LONDON – Despite a decade of effort to streamline discovery and development and increase productivity, the projected return on investment (ROI) in R&D at the world’s leading pharmaceutical companies has hit an all-time low, according to the 10th annual analysis by management consultancy Deloitte.
When the first edition of “Measuring the return from pharmaceutical innovation” was published in 2010 – in response to concerns that pharma was spending more and more on R&D while getting less out – projected ROI was 10.1%. Ten years later, the projected return has fallen to 1.8%.
“No other industry would operate on such low R&D returns,” said Karen Taylor, director of Deloitte’s health practice. Substantive change is needed to shorten R&D cycle times, she said.
In 2019, forecast average peak sales per asset are $376 million, another 10-year low. The fall is in stark contrast to the increase in R&D expenditure, indicating it is taking longer than ever to steer products from discovery to market.
The analysis, tracking the 12 leading pharma companies, shows there has been a decade-long decline in productivity. An extension cohort of four more specialized biopharma companies has followed a similar trajectory.
Declining ROI on research spending afflicts all companies in the survey, with the only light relief coming in 2013-2014, when projected ROI increased from 4.8% to 5.5%, before continuing to fall.
The average cost to bring an asset to market has increased by 67%, from $1.188 billion in 2010 to $1.981 billion this year. However, the 2019 figure represents an improvement on 2018 when the average cost per drug was $2.168 billion.
Over the same time, forecast peak sales per asset have more than halved, from $816 million in 2010, to the lowly $376 million recorded this year.
In the course of the past decade, antibodies have overtaken small molecules as the most valuable drug modality, accounting for 47% of forecast sales in 2019, compared to 34% for small molecules. In 2010, small molecules accounted for 49% and antibodies 39% of forecast sales.
The proportions of other modalities, including cell and gene therapies, antisense oligonucleotides, protein-based therapies, vaccines and synthetic peptides, have changed little in the past 10 years, despite the fact that hype has finally become reality.
The shift away from small molecules toward more complex products has resulted in longer development timelines. Although there have been multiple attempts to shorten time to market, they have had marginal impact.
All these metrics have been swinging away from big pharma in an era when the number of new drug approvals is on the rise.
Small companies and specialized drugs
An increasing proportion of these approvals is being granted to companies outside the two cohorts tracked by Deloitte, noted Colin Terry, partner, EMEA Life Sciences, R&D Advisory. The number of approvals is growing in companies that have not had an approval before. That is a factor of drugs being more specialized and targeted at smaller patient populations, reducing the need for large, global sales forces.
“Small companies can go further,” Terry said.
The shift raises questions around the sustainability of big pharma’s model and whether rather than partnering, smaller companies will take an increasing share of the market by going it alone.
Fueling this has been a surge of private equity and venture capital going into emerging companies focused on translating novel biology into novel drugs. They have the means to take products further into development, making it harder for pharma to hoover up innovative programs.
“Price tags are going up and some areas are quite competitive. Other [pharma] companies are at the same table,” Terry told BioWorld.
While the cost of developing a new product is on the rise, pricing has been under downward pressure, with increased scrutiny of cost effectiveness by payers and healthcare providers. That is presenting the industry with a volatile, highly uncertain economic environment in which to operate, let alone drive productivity improvements.
In addition, Terry noted, in many segments of the market and particularly in primary care, low price generic drugs are the standard of care. To pass health technology assessment and secure reimbursement, new products, “need to show significant improvements,” he said.
When the initial ROI study was carried out in 2010, the industry was facing a patent cliff, as blockbuster small-molecules drugs lost market exclusivity.
Fast forward 10 years, and today biopharma is facing another cliff, as biologics patents expire and biosimilar competitors are approved. It is forecast $251 billion of sales of originator products are at risk between 2018-2024.
In terms of what is to be done, Taylor said the key is to apply technology to reduce cycle times. For example, applying artificial intelligence to drug discovery can reduce the length of time and cost of generating a lead by two thirds. Similarly, technology can be applied to improve the management of clinical trials and the analysis of huge and diverse datasets now being generated.
“Most industries have transformed themselves using advances in technology. Pharma companies have been slower to adopt these approaches,” Taylor told BioWorld.
“Companies will require core capabilities that are entirely different from today. This includes proficiency in accessing, analyzing and interpreting the increasing number of large datasets and linking genomic data to new therapies,” Taylor said.