Despite 2018 being another strong year for the pharma and biotech sectors, including what looks set to be a record-breaking number of FDA approvals, R&D productivity is a cause for concern.
Consultants Deloitte have just released their annual update on productivity, and the figures are grim: projected returns on investment in research and development for the top 12 pharmaceutical companies have fallen to 1.9% – the lowest level since the firm began its reports nine years ago.
The research by Deloitte’s Centre for Health Solutions found returns had declined 1.8 percentage points from 3.7% in 2017.
Overall, returns are down by 8.2 percentage points since 2010, when they stood at 10.1%.
The increase in average cost to develop and win marketing approval for a new drug is behind the declining returns. This has increased in six out of the last eight years, with the average cost now at $2.18 bn (£1.61bn), almost double the cost back in 2010 of $1.18bn (£880m).
At the same time, the returns from these assets once they reach the market has also declined: forecast peak sales per product have almost halved in eight years, down from $816m in 2010 to $407m in 2018.
Deloitte says the industry needs to tackle the problem with new ways of working and emphasis on finding the right talent.
The sector is investing substantially in technologies such as Artificial Intelligence (AI) and Robotic Process Automation (RPA), but a true picture of benefits from such innovations won’t be apparent for a few years yet.
Source: Unlocking R&D productivity Measuring the return from pharmaceutical innovation 2018
Colin Terry, consulting partner for European life sciences R&D at Deloitte, commented: “Cutting R&D cycle time and costs is vital in a world where projected sales continue to be stagnant. In order to succeed and maximise their return on investment, the industry must act now to embrace new technologies and seek out the talent with the right skill set to challenge the status quo, then implement and sustain the new model.”
It’s no secret that smaller pharma and biotech firms have been able to achieve greater productivity compared to big pharma.
In addition to the 12 original cohort companies, since 2015 four smaller and more specialised biopharma companies have been used as an extension cohort of the R&D study, although Deloitte doesn’t name names.
Though these companies also saw returns drop this year, from 12.5% in 2017 to 9.3% in 2018, this fall was driven by the costs of commercialisation of five high value drugs from the four companies.
Despite this, these smaller firms continued to outperform their peers, with Deloitte pointing to their success in identifying high value products with significant unmet medical needs.
These products have added $70 billion (£52bn) of projected lifetime sales to the commercial portfolio across the four companies. The extension cohort have also increased their forecast peak sales per asset from $952 million in 2013 to $1.165bn in 2018.
“The smaller companies in our cohort continue to outperform, as they are able to produce valuable pipelines with less legacy infrastructure and organisational complexity,” commented Neil Lesser, Life Sciences R&D leader for Deloitte US.
“The challenge for these companies will be to continue the growth trajectory while at the same time investing in talent, and allocating funds to mature smartly. For the larger companies, a focus on technology and adapting their organisations and talent models to maximise productivity, is the way forward in this evolving landscape.”
Despite the significantly better rate of return for these companies, most big pharma companies won’t automatically opt for mergers and acquisitions, as these have a doubtful at best track record in improving rates of return on investment.
One major issue facing the industry is that its pipelines are increasingly focused on highly specialised and high cost medicines, and this is causing resistance from health system payers, including the all-important US market. Novartis, one of the big pharma pioneers in cell and gene therapy, disclosed last week that it is exploring a novel reinsurance route for high cost curative treatments, which would help spread out the cost of these therapies.
Read the full Deloitte report here