Pharma R&D returns continue to slide
A new future for R&D?
14 December 2017
- Deloitte analysis shows projected returns on investment from 12 of the top pharma companies fall to lowest level in eight years;
- It now costs these companies almost $2bn (£1.2bn) on average to bring a drug to market;
- Peak sales per asset – the amount of money a drug is expected to generate annually – increases from $394m (£256m) in 2016, to $465m (£318m) in 2017.
Projected returns on investment in research and development (R&D) for the top 12 pharmaceutical (pharma) companies has fallen to just 3.2 per cent this year, down from 10.1 per cent in 2010, according to an annual study by Deloitte’s Centre for Health Solutions.*
The average cost for these companies to bring a drug to market has increased to record levels of just under $2 billion (£1.2 billion), up from $1,188 million (£708 million) in 2010 and $1,539 million (£928 million) in 2016. Conversely, forecast peak sales per asset – the amount of money a drug is expected to generate annually – has remained well below the 2010 value of $816 million (£551 million), to reach only $465 million (£318 million) in 2017, albeit this is an increase from $394 million (£256 million) in 2016.
These numbers represent an increase over the 2016 figures for both R&D costs and peak sales. The primary driver for this change is a drop in the number of assets in late-stage pipelines, the final stage of R&D before a drug is launched to market. Despite record levels of new drugs being approved in recent years, the number in this pipeline has fallen 16 per cent since 2016 from 189 to 159.
Colin Terry, consulting partner for European life sciences R&D at Deloitte, explains: “Our analysis is a stark reminder that investing in R&D is a high-risk, high-reward endeavour. Every year billions are spent developing new drugs, and yet the vast majority of promising drugs never make it to market. The industry faces many challenges to recoup their investments, including increased competition, expiring patents, declining profitability, mounting regulatory scrutiny, and arguably the most heated issue – pricing.”
However, Terry adds: “It would be a mistake to use these projected financial returns as the only measure of the industry’s ability to innovate. Despite many challenges, there are numerous examples of innovation that demonstrate pharma’s resilience and optimism about the future – from the approval of numerous immunotherapies to the first ever approvals of chimeric antigen receptor T cell (CAR-T) therapies this year.”
‘A new future for R&D? Measuring the return from pharmaceutical innovation 2017’, has been produced by Deloitte, using data from GlobalData. Other findings include:
- Smaller firms outperform larger peers: Since 2015, in addition to the 12 companies included in the original cohort, four mid-to-large-cap biopharma companies have also been added to the study. These continue to out-perform the original pharma cohort, with projected returns of 11.9 per cent in 2017 (up from 9.9 per cent in 2016), but are still below the high of 17.7 per cent set in 2014.
- Increased focus on developing therapies for cancer: From 2010-17 the percentage of forecast late-stage pipeline revenue from oncology for the top 12 companies has increased significantly, from 18 per cent in 2010 to 37 per cent in 2017. High levels of unmet medical need and higher potential returns are attracting companies.
Neil Lesser, principal, Deloitte Consulting LLP, and U.S. life sciences R&D strategy leader, concludes: “Our analysis continues to show that changes to the pharma R&D model will be essential to driving improved returns and getting the new, exciting innovations that the industry is producing to market in an efficient and productive way. Our report highlights how technological advancements – such as artificial intelligence, RWE and automation – have the potential to improve R&D productivity. Similarly, innovation in collaborative, patient-centric drug development models that are being promoted by pharma companies, regulators and patient groups, have the ability to transform the industry and improve productivity significantly.”
Notes to editors
*Top 12 pharma companies are by 2009 R&D spend.
**Forecast sales are calculated based on a time period of approximately 21 years.
About the report
‘A new future for R&D? Measuring the return from pharmaceutical innovation 2017’ has been produced by Deloitte, using data from publicly-available audited annual reports and forecasts through data and analytics provider GlobalData. The report features the latest unique analysis from Deloitte of the life science industry’s performance in generating a return from its significant annual investment in new product innovation.
About the Deloitte Centre for Health Solutions
The Deloitte Centre for Health Solutions is the research arm of Deloitte LLP’s Life Sciences and Health Care practices. Our goal is to identify emerging trends, challenges, opportunities and examples of good practice, based on primary and secondary research and rigorous analysis. The Centre’s team of researchers, working in partnership with colleagues from the US Center for Health Solutions, seeks to be a trusted source of relevant, timely and reliable insights that encourage collaboration across the health value chain, connecting the public and private sectors, health providers and purchasers, patients and suppliers. Our aim is to bring you unique perspectives to support you in the role you play in driving better health outcomes, sustaining a strong health economy and enhancing the reputation of our industry.
GlobalData is a global data & analytics solution provider who, for over 40 years, has been helping over 4,000 companies worldwide to make more timely, fact-based decisions. Our mission is to help our clients succeed and be more innovative by decoding the future and reducing the noise & uncertainties surrounding the world of today. We do this by providing market data, competitive insights and end-user perspectives which are delivered to our clients in an integrated way through a variety of different tools.
For more information, please visit https://www.globaldata.com/.
In this press release references to “Deloitte” are references to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”) a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see deloitte.com/about for a detailed description of the legal structure of DTTL and its member firms.
Deloitte LLP is a subsidiary of Deloitte NWE LLP, which is a member firm of
The information contained in this press release is correct at the time of going to press.
For more information, please visit www.deloitte.co.uk.
Member of Deloitte Touche Tohmatsu Limited.