Big Pharma’s woeful numbers on drug R&D just got even worse

Colin Terry, Deloitte

Colin Terry, Deloitte

The analysts at Deloitte continue to calculate a dwindling return for Big Pharma’s R&D dollars. Their latest number crunching for the world’s top 12 biopharma companies concludes that ROI on their investment cash has shrunk to 3.7%, the lowest level yet after hitting 10.1% in 2010.

What’s killing these companies’ numbers, Deloitte says, is that while development costs on new drugs have plateaued at about $1.5 billion on each program, their revenue keeps falling. There’s been an 11.4% drop in revenue year-on-year over 6 years, which has now fallen to $394 million in average peak annual sales.

A hunt for any silver lining in this new report can be desperately hard. The Deloitte guys — Colin Terry and Neil Lesser — conclude that the number of blockbusters produced by this crowd has dwindled by more than half, so they keep spending big in search of smaller drugs. And as they focus more and more on their own pipeline, they are ignoring the external programs that can deliver better returns — setting up a push, perhaps, for a surge in M&A as the realization sinks in that they are on the wrong track.

The best approach, they add, is to think and act like a biotech. Smaller biotech groups simply do better than Big Pharma at R&D. And the big companies that stay focused on core diseases do far better than the companies that keep shifting R&D spotlights.

Neil Lesser, Deloitte

Neil Lesser, Deloitte

It’s hard to overestimate the importance of R&D spending by this group, and the need to get it right. My latest assessment concluded that the top 15 companies spent $87 billion on research last year, the lion’s share of the global R&D budget. And this year we’re looking at a sharp, painful drop in new drug approvals at the FDA, now running at less than half of last year’s total.

Lesser’s bottom line: Change now or court extinction.

“With pharma R&D returns continuing to fall, our analysis shows that the current model is not sustainable.  What is clear is that fundamental change may no longer be an option, but a necessity for the industry.”

Don’t look for the global drug market to provide any sudden relief. Not in this price-sensitive environment.

“Pricing is perhaps the most publicized challenge, with political and public scrutiny on the topic intensifying,” says Terry. “The majority of companies are struggling to achieve historical peak sales despite continuing to launch many new products.  They are also increasingly looking for returns from treatments in smaller patient groups.  As costs per product remain high, sales projections decline, and given it now takes the industry over 14 years to launch a drug, real questions should be raised about productivity and returns on innovation.”

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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