'Seeds of change' sprout into higher projected return on investments for the biopharma industry, according to Deloitte
Since 2010, Deloitte has been tracking the return on investment that a handful of top biopharma companies might expect to see from their late-stage assets. Last year, the company noted “seeds of change” following a six-year decline in average internal rate of returns.
Deloitte’s latest report indicates the trend has continued this year, as projected R&D returns have risen from 2.7% to 7%, the largest annual increase since the study began in 2010.
“We had expected an uptick in the IRR this year because of the COVID vaccines and therapies,” Sonal Shah, senior manager for the Deloitte Center for Health Solutions, told Endpoints News. “But the fact that when you actually exclude them, you still see an increase, and we see this decrease in R&D costs as well as a decrease in cycle time was surprising to me.”
When calculating IRR, Deloitte takes into account a company’s total R&D expenditure for bringing assets to launch, plus a forecast estimate of the future revenue that these assets could expect to earn following launch.
From this year’s combined cohort of 15 top-earning companies — which were not listed in Deloitte’s report — three achieved a forecast peak sales per asset greater than $500 million in 2021, with six companies improving their projected peak sales per asset compared to the year before.
Alongside an increase in peak sales forecasts, Deloitte noted that the cost to bring an asset to market has declined over the last three years, which it attributes to “novel trial designs and improvements in efficiency through the digitalisation of drug discovery and development.” It’s also, in part, due to “very high” sales forecasts for the companies’ Covid-19 assets and one high-value late-stage neurological asset.
However, even if you exclude the Covid-19 related assets, the projected IRR for 2021 is still 3.2%, which is higher than the 2.7% reported for 2020.
“This is a big reversal, after almost a decade-long decline in returns on innovation. So the fact that that turnaround is happening in spite of Covid is really exciting,” Shah said.
While the average cost to develop an asset, including cost of failure, was at $2.376 billion in 2020, that figure decreased slightly to $2.006 billion in 2021, according to Deloitte. However, that decrease is mainly due to an increase in the number of assets in the late-stage pipeline. And it’s still quite an increase from the average cost in 2013, which measured in at $1.296 billion.
Deloitte did note an increase in trial efficiency, largely due to the rapid development of Covid candidates. The company reported that Phase III trials for Covid assets were 3.7 times faster than non-Covid infectious disease trials.
“Nevertheless, despite the dip, the overall cycle time for combined cohort continues to remain above 2019 levels, reinforcing the need to optimise processes or fundamentally change the drug development paradigm,” the report states.
There was also an uptick in collaboration last year, with Deloitte noting that 46% of late-stage assets in 2021 were co-developed, up from 32% in 2020. Oncology assets still dominate the group’s collective pipeline, representing 35% of late-stage assets. As expected, the proportion of infectious disease assets increased quite a bit in the last year, now occupying 14% of late-stage programs.
“We’re seeing higher-value programs, lower expense, and ultimately more productivity for the industry,” Shah said. “And a lot of that I’ll say reflects the investments the industry has been making over the last several years in terms of digital technologies, really looking at decentralized trials and more effectively and efficiently running clinical trials.”