industry rose to the occasion by making innovative changes to the R&D process, now is the time to sustain the momentum of change to prepare for the future. Success will depend on the industry’s ability to learn the lessons from the use of transformative trial design and roll-out, cross industry collaborations, and the adoption of digital solutions, to maintain and institutionalize new ways of working for the future.
We have identified a number of over-arching areas which companies should focus on to nurture the growth identified by our 2021 analysis and create a more productive future for R&D.