Focused R&D is key to productivity according to Deloitte

By Melissa Fassbender contact

- Last updated on GMT

Image: iStock
Image: iStock
As annual projected pharmaceutical R&D returns continue to decline and companies are under increasing pressure, focus may be the defining factor.

According to an annual study by the Deloitte Centre for Health Solutions, the projected rate of return on pharmaceutical research and development (R&D) has more than halved since 2010, from 10.1 percent to 4.2 percent.

Companies are under pressure as many products are coming to market, and exclusivity is coming down​,” Colin Terry, Director, Life Sciences R&D for the UK told this publication.

"Getting through the barrier of development is difficult​.”

There are several reasons for this, including the continuing rise of asset development costs. Additionally, the market is constricting and generics are seeing increased exposure.

Payers and government are really keeping a close eye on what they will truly pay for​,” Neil Lesser, Principal and Life Sciences R&D Strategy lead at Deloitte said.

The innovation hurdle to show value is certainly ever increasing​.”

Capping out

To account for its increasing market presence, the researchers included, for the first time, four mid- to large-cap companies. These companies, which operate on a different model, consequently had different results. Most notably, the smaller companies’ costs were markedly better (over a three-year period, the projected internal rate of return was three times better).

Additionally, their costs to develop an asset are 25 percent lower and forecast peak sales per asset are 130 percent higher.

One of those reasons we believe that those companies are more successful is that they are more focused​,” explained Lesser.

According to Lesser, infrastructure is one of the main reasons for increased costs.

Big companies are weighed down by infrastructure capacity that is difficult to unwind​,” he added. “[It] places an additional tax on their ability to be efficient in their innovation​.”

Improving returns

In order to improve R&D returns, Lesser said the industry needs to examine the reasons for why costs have increased over time – and part of this is focus.

Having more constant ingrained capabilities from a technical and scientific area is the key to having better success and the ability to generate value​,” added Lesser.

For Terry, asking the right questions will take you to the answers.

Do you need to keep all the installed infrastructure you have? What are you going to do about the assets you have? How are you going to be externally driven?​”

Keep the size of engine aligned with size of portfolio​,” he added.

Promising signs

While the overall projected rate of return on R&D is at its lowest since the study began, there are still some promising signs across the industry, including a headline year for approvals, with 43 products approved in 2014.

True innovation is being generated by biopharma companies, and that innovation can still be paid for and successfully commercialized​,” added Lesser.

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