Report: Return on pharmaceutical R&D on the rise
Thursday, December 11, 2014
The rate of return on pharmaceutical R&D is on the rise for the first time since 2010. Since 2013, there has been an increase in R&D returns, from 5.1% to 5.5%, according to a study by Deloitte, a U.K. professional services firm.
The study also finds that, since 2010, the top 12 pharmaceutical companies have launched 143 products, which continue to benefit patients across all therapy areas and have estimated total lifetime revenues of $955 billion. Over the same period, 236 assets have progressed through to late stage development, with forecast lifetime revenues of $1,171 billion.
Julian Remnant, head of Deloitte’s European R&D advisory practice, said, “There are signs that returns from pharmaceutical R&D are turning a corner. However, we continue to see a relentless rise in the costs to develop a new medicine—this year to $1,401 million—with little change to the billions of dollars of value lost from products failing in the final stage of development. While winners are emerging, the economic drivers of product development are complex and the study has identified wide variations at an individual company level.”
The report, Measuring the Return from Pharmaceutical Innovation 2014, has been produced by Deloitte in collaboration with research and consulting firm GlobalData. It is the latest annual analysis of the 12 largest life sciences companies by R&D spend.
The findings indicate that the following strategic factors may have an impact on R&D returns:
- Company size—the larger the company, measured by revenue or R&D spend, the greater the cost to develop each asset and the lower the returns.
- External innovation—for 75% of the companies, less than half of the projected revenue is from compounds discovered in their own laboratories. Across all 12 companies, 58% of forecast revenues from innovation at the latest stage of development is sourced externally.
- Portfolio focus—an emphasis in the pipeline on fewer therapy areas appears to deliver better returns.
Neil Lesser, principal and life sciences R&D strategy lead at Deloitte US, said, “The life sciences R&D ecosystem is undergoing a transformation and the industry’s biggest players are having to evaluate how they access, foster and commercialize their innovations. We have found that some of the top 12 organizations are further through the journey than others and, as a result, are delivering leading returns.
“The majority of the industry’s value now is coming from external sources of innovation, and these external assets are showing higher future forecasts than those from internal labs,” said Lesser. “Companies need to consider if they have invested in capabilities that make them ‘collaboration ready,’ including the talent, processes, infrastructure and data required to be able to collaborate effectively for the long term without eroding the value acquired.”