Pharma R&D return on investment falls to lowest level in a decade has been saved
Pharma R&D return on investment falls to lowest level in a decade
18 December 2019
- Projected returns on investment in pharma R&D have fallen to 1.8 per cent, the lowest level since 2010 when it was 10.1 per cent - a decline of 8.3 percentage points;
- Forecast peak sales per asset have declined to $376 million, down from $407 million last year;
- However, the average cost of developing a new drug has dropped to $1,981 million compared to $2,168 million in 2018 (in 2010 it was $1,188 million)
Projected returns on investment in research and development (R&D) for the top 12 global pharmaceutical companies have fallen to 1.8 per cent, the lowest level in a decade, according to research by Deloitte’s Centre for Health Solutions. In 2010 this figure was 10.1 per cent – resulting in a decline of 8.3 percentage points today. This is down slightly (0.1 percentage points) on last year’s figure of 1.9 per cent.
Forecast average peak sales per asset are at $376 million, making 2019 the lowest level since Deloitte’s R&D report began ten years ago. The decline in peak sales is in stark contrast to the increase in R&D expenditure, indicating that companies are taking longer than ever to steer potential new products through the R&D process.
However, the estimated average cost of developing a drug, including the cost of failure, and taking into account the number of drugs in late-stage development, has dropped to $1,981 million compared to $2,168 million in 2018 (in 2010 it was $1,188 million). This reverses four years of increases as companies have restocked their late-stage pipelines.
Colin Terry, consulting partner for European Life Sciences R&D at Deloitte, commented: “Despite the launch of many successful products, it is more difficult than ever for companies to see systematic portfolio returns on their R&D investment. Our analysis over the last decade has consistently shown that companies that have deep knowledge through years of R&D and commercialisation in their core therapy areas bear higher rewards than those whose focus has not been so consistent. Over the same period, we have also seen a number of significant transactions where companies have brought externally innovated assets into their late-stage pipelines. Given the complexity and challenges inherent to these transactions, their ability to drive higher returns is not always clear.”
Karen Taylor, director, Deloitte Centre for Health Solutions, commented: “No other industry would operate on such low R&D returns, so we have used this tenth anniversary report to examine the lessons from the past as well as identifying some of the solutions that will be needed over the next ten years if the industry is to thrive.
“The unrelenting decline in forecast peak sales and expanding regulatory requirements, combined with fewer barriers for new entrants, all demonstrate that substantive change is needed, especially in shortening R&D cycle times. Biopharma’s future will be focused on developing innovative therapies for the multiple diseases that still lack treatments and creating more precise treatment regimens that target smaller populations and even individual patients. This will require companies to develop core capabilities that are entirely different from today. This includes proficiency in accessing, analysing and interpreting the increasing number of large datasets and linking genomic data to new therapies – all of which have a high impact for patients.”
Smaller biopharma firms face similar challenges to big pharma
In addition to the 12 original cohort companies, four smaller and more specialised biopharma companies have been used as an extension cohort of the R&D study since 2015.
These companies also saw returns decrease this year, from 9.3 per cent in 2018 to a low of 6.2 per cent in 2019. This fall was driven by the commercialisation of five high value drugs from the four companies and the uncertainty around some other programmes.
The extension cohort’s forecast peak sales per asset also decreased, from $1,165 million in 2018 to $658 million in 2019. Their average cost to develop an asset dropped to $2,422 million from $2,805 in 2018, driven by a number of new assets entering late-stage development.
Neil Lesser, Life Sciences R&D leader for Deloitte US, commented: “This decrease in predicted returns for smaller companies demonstrates the R&D productivity challenges being felt across the wider industry, not just in the largest pharma companies.”
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