The world’s biggest drug companies are finding it increasingly difficult to recoup their investments in R&D. In the last eight years, return on investment in R&D by the top 12 companies in the pharma industry has fallen from 10.1% in 2010 to 3.2% in 2017. The concern is that these companies will look to make cutbacks, ultimately having a negative effect on new discoveries. But, as some of the smaller drug firms prove, it’s not always how many resources you have, it’s how you use them.
In addition to the top 12 pharma companies analyzed in Deloitte’s annual survey of pharma R&D investment, a group of four younger and slightly smaller biotech businesses – Celgene, AbbVie, Biogen and Gilead – were also measured. Their average return rose to 11.9% in 2017 from 9.9% in 2016.
Speaking to the Financial Times, Neil Lesser, co-author of the report, put their contrasting returns down to “a combination of the way they focus on value and their ability to act more nimbly.” He noted how they are not weighed down by “legacy infrastructure” in the same way that the larger companies often are.
Finding the positives
The report offered little in the way of optimism for the top companies as far as R&D’s ROI is concerned, with the average cost of bringing a drug to market also having soared to a record $2bn from $1.5bn in 2016 and $1.2bn in 2010. But they will take some comfort in the forecast rise in annual peak sales per drug from an average of $394m in 2016 to $465m in 2017; even if it is some way short of the peak sales projection of $816m in 2010.
Meanwhile, in the eight years Deloitte has carried out the survey, the percentage of forecast late-stage pipeline revenue from oncology for the top 12 companies has increased significantly, from 18% in 2010 to 37% in 2017, highlighting it as a potential high returns area.
Offsetting the challenges
Of course, the industry knows R&D is a high-risk, high-reward undertaking which presents a number of challenges in order to recoup investments. These include increased competition, expiring patents, declining profitability, mounting regulatory scrutiny and pricing. But is enough being done to offset these challenges?
The report suggests that innovative tools and technology offer the biggest drug companies the opportunity to buck the trend of declining R&D revenues. In particular, it highlights artificial intelligence, real-world evidence and robotic and cognitive automation as technologies which could help improve R&D efficiency.
The question is, can the top companies act quickly enough to reverse the decline, or will their legacy infrastructure prevent them from driving efficiency into their R&D? And, if they don’t manage to stop this, what will this mean for new discoveries?
Could enterprise data science be a potential game changer for these life sciences organizations? CCC’s Data Scientist Anna Lyubetskaya discusses here.