The Deloitte UK Centre for Health Services released a report measuring the returns on pharmaceutical innovation for the 12 leading R&D companies in the sector from 2010 to 2014. The report finds that from 2010, there has been an overall drop in returns from 10.1% to 5.5% in 2014. Among the dozen companies studied, the returns ranged from 11.7% to -0.7%. During the 5 year study, they put out a combined 143 products for a projected revenue of $955 billion.
The cost of bringing an asset to market, including accounting for failures, has increased in each year of the study to $1.4 billion in 2014, accounting in part of the decrease in returns over the course of the study. Late stage terminations also weigh heavily on the R&D companies; about 40% of all money launched is lost due to failure.
The overall return did see an increase from 5.1% in 2013 to 5.5% in 2014. The study by Deloitte identified three strategic factors impacting R&D returns.
- Company size – smaller companies proved to be more cost efficient in R&D
- Portfolio Focus – companies with fewer therapy areas showed better returns
- External Innovation – 58% of all forecast revenues came from externally sourced innovation in the latest stage of development.
According to Deloitte, “the majority of the industry’s value is now coming from external sources of innovation… Companies need to consider if they have invested in capabilities that make them “collaboration ready”, including the talent, processes, infrastructure, and data required to be able to collaborate effectively for the long term without eroding the value acquired.”