pharmaceutical innovation 2015


Measuring the return from pharmaceutical innovation 2015

Transforming R&D returns in uncertain times

Macroeconomic pressures have hit the R&D returns of life sciences firms, according to new Deloitte research. The sixth annual pharmaceutical innovation study looks at the challenges the industry faces in generating returns from its R&D investments, while highlighting lessons that can be learned.

Concerns about the prices attached to innovative medicines have combined with macroeconomic pressures to weigh on the research and development (R&D) returns of pharmaceutical firms this year.

The bottom line is that the R&D returns of major life sciences industry groups have now fallen to their lowest point since our records began in 2010.

After reviewing the estimated returns of 12 leading life sciences companies, our research suggests they need to increase their focus on costs, while accelerating asset development timelines. Comparing their performance with 4 mid- to large-cap companies, we believe there are lessons to learn…

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Key findings

Co-produced by the Deloitte Centre for Health Solutions and Deloitte’s R&D services group, in collaboration with GlobalData, the Measuring the return from pharmaceutical innovation 2015 study finds:

  • R&D returns have declined from 10.1 percent in 2010 to 4.2 percent this year.
  • 186 products have been launched by the original cohort of 12 life sciences firms since 2010, generating estimated revenues of $1,258 billion.
  • 306 assets have entered the late-stage pipeline, accounting for total forecast revenues of $1,414 billion.
  • 43 products were given the green light last year, with 2014 a headline period for approvals.
  • The cost of developing an asset has jumped by nearly a third - but forecast peak sales have halved.
  • The four mid- to large-cap companies have outperformed the original life sciences cohort, generating returns 3 times higher between 2013 and 2015. Their asset development costs are 25 percent lower, with their average forecast peak sales 130 percent stronger.

Main factors influencing R&D returns

Taking into account both the original life sciences cohort and the four mid- to large-cap companies, we believe the following factors can now influence R&D returns in the pharmaceutical sector:

  • Maintaining a consistent focus on a specific therapy area (disease) can deliver stronger returns, as companies develop expertise in a selected number of therapy areas.
  • Smaller companies remain more effective in generating value than bigger companies. This may explain why the 12 large life sciences groups have been left in the wake of the smaller-scale members of the mid- to large-cap cohort.
  • External sources of innovation continue to have a significant impact on late-stage pipeline value.
  • Firms increasingly favour returning money to shareholders over new R&D investments.
  • Falling peak asset sales have had the largest negative effect on R&D returns since 2010.

Looking ahead

The costs of discovering and delivering new products are likely to climb higher within the pharmaceutical industry, while sales and healthcare budgets will come under added pressure.

In response, our report suggests life sciences firms should adopt a more focused and streamlined approach to R&D.

Companies should optimise their project costs and external sources of innovation, while speeding up development timelines and simplifying core processes. By consistently focusing on a selected number of therapy areas, they can look to become market leaders and gain a competitive advantage over their rivals.

To achieve better returns on innovation, life sciences companies can also learn lessons from the mid- to large-cap companies included in our study. These companies have invested in streamlined R&D business models, ultimately enabling them to become more flexible and nimble.

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