Deloitte’s 13th Annual Pharmaceutical Innovation Report: Pharma R&D Return on Investment Falls in Post-Pandemic Market has been saved
Deloitte’s 13th Annual Pharmaceutical Innovation Report: Pharma R&D Return on Investment Falls in Post-Pandemic Market
NEW YORK, Feb. 8, 2023
- Projected returns on investment (ROI) in pharma R&D in 2022 have fallen to 1.2%, the lowest ROI observed in the 13 years since the research began.
- The top 20 global pharmaceutical companies collectively spent $139 billion on R&D in 2022, down 2% from 2021.
- The average cost of developing a new drug rose by $298 million to $2.3 billion in 2022.
- Average forecast peak sales per asset have decreased to $389 million in 2022, falling back from $500 million in 2021 and $422 million in 2020.
Why this matters
Deloitte’s series of annual reports on “Measuring the return from pharmaceutical innovation” has provided insights into the state of biopharma R&D since 2010. For the first time since the research began, the average projected return on investment (ROI) in pharma R&D has fallen to 1.2%, the lowest the industry has seen. Findings from Deloitte’s report indicate a return to the ROI experienced pre-pandemic and reflect the ongoing realities of the industry — increasing costs with declining returns.
Last year’s report indicated a historic rise in ROI to 6.8%. This year, the analysis shows a decline of 5.6 percentage points from 2021 to 2022. This was likely driven primarily by the successful approvals of high forecast value drugs and medicines (especially COVID-19 vaccines and treatments) and a gap in late-stage pipeline assets that would replace those that were commercialized.
Average forecast sales are down
Deloitte’s analysis shows the forecast average peak sales per asset — the amount of money a drug is expected to generate annually — have also declined, falling from $500 million in 2021 to $389 million in 2022. With COVID-19 emergency use approval (EUA) assets excluded, the average peak sales forecasts fell from $340 million in 2021 to $284 million in 2022.
The report also showed the estimated average cost of developing a drug, including the cost of failure, increased from $1,986 million in 2021 to $2,284 million in 2022. In total, the 20 companies analyzed spent $139 billion on R&D in 2022, a decrease of 2% compared to 2021 ($141 billion).
After an unprecedented increase in ROI in 2021, we anticipated a decline in 2022 but this steep drop is greater than what many in the industry expected. A combination of factors influenced this decline and reflects not only challenges for the industry but also where there are opportunities. Last year shed light on what is possible, and this year, we’re seeing that there is more work to be done to create lasting change and deliver on the collective mission to make the world a healthier place.
— Pete Lyons, U.S. life sciences sector leader, and principal, Deloitte Consulting LLP
The last few years have demonstrated the tremendous impact that biopharmaceutical innovation can have on health care, and the decline in this year’s results is broadly driven by the successful approval and commercialization of multiple new drugs and products this year. This is partly a reflection of the challenges R&D organizations face in cultivating a sustainable pipeline flow.
— Kevin Dondarski, life sciences R&D strategy leader, and principal, Deloitte Consulting LLP
Home-grown assets drive more than half of expected revenue
The research also revealed an increase in the proportion of forecast revenue from home-grown assets amongst the pharma cohort, rising from 29% in 2021 to 51% in 2022. This increase has likely been largely driven by the addition of five new high value assets in the R&D pipeline. At the same time, the proportion of forecast revenue from co-developed assets has almost halved year-on-year, falling from 46% in 2021 to just 18% in 2022.
Clinical trials of tomorrow
With the increase in average cycle times, rising costs to develop drugs and treatments, as well as the lower average forecast peak sales seen in this year’s analysis, Deloitte’s research reveals an opportunity for pharma R&D departments to transform the clinical trials process. Through combining patient-centered design with innovative digital technologies and data tools, it may be possible to improve the overall clinical trial experience for patients and physicians.
Return on late-stage pipeline, 2013-2022
“Measuring the return from pharmaceutical innovation 2022,” is the 13th annual report from the Deloitte Center for Health Solutions, the research arm of Deloitte’s life sciences and health care practices. The report explores the performance of the biopharmaceutical industry (biopharma) and its ability to generate returns from its investment in innovative new products.
Since 2010 Deloitte’s “Measuring the return from innovation” series has tracked the projected return on investment from the late-stage pipelines from an original cohort of 12 leading global biopharma companies. During that time the cohort has expanded and today the top 20 global pharmaceutical companies are tracked using the same comprehensive and consistent methodology.
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Measuring the return from pharmaceutical innovation 2022
Our latest report looks at the current state of R&D returns for 15 leading biopharma companies from May 2019 to April 2020, the impact of the pandemic on R&D pipelines during 2020 and identifies lessons that can help change the R&D paradigm towards a future with higher returns.