Big pharma counts cost of R&D decline
pharmafile | November 23, 2011 | News story | Research and Development | Deloitte, GSK, IIR, R&D productivity
Leading pharma firms are getting around 30% less on their investments in research and development compared to last year, according to a new study.
The ‘Measuring Return from Investment’ study, undertaken by Deloitte consultancy and Thomson Reuters, finds that the majority of leading drugmakers have seen a decline on their return from R&D.
Specifically the study shows that 10 of the top 12 pharma firms saw their internal rate of return (IRR) decrease from 11.8% in last year to 8.4% in this, representing a fall of just under 30 per cent.
The average cost of bringing a drug to market has also increased by 21% compared to last year to $1.05 billion, yet the study says the commercial value of these projects are no greater than a year ago.
The study adds there is a wide variation from company to company, from the lowest cost of bringing a drug to market being $439 million to the highest being $2.47 billion.
The average number of late-stage compounds in development per company also decreased from 23 last year to 18 in 2011, painting a negative picture of research for the industry.
The study says these firms are struggling to deliver improved R&D returns as a result of a number of factors, including: rising development costs, stagnating revenue forecasts and continued late-stage terminations.
The study has calculated the IRR not from data provided by pharma firms, but on estimates taken from publicly available information on pipelines and historical rates of costs, market potential and failure rates of drugs.
Pharma has historically not been willing to release their IRR calculations, although GlaxoSmithKline has recently started to do this, with some other firms now beginning to follow suit.
Both Deloitte and Thomson Reuters said that these results should be looked at over a four to five year minimum, and because this is only the second year of study, it may be giving a limited picture.
Underlying successes
But Julian Remnant, head of Deloitte’s European R&D advisory practice, said there were also encouraging signs coming from the study.
He said: “While this picture reflects a snapshot of the very real productivity challenges the industry is facing, it belies some underlying successes
“Of the 12 companies we analyse each year nearly two-thirds succeeded in realising more value from product commercialisation than has been lost from late-stage product failures.
“Also, across the 12 companies, non-R&D costs have declined, resulting in a higher operating margin – which helps to free up cash flow that could be reinvested in R&D.”
Remnant says that to combat high costs in the future, he anticipates R&D organisations coming together to simplify and share capabilities in non-competitive areas of the R&D operation thereby reducing cost.
“Shared drug development models will remove duplication, maximise capacity utilisation, and drive scale economies within service providers,” he said.
He said this is already being seen by a number of R&D leaders taking on cross-company collaboration.
“Having said this, the pharmaceutical R&D sector can do more to work together, for example sharing knowledge on the science behind failed molecules and studies will help improve success rates, and ultimately bring down the cost to develop new medicines,” he concluded.
Ben Adams
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