A Decade of Shrinking Returns Might be Prompting Pharma to Adopt New Business Models | Deloitte US has been saved
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By Mike DeLone, vice chairman, US life sciences leader, Deloitte LLP
Each January, the life sciences industry gathers in San Francisco for the J.P. Morgan Healthcare Conference. Executives from a wide range of pharmaceutical companies highlight their portfolio strategies, strategic investments, and innovative partnerships. New partnerships were announced, and sessions highlighted new vaccines, cutting-edge immune-inflammation drugs, and advances in cell and gene therapies. But there was a palpable feeling of caution in the air.
This feeling isn’t surprising. As pharmaceutical companies have touted scientific breakthroughs, experienced exceptional returns in some areas, and enjoyed access to abundant capital over the past 10 years, they also have seen their rates of return steadily decline, according to Deloitte’s annual Measuring the Return from Pharmaceutical Innovation report. During that time, the cost to develop a new product has nearly doubled while the time to bring it to market has increased substantially. It’s not that this industry is slow to respond to changes. On the contrary, the pharmaceutical industry is working to overcome challenges that may be more complex than anything any industry has ever been asked to overcome.
Here’s a look at three key stats from our report…
…And three trends we expect to shape the sector
First the good news: Many pharma companies have introduced new business models aimed at improving efficiencies, speeding innovation, reducing costs, and creating more targeted therapies. These changes have the potential to favorably impact returns. Moreover, the US Food and Drug Administration (FDA) has been approving more products in recent years. In 2019, 48 new drugs and 10 biosimilars were approved, according to FDA’s annual report of drug approvals. That’s a significant change from most of the past 10 years when FDA typically approved between 20 and 25 new products a year. Now the bad news: The pharmaceutical sector as a whole has been hamstrung by outdated legacy systems and inefficient processes. This is a situation that can’t continue, and change seems critical for the survival of pharmaceutical companies. Here’s a look at three key trends that are shaping pharmaceutical companies:
When we began measuring the returns from pharmaceutical innovations a decade ago, there was a general acknowledgement that the sector would soon incorporate digital technologies to reduce costs and streamline the drug discovery process. Several conference speakers noted that the transition to digital has been much slower than anticipated. Small tweaks to existing processes are no longer a viable solution, and bold moves are becoming essential. While this isn’t a new issue for the sector, I think it is going to feel much more real in 2020. This industry is infinitely complex, particularly as we learn more about the human genome and what precision medicine might really look like in the future. We are at a point in history unlike any other period before. The ability to effectively treat a patient can require an understanding of immensely complex processes.
1. Roche and Illumina partner to broaden patient access to genomic testing, press release, The Roche Group, January 13, 2020
Mike, a principal in Deloitte Consulting LLP, is the national sector leader for Deloitte’s Life Sciences practice. In this role, he leads a multi-disciplinary team who serves clients in the pharmaceutical, biotechnology, medical technology, and consumer health care segments through consulting, advisory, audit, and tax services. Mike is responsible for the overall strategic direction of the life sciences practice as well as its go-to-market strategies and resources. He also serves in the role as life sciences consulting leader. With 20 years of experience dedicated to the life sciences sector, Mike has demonstrated exceptional leadership and practice development. He has led tech and information management teams as well as services at some of our largest biopharmaceutical and medical technology clients, helping them with the definition and implementation of technology and business strategies, related organizational and business alignment. His client work has been presented as examples of leading practices at prominent industry conferences.