Pharma R&D returns fall to lowest level in nine years

• Projected returns on investment in pharma R&D have fallen to 1.9 per cent, the lowest level since 2010
  
• Forecast peak sales per asset have declined to $408 million (£302m)
  
• Average cost of developing a drug has almost doubled since 2010 - $2,180 million (£1,616m)

Projected returns on investment in research and development (R&D) for the top 12 pharmaceutical companies have fallen to 1.9 per cent, according to research by Deloitte’s Centre for Health Solutions.

Returns are down 1.8 percentage points from 3.7 per cent in 2017, and forecast average peak sales are at $408 million (£302m), making 2018 the lowest level since Deloitte’s R&D report began nine years ago. Returns are down by 8.2 percentage points since 2010, when they stood at 10.1 per cent.

The increase in average cost to develop and win marketing approval for a new drug is behind the declining returns. This has increased in six out of the last eight years, with the average cost now at $2,180 million (£1,616m), almost double the cost back in 2010 of $1,188 million (£880m).

Talent and technology could drive R&D returns on the road to recovery

A significant change in productivity, driven by new ways of working and emphasis on finding the right talent, is needed to lessen development costs and increase R&D returns. Technologies such as Artificial Intelligence (AI) and Robotic Process Automation (RPA) will help to build on, and accelerate, the innovative work of R&D organisations.

Colin Terry, consulting partner for European life sciences R&D at Deloitte, commented:

“The results signal a time for substantive change in the pharmaceutical industry. Despite the launch of many successful products, growing development costs and regulatory constraints are making it more difficult than ever for companies to redeem their R&D investment.

“Cutting R&D cycle time and costs is vital in a world where projected sales continue to be stagnant. In order to succeed and maximise their return on investment, the industry must act now to embrace new technologies and seek out the talent with the right skill set to challenge the status quo, then implement and sustain the new model.”

The secret to success for smaller pharma firms: High value products
In addition to the 12 original cohort companies, since 2015 four smaller and more specialised biopharma companies have been used as an extension cohort of the R&D study.

Though these companies also saw returns drop this year, from 12.5 per cent in 2017 to 9.3 per cent in 2018, this fall was driven by the costs of commercialisation of five high value drugs from the four companies. These smaller firms continue to outperform their peers, finding success in identifying high value products with significant unmet medical needs. These products have added $70 billion (£52bn) of projected lifetime sales to the commercial portfolio across the four companies. The extension cohort have also increased their forecast peak sales per asset from $952 million in 2013 to $1,165 million in 2018.

Neil Lesser, Life Sciences R&D leader for Deloitte US, commented “The smaller companies in our cohort continue to outperform, as they are able to produce valuable pipelines with less legacy infrastructure and organisational complexity. The challenge for these companies will be to continue the growth trajectory while at the same time investing in talent, and allocating funds to mature smartly. For the larger companies, a focus on technology and adapting their organisations and talent models to maximise productivity, is the way forward in this evolving landscape.”

End

*In some cases, minor adjustments have been made to the core data sets for previous years, while this adjusts the overall figure for these years, the trends and conclusions drawn remain consistent. Figures have been adjusted to include deals or trial dates not consistently visible in the pipeline when forecasts were run in the year of the report.

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