R&D Returns for Pharma Reached Six-Year Low in 2016

An analysis published by Deloitte’s Centre for Health Solutions indicated the pharmaceutical industry experienced a continued decline in R&D returns for 2016.

The annual report was published in December. It projected the return on investment for the top 12 drugmakers would be 3.7 percent after hitting a high of 10.1 percent in 2010 when the company started compiling these reports.

Furthermore, midtier biotech companies saw their returns on investment go from 17.4 percent in 2013 to 9.9 percent in 2016, according to FierceBiotech.

Deloitte’s report suggests some factors for these declines include a rise in development costs and increasing political pressure over drug pricing for important medicine.

“The majority of companies are struggling to achieve historical peak sales,” explained Colin Terry, a director in Deloitte’s life sciences practice an co-author of the report, to Reuters.

“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,” continued Terry.

The firm’s assessment has a few recommendations for pharma companies to consider as they prepare for new R&D initiatives.

Drug companies could adopt a “think small, win big” strategy when it comes to development options like having a narrow focus on specific disease areas that potentially could yield higher peak sales, simplify the use of data throughout the clinical trial process, and streamline decision-making throughout the organization in order to increase commercial success.

Also, one method for dealing with the drug-pricing dilemma could be self- regulation. Allergan and Novo Nordisk are two specific firms who pledged to limit price hikes to a specific percentage for certain drugs each year.

Ultimately, Deloitte predicts an uptick in mergers and acquisitions activity this year to compensate for these low returns.

“With late-stage pipelines of the largest companies at their lowest values since we began conducting the study, and peak sales/assets also at its lowest point, we expect to see an increase in the amount of external innovation and M&A activity in the coming year as Big Pharma looks to replenish pipelines,” explained Deloitte’s Neil Lesser, U.S. principal and life science R&D strategy lead, in an email to MedCity News.