Pharma's broken business model — Part 2: Scraping the barrel in drug discovery
Biotech Voices is a collection of exclusive opinion editorials from some of the leading voices in biopharma on the biggest industry questions today. Think you have a voice that should be heard? Reach out to Amber Tong.
Biotech Voices is a contributed column from select Endpoints News readers. Commentator Kelvin Stott regularly blogs about the ROI in pharma. You can read more from him here.
In Part 1 of this blog, I introduced a simple robust method to calculate Pharma’s Internal Rate of Return (IRR) in R&D, based only on the industry’s actual historic P&L performance. Further, I showed that Pharma’s IRR has followed a rapid and steady linear decline over 20 years, which is consistent with recent estimates from BCG and Deloitte, and can be fully explained by the Law of Diminishing Returns as a natural and unavoidable consequence of prioritizing a limited set of investment opportunities while each new drug raises the bar for the next. Finally, I showed that a simple extrapolation of this robust linear trend means that Pharma’s IRR will hit 0% by 2020, which implies that the industry is now on the brink of terminal decline as it enters a vicious cycle of negative growth with diminishing sales and investment into R&D.
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