Five Strategies That Could Help Biopharma Firms Get More ROI Bang for Their R&D Buck | Deloitte US has been saved
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By Greg Reh, vice chairman, US and Global Life Sciences leader, Deloitte LLP
The US Food and Drug Administration (FDA) approved 59 new drugs in 2018—the most approvals in more than a decade. Almost one-quarter of these drugs received “Breakthrough Therapy” designation, and 41 percent received “Fast Track” designation, according to data the agency released in January.1
Despite the number of approvals last year, biopharmaceutical firms are finding it increasingly difficult to replenish late-stage pipelines. Moreover, while clinical cycle times and research and development (R&D) spending have been increasing, returns over the past eight years have steadily declined, according Deloitte data based on information from 12 large biopharmaceutical firms. During the same period, clinical cycle times (the time it takes to bring a drug through clinical development) have increased.
In 2018, the average cost of developing a new drug and bringing it to market topped $2.1 billion—up $362 million from 2017, and almost double the average cost in 2010, according to our most recent research. While the 12 companies we track have increased R&D spending by an average of 15 percent, their return on investment (ROI) fell from 10.1 percent in 2010 percent to 1.9 percent in 2018—the lowest percentage we have seen since we started tracking it. In addition, peak sales per asset totaled $407 million in 2018—about half what it was in 2010, and these companies also have fewer late-stage assets in their pipelines. Since we began our series, the number of late-stage pipeline assets has fallen 23 percent—from 206 in 2010 to 159 in 2018.
Can companies reverse this trajectory? Balancing the risk-reward equation will likely require a multi-faceted approach, including new development paradigms, evidence-generation techniques, and productivity-enhancing technologies. Technologies such as artificial intelligence (AI) and machine learning algorithms can streamline processes, sift through the mountains of data generated during the R&D process, and enable much more efficient drug discovery and development. Our recent report, Unlocking R&D Productivity, discusses some strategies for reversing the declining ROI.
More biopharma firms are focusing on oncology
In response to shrinking revenues from other segments, as well as opportunities from advancing science, many biopharmaceutical manufacturers have shifted their focus to oncology. In 2010, oncology made up 18 percent of late-stage pipelines among the 12 large biopharma companies we track. That percentage climbed to nearly 40 percent by 2018. This shift toward oncology has led to an increasingly crowded clinical research space and longer development timelines, which has lowered returns. According to the Cancer Research Institute, more than 2,000 immunotherapies were being marketed or were in development in 2017.
Clinical development of oncology therapies is complex and typically targets small numbers of patients. If multiple companies target the same patients, or the same types of tumors, they could find it more difficult to find and enroll participants in clinical trials. This can delay trials and increase costs. Case in point: Clinical cycle times for cancer therapies have increased from an average of 6.16 years in 2015 to 6.61 years in 2018, according to our research. Moreover, biopharma companies are taking longer than ever to develop drugs—particularly cancer therapies. One reason for this could be an insufficient number of patients who are eligible to register in clinical trials.
How can biopharma companies improve their R&D ROI?
As long as the numerator (the value of assets) decreases, while the denominator (R&D costs) increases, biopharma companies will see declining returns. To reverse this trend, biopharma companies should consider the following five strategies to create a transformational change in R&D productivity:
We believe it is imperative that biopharmaceutical companies develop a strategy to reverse the trend of declining returns. They should find ways to collaborate—with other companies and with stakeholders, including patient advocacy groups and academic entities. Company leaders also should ensure they are connected to technology companies that are working on products and services that could help improve their R&D. But they should begin with a clear vision for how digital transformation can improve returns. Digital transformation can be a multi-year process, and people who possess backgrounds in technology and data analytics are in high demand across all industries. Biopharma companies have a real opportunity to streamline R&D processes, reverse declining returns, and focus on developing new cures.
1. 2018 New Drug Therapy Approvals, FDA Center for Drug Evaluation and Research, January 2019 (https://www.fda.gov/files/drugs/published/New-Drug-Therapy-Approvals-2018_3.pdf)
Greg serves as the Deloitte Global Life Sciences & Health Care Industry Leader. In this role, he advises life sciences and health care clients and practice leaders within Deloitte’s global network; and is responsible for the overall industry group that conducts research and provides consulting, advisory, tax and audit services to clients in the industry. The global life sciences and health care industry group is comprised of over 20,000 colleagues in more than 90 countries that work with pharmaceutical, biotech, medtech, payer, provider and government clients. Greg also leads Deloitte’s relationship with one the world’s largest health care companies, which entails enabling and coordinating client teams around the world. Prior to his current roles, he served as the US life sciences leader; and as the global life sciences leader. Greg’s experience over the last 27 years includes working with multinational pharmaceutical, biotechnology, and chemical manufacturing organizations where he led consulting engagements in support of regulatory, clinical, commercial and manufacturing operations. His engagements focused on technology strategy and solution development; business-technology enabled transformation and the management of change. Prior to his consulting career Greg held positions at a government research lab, where he led teams in the design and development of life support devices; and was a lecturer at the University of Pennsylvania. Greg holds an MS from the University of Pennsylvania, and a BSME from Drexel University.