The Burrill Report


R&D productivity at the 12 top global pharmaceutical companies is declining as development costs rise, revenue forecasts stagnate, and late-stage terminations continue to dog the industry, a new report finds.

The assessment comes from Deloitte’s 2011 annual review of the industry’s return from its investment in R&D, which was prepared in collaboration with Thomson Reuters. The report found that the internal rate of return from R&D dropped to 8.4 percent in 2011 from 11.8 percent the previous year.

“While this picture reflects a snapshot of the very real productivity challenges the industry is facing, it belies some underlying successes,” said Julian Remnant, head of Deloitte’s European R&D advisory practice. He noted that nearly two-thirds of these companies realized more value from product commercialization than they lost from late stage product failures. The number of late-stage compounds that failed for the group in 2011 fell to 18 from 23.

These companies, he also noted, benefitted from a decline in non-R&D cost, which resulted in higher operating margins, which helps free up cash flow that could be reinvested in R&D, he said.

Remnant said the industry’s efforts to increase collaborations have already proved successful. Through joint ventures and alliances, companies are pooling their knowledge in particular disease areas. Companies are also trying to work more closely with payers at an earlier stage
in development ensure that investments are directed towards therapies that are attractive to payers.

But Remnant think the industry could do more along these lines, such as sharing knowledge on the science behind failed molecules and studies. That, he says, will help improve success rates, and ultimately bring down the cost to develop new medicines.

In fact, he expects that pharmaceutical R&D organizations in the future will share capabilities in non-competitive areas of operation to reduce costs. “Shared drug development models will remove duplication, maximize capacity utilization, and drive scale economies within service providers,” he says. “We see R&D leaders beginning to raise their level of ambition and take the lead in this type of cross-company collaboration.”


November 22, 2011
http://www.burrillreport.com/article-pharma%e2%80%99s_rd_costs_soar_as_returns_fall.html