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R&D return on pharma investment picks up for the first time in six years

In 2020, projected returns on investment in research and development (R&D) for a combined cohort of 15 global pharmaceutical companies was 2.5 per cent, 0.9 percentage points higher than in 2019. This is the first sign of a reversal in the declining trend seen over the past seven years, according to research by Deloitte’s Centre for Health Solutions.

The range in performance between the top performing and bottom performing companies has narrowed, however, with all but one company having an internal rate of return (IRR) below the industry weighted average cost of capital. (The weighted average cost of capital is acknowledged by most industries as the most common discounted cash flow method to derive enterprise value.)

In 2020, the cohort saw an increase in average forecast peak sales per pipeline asset (the amount of money a drug is expected to generate annually) to $421 million, from $357 million in 2019. However, the average cost to develop an asset (bring a drug to market) increased once more to $2,442 million, up $51 million compared to 2019 and a $1,115 million increase since 2013.

The increase in costs per asset is due mainly to a fall in the overall number of assets in late stage pipelines (the final stage of R&D before a drug is launched to market) which decreased from 213 in 2019 to 207 in 2020. Between 1 May 2019 and 30 April 2020, the cohort had a total of 53 assets approved, an increase from 39 in 2019.

Deloitte also commissioned analysis measuring the impact of the COVID-19 pandemic on clinical trials to investigate the likely impact on future year returns. The analysis revealed that between March and November 2020, the pandemic affected an estimated 1,210 trials across the industry. The vast majority of these (66 per cent) had delayed starts or completions; and eight per cent were terminated (permanently stopped) or withdrawn (stopped before enrolling any patients).

Colin Terry, Consulting Partner for European Life Sciences R&D at Deloitte, commented: “We are finally seeing seeds of change in the projected R&D productivity given recent progress of some novel trial designs and improvements in efficiency through the digitalisation of drug discovery and development. However, adoption continues to be experimental and not at scale across the industry, although accelerated by the COVID-19 pandemic across all stakeholders and regulators. The ‘need for speed’ has become all-encompassing alongside the realisation that development cycle times need to be reduced and new ways of working embraced to finally see the industry break the trends of the last decade.”

Neil Lesser, Principal, US Life Sciences R&D Leader at Deloitte added: “While the uptick in performance is encouraging, sustaining it will require companies to continue investing in approaches that led to this positive direction. These include expanding investments in digital technologies and data science approaches, as well as increasing the use of transformative development models. The industry’s response to the COVID-19 pandemic proved that biopharma innovation can be speeded up through creative approaches to drug development – only time will tell if this progress becomes a permanent legacy.”

Deloitte announces new additions to UK leadership team

Deloitte is today announcing new additions to its leadership team with Lisa Stott joining as the new managing partner for tax and legal and Jackie Henry taking over as managing partner for people and purpose. In addition, Kirsty Newman has been appointed as UK market chair.

Effective this month, Jackie will provide leadership of Deloitte’s UK people strategy and purpose agenda, focusing on inclusion and wellbeing. She started her career with Deloitte in Belfast 31 years ago and for the past seven years has been lead partner in Northern Ireland.

Jackie’s commitment to diversity, inclusion and social mobility has been a focus throughout her career, and in particular her efforts in building skills and providing access to education for people across Northern Ireland. This includes setting up the Belfast Delivery Centre, which includes the creation of Deloitte’s BrightStart Degree and Graduate academy programmes. She has also served as people and purpose lead for Deloitte’s UK consulting business for the last two years.

Jackie Henry commented: “The last year has reminded us more than ever of the importance of putting people and purpose at the heart of our business. I am delighted to be appointed UK people and purpose managing partner. We are a people business and my priority is to put the voice of our people at the centre of our business strategy to deliver an impact that matters.”

Effective from 1 June, Lisa Stott will be the first woman to lead Deloitte’s tax and legal service line. She has been at the firm for 32 years, advising and supporting clients, and was most recently global lead for international tax and business tax advisory.

Lisa Stott said: “It is a privilege to be leading Deloitte’s tax and legal teams. We will continue to focus on our clients’ needs by investing in our capabilities and building on our recent acquisitions of Kemp Little who joined our legal team and Kerr Henderson to our pensions teams.”

In her role as market chair, effective from 1 June, Kirsty Newman will build relationships with UK Boards and policymakers and lead Deloitte’s Vice Chairs group.

Newman also serves as Deloitte North & South Europe (NSE) leader of Deloitte Private and is the co-chair of Deloitte’s Global Family Office Advisory Board. She started her career with Deloitte as a tax consultant and has been a partner for over 20 years.

Kirsty Newman added: “I am delighted to have been appointed as market chair of Deloitte in the UK. I look forward to working with our vice chairs and partners to continue to create connections between our clients, communities and people to collectively support a UK-wide recovery.”

Richard Houston, senior partner and Chief Executive, said: “I have no doubt that the wealth of experience and expertise Kirsty, Jackie and Lisa will bring to their new positions and the leadership of the UK firm will further reinforce our inclusive culture and our purpose of making a positive impact on clients, our people and wider society.”

Roadmap out of lockdown fuels record jump in consumer confidence

The first three months of 2021 saw a record quarterly rise in consumer confidence, rising six percentage points in the first quarter, to -11%, according to the latest Deloitte Consumer Tracker. Every measure of confidence saw both year-on-year and quarter-on-quarter growth, as consumers journey out of lockdown with a spring in their step.

Deloitte’s analysis is based on responses from more than 3000 United Kingdom consumers between 19th and 22nd March 2021, as the United Kingdom’s phased lockdown easing remained on track.

After entering the year under the tightest of lockdown restrictions, the reopening of schools helped boost sentiment around children’s education and welfare to -11%, up six percentage points on the previous quarter. Coupled with the continued speed of the United Kingdom’s vaccination programme, sentiment around health and wellbeing improved eight percentage points, to -26%, the highest level since the start of the COVID-19 pandemic.

With restaurants and physical non-essential retail remaining closed in Q1 2021, consumers’ pockets improved this quarter. Household disposable income saw a seven percentage point boost to -10%; marking a 17 percentage point improvement compared to the same period last year. Further, consumers’ confidence in their level of debt has tipped over to the black, at 1%, for the first time in ten years.

Ian Stewart, chief economist at Deloitte, commented: “The United Kingdom is primed for a sharp snap back in consumer activity. High levels of saving, the successful vaccination rollout and the easing of the lockdown set the stage for a surge in spending over the coming months.”

Economic recovery

The start of the pandemic in Q1 2020 saw economic sentiment plunge to an historic low. However, armed with a clear map out of lockdown, extended furlough support through to the autumn, and the vaccination programme continuing, consumer sentiment on the state of the economy grew to -61%, a quarterly rise of 12 percentage points.

With CFOs also hiring at their highest levels for nearly six years, consumers are optimistic about both their job security, and opportunities and career progression; each up by six and seven percentage points, respectively.

Stewart continued: “The eventual peak in unemployment looks set to be far lower than had been feared, and far lower than following any downturn in the last 30 years. With employers anticipating a return to the office by Q3 2021 life should start returning to something which, though far from normal, is closer to it. The risk to this upbeat outlook is the emergence of new, vaccine resistant variants and a third wave of cases. With global case rates rising we’re not completely out of the woods.”

Consumers signal a Q2 spending spree

In an encouraging sign that consumers are preparing for further lockdown easing, discretionary spending grew this quarter, albeit by one percentage point. While net spending in most of the discretionary categories remain below where it was a year ago, there was strong quarterly growth in demand for holidays and categories related to socialising, such as going out and eating out.

With late June earmarked for the last of social distancing measures to lift, consumers expect to increase their spending across almost every essential and discretionary category. Net discretionary spending is anticipated to become positive for the first time, meaning the number of consumers expecting to spend more exceed those anticipating to spend less.

Reflecting consumer eagerness to spend, ‘going to a shop’ topped the list of leisure activities consumers are most likely to do after lockdown, with 63% saying they’d plan to return within a month of measures lifting.

Ben Perkins, head of consumer research at Deloitte, commented: “Although April 12th marked what many hope will be the permanent reopening of non-essential retail stores, mass remote working will continue to impact footfall on the High Street. Shopping behaviours have changed significantly during the pandemic, with some consumers discovering the convenience of online retail for the first time. It’s likely that many of these changes will continue beyond the end of the pandemic. Whether shopping online or in-store, though, if consumers remain confident about their income, then an increase in consumer spending could become the driving force for growth as the economy reopens.”

Consumers head out, but remain hesitant about large events

With the exception of spending on in-home entertainment – up one percentage point in Q1 2021 – overall leisure spending this quarter remains well below year-on-year comparables. However, with lockdown restrictions beginning to ease, consumers are gearing up for a long-awaited return to hospitality and holidays.

Whilst limited to takeaway options over this period, eating out saw the biggest quarterly rise in net spending, up ten percentage points, to -43%, followed by drinking in pubs and bars; up nine percentage points compared to the last quarter.

Simon Oaten, partner for hospitality and leisure at Deloitte, said: “Consumers embraced a brief cold snap this quarter, by heading to parks for picnics and takeaway coffees, for a chance to socialise with other households. With more restrictions lifting, albeit still limited to outdoor settings, warmer weather and pent-up demand could bode well for the leisure sector as it opens up further.”

Consumers are also looking to get away, with spend on holidays up seven percentage points this quarter, to -31%.

Oaten continued: “Whilst international travel for leisure remains restricted for now, consumers are still keen for some time off. Many will have accumulated vouchers from cancelled trips in 2020 and will be looking to rebook whilst they remain valid. For others, ‘staycationing’ offers another chance this summer to explore new areas around the United Kingdom.”

Whilst consumers seek to socialise again, they remain more hesitant, at least in the short term, on attending large events and festivals. Just 7% said they’d go to a live event within a month of being permitted to, with 25% preferring to wait six months or more.

Oaten concluded: “Leisure consumers remain cautious on large events, and the reopening of these might not immediately see pre-pandemic crowd sizes. The continued vaccination programme could be key to boosting consumer confidence to return to large events.

“Likewise, just 15% of consumers said they’d return to gyms within a month of reopening.

“The prospect of sharing gym equipment or working out in an indoor setting may be behind the caution consumers are displaying with regard to returning to gyms. Equally, after a year of exploring at-home fitness options, it could be we’re also seeing the start of more permanent shifts in consumer behaviours.”

Deloitte to launch northern hub for creative agency 368 in Leeds

Deloitte is today announcing the launch of a northern hub for its creative agency 368 in Leeds.

First launched in London in 2018, 368 is Deloitte’s in-house creative agency made up of strategists, creatives, filmmakers, developers and event specialists.

The agency was created to rival traditional agencies in its blend of creativity and infallible knowledge of Deloitte’s brand, clients and business. It plays a central role in supporting Deloitte’s position as the world’s strongest and most valuable commercial services brand, devising a range of diverse campaigns for instance addressing the climate crisis and the need for digital inclusion and re-skilling.

Applications are now open for more than 20 newly created roles in 368’s Leeds hub including in planning, copywriting, design, social media and project management teams. 368 will launch in Leeds in June, looking to scale to c. 50 people by the end of 2021.

Annabel Rake, partner and chief marketing officer at Deloitte, said: “I’m based in Leeds, and know first-hand that it’s a dynamic and influential destination for creativity. Offering a community of diverse, creative talent, Leeds is now the workshop chosen by many to create distinct and unique marketing campaigns. 368’s new northern base in Leeds will provide a vibrant backdrop to support our ambition to launch award-winning campaigns, created by some of the brightest and most ambitious creative talent in the industry.”

Stuart Cottee, Deloitte’s Yorkshire and North East practice senior partner, added: “A number of leading businesses, and now Government with the United Kingdom’s first infrastructure bank, have chosen to open their doors in Leeds in recent years, attracting a range of experienced and new creative talent to lay-down roots in the region. Having 368’s creative and digital prowess on our doorstep is yet another string to the bow of the burgeoning creative community that we have here in Yorkshire. Seeing businesses and sectors like this grow and flourish in the North is a key facet of levelling-up, and we are pleased to be part of the growing momentum for greater investment across the nations and regions.”

Agency director Nick Burbidge and 368 creative director David Harris will continue to lead the 368 team across London and Leeds. The agency’s film studio and experiential teams will continue to work from Deloitte’s London base, collaborating closely with the Leeds-based 368 team.

David Harris, creative director of 368, concludes: “Recent months have taught us how to work collaboratively and creatively with our teams, wherever we are based – however the connections we have with our communities continues to influence the work that we deliver. Leeds for many generations has been the home of inspirational innovators and creators who continue to drive the city’s evolution. Creating more of our work in this region will allow 368 to continue shaping compelling campaigns that capture the attention of our clients and communities across the United Kingdom.”

Deloitte chief economist comments on inflation figures from the ONS

Commenting on the latest inflation figures, published by the ONS today, Ian Stewart, chief economist at Deloitte, said:

“Inflation hit a low last year and, while still less than half its target rate, is likely to rise gradually over the next year as activity snaps back. Rising unemployment and slack in the economy will limit inflationary pressures and keep the Bank of England’s focus on activity.”

Ian Stewart is a Partner and Chief Economist at Deloitte where he advises Boards and companies on macroeconomics. Ian devised the Deloitte Survey of Chief Financial Officers and writes a popular weekly economics blog, the Monday Briefing. His previous roles include Chief Economist for Europe at Merrill Lynch, Head of Economics in the Conservative Research Department and Special Adviser to the Secretary of State for Work and Pensions. Ian was educated at the London School of Economics.

About Deloitte

In this press release references to “Deloitte” are references to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”) a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see deloitte.com/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte LLP is a subsidiary of Deloitte NSE LLP, which is a member firm of DTTL, and is among the UK’s leading professional services firms.

The information contained in this press release is correct at the time of going to press.

Regional city development remains broadly resilient

Belfast, Birmingham, Leeds and Manchester have defied market challenges after delivering nearly 2.5 million sq ft of office space in 2020, a rise of over 547,000 sq ft more than 2019, according to Deloitte’s Regional Crane Survey.

The Crane Survey, which monitors construction activity across a range of sectors including offices, residential, hotels, retail, education and student housing, shows that a further 3.61 million sq ft of office space is currently under construction across the quartet of cities. Residential delivery increased nearly 67%, rising by 3,290 to 8,197 new homes completed in 2020. A further 18,912 residential properties are currently under development in the four cities.

The cities have delivered 5,405 student bed spaces in city centres, with a further 3,485 in development as universities and private student accommodation providers continue to invest in both teaching accommodation and student housing.

Simon Bedford, partner and regional head at Deloitte Real Estate, commented: “Regional office construction was strong in 2020, despite some delays in construction caused by lockdowns. The office pipeline has softened somewhat, as developers take a ‘wait and see’ approach to future demand.”

Deloitte’s research indicates the shift to home-working could change how businesses use office space in the future, which, in turn, could influence how local residential areas are used. This could potentially shape the role of neighbourhood set-ups to create more diversity within local centres.

Bedford said: “Our latest CFO survey showed that home-working is predicted to increase five-fold by 2025. The role of the office could flex to meet shifting demands for collaborative and creative space, as organisations revaluate their needs.

“Looking at residential, there’s a major focus for new developments to provide outdoor space and community facilities. This reflects a growing trend towards small-scale retail and leisure offerings as part of wider mixed-use developments, helping to create neighbourhoods and foster a sense of community. In turn, this could have a positive knock-on effect for the high street. For example, our future of the high street research suggests an increased focus on localism and a greater level of commitment to small independent businesses that can easily identify the origin of their goods. Therefore, all things considered, 2020 will be one of the stronger years in overall terms and points towards the ongoing renaissance of our major UK cities.”

Daniel Barlow, managing partner for regional markets at Deloitte, added: “There are real signs of recovery and resilience across the UK, and it’s incumbent on us all to maintain momentum to ensure that all cities, towns and villages level up.”