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of these (66 per cent) had delayed starts or completions; and eight per cent were terminated (permanently stopped) or withdrawn (stopped before enrolling any patients).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.”