Despite rising R&D costs and continuing productivity concerns, new figures show the pharmaceutical industry’s forecasted rate of return on their significant drug development investments has increased for the first time since 2010, according to a new report from Deloitte that tracks the performance of 12 leading biopharmaceutical companies.
In 2010, a dozen companies launched 143 products with projected lifetime revenues of $955 billion. The internal rate of return stood at 10.1%. Between 2010 and 2014, the R&D divisions of these companies saw 236 additional products enter their late stage pipelines, with forecasted lifetime sales of $1.171 billion.
But while R&D costs continued to climb, sponsors saw less return, the result of late stage asset terminations. Over the next three years, the internal rate of return fell, hitting 5.13% in 2013.
But for 2014 the return is up—to 5.5%, reversing the three-year slide amid signs the industry is starting to recover some ground.
“The life sciences R&D ecosystem is undergoing a transformation, and the largest players are having to evaluate how they access, foster and commercialize their innovations,” said Neil Lesser, a principal at Deloitte and its life sciences R&D strategy lead.
He said the industry is facing four key areas of uncertainty:
- Scientific uncertainty from the complex modalities of developing innovative medicines
- Regulatory concerns , with a high degree of uncertainty around review times and pre- and post-approval requirements
- Reimbursement coverage uncertainty that raises concerns over patient access to new therapies
- Policy concerns, where a lack of consensus among policymakers includes whether the early introduction of biosimilars will affect branded biologics.
“We now have a first wave of biosimilar biologics as a potential growth factor, but there still are uncharted pathways ahead, such as measuring the biosimilarity and biosafety,” said Lesser. “It’s early.”
The big pharma companies have improved projected returns from their late-stage pipelines, despite rising drug development costs. However, the majority of the industry’s value now is coming from external sources of innovation, according to Lesser. These external assets are showing higher future forecasts than those from pharmaceutical companies’ internal labs.
“Big companies need to be collaboration ready,” said Lesser. “That’s where external innovation plays a growing role for their immediate future.”
Across all 12 companies, 58% of forecasted revenues from innovation at the latest stage of development are sourced externally, according to Deloitte. Nine of the sponsors will generate more than half their projected revenue from externally sourced assets, mostly from the biotechnology companies.
By contrast, the average projected peak sales from externally sourced assets are 6% higher than internally developed products. Deloitte goes one step further: for products with Breakthrough Therapy designations, revenues of externally sourced assets are predicted to be 20% higher than those discovered and developed in-house.
“Innovation strategies founded on collaboration continue to grow in importance and impact,” the study said. “The ability to engage in and subsequently manage strategic alliances is a critical success factor.”
Big pharma also has to improve on shedding its failures—early-stage and late- stage compounds that don’t work. While the industry mantra has been to “fail early and fail fast,” there has been little change in the value lost as a result of products cut in the final stages of development, meaning sponsors are not cutting their losses soon enough. The study found late-stage terminations continue to take too much value out of company pipelines, amounting to a loss of $243 billion over the last four years.
“The question may not be: can late failures be reduced, but how can late failures be better managed,” the study asked. “Are opportunities being missed to out-license, co-develop, re-purpose or sell less-promising compounds?”
Lesser acknowledged while the study did not specifically address clinical trial issues, he sees more prevalent research and better data management techniques ahead, along with improvements in site monitoring.
“Clinical trials are still a very labor-intensive undertaking, which in the short term will hold on to its existing model but, with technology and data viability, will evolve and become more streamlined in the near future,” he said.
The cohort of 12 publicly traded, research-based companies studied by Deloitte over the past five years is comprised of: Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Merck, Novartis, Pfizer, Roche, Sanofi and Takeda.
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