By Dr Maria João Cruz, PhD, Assistant Manager, UK Centre for Health Solutions, and Sonal Shah, Senior Manager, US Center for Health Solutions

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This week we launched Seeds of change: Measuring the return from pharmaceutical innovation 2020, the 11th report in our series on biopharmaceutical (biopharma) R&D. Since 2010, we have provided insights into the state of biopharma R&D by tracking the returns that leading global biopharma companies might expect to achieve from their late-stage pipelines. While the past few years has seen an increase in breakthrough advances in science and technology, the growing complexity of development and longer cycle times have reduced the average internal rate of return (IRR) for the cohort of companies covered by our research and placed mounting pressures on the industry. In addition, over the past 16 months, the search for treatments and vaccines against the COVID-19 virus have galvanised innovation at an unprecedented pace and scale. At the same time, many non-COVID-19 clinical trials have been delayed or even halted. This week’s blog explores our 2020 report findings and how companies can realise a productive future for drug development.

A year of transition

Since 2010 our analysis has examined the state of biopharma R&D by projecting the IRR  on investment of a cohort of 12 large-cap biopharma companies, based on R&D spend, and in 2015, we introduced an extension cohort of four more specialised companies (backtracking our analysis to 2013). Over time, our analysis has shown a convergence in the performance of both cohorts with large declines in expected returns and in the size and scale of the company and their R&D spending. In addition, in the past year, one of the companies in our original cohort acquired one of the extension cohort companies. Therefore, for 2020 and future years we decided to do things differently and analyse the performance of the two cohorts as a combined one.

To what extent are we beginning to see a reversal following a decade of decline?

In 2020, the projected IRR for the combined cohort was 2.5 per cent, 0.9 percentage points higher than in 2019 (Figure 1). For the first time since 2014, the average IRR has had an uptick from the previous year, showing signs of a potential reversal in the declining trend. However, the projected returns achieved in 2020 are still 4.7 percentage points lower than the peak in 2014. In addition, while ten of the 15 biopharma companies in the combined cohort improved their average IRR from 2019, all but one are below the industry cost of capital.

Figure 1. Return on late-stage pipeline, 2013-20 – combined cohort
Figure 1

Note: 2019 numbers have been restated.
Source: Deloitte LLP, 2021.

In measuring IRR as a proxy of R&D productivity we factor in the average cost to develop the assets in each company’s pipeline and the expected sales from these assets once launched.

  • For the seventh year since 2013, the average cost to develop an asset, including the cost of failure, increased for the combined cohort. In 2020, the average cost to develop an asset was $2,442 million, a small increase of $51 million compared to 2019, but a near doubling from $1,327 in 2013 (Figure 2).
  • In 2020, our combined cohort has seen a modest increase in average forecast peak sales per pipeline asset for the combined cohort to $421 million from $357 million in 2019, but this is still much less than the $520 million peak sales per asset in 2013 or the $551 peak sales per asset in 2014 (Figure 3).
Figure 2. Average R&D cost to develop a compound from discovery to launch, 2013-20 – combined cohort
Figure 2

Note: 2019 numbers have been restated.
Source: Deloitte LLP, 2021.

Figure 3. Average forecast peak sales per pipeline asset, 2013-20 – combined cohort
Figure 3

Note: 2019 numbers have been restated.
Source: Deloitte LLP, 2021.

Sources of innovation for biopharma are increasingly external

We have also seen a shift towards more external innovation across the original and extension cohorts. Until recent years, over half of the late-stage pipelines of both cohorts were sourced through internal innovation. However, in the past three years the original cohort companies have relied on external sources for more than 50 per cent of their late-stage pipeline, through acquisitions, co-development and in-licensing deals. Over the past two years, we have also seen the same trend in reliance on external innovation in the extension cohort. Interestingly, this further supports our observation that the extension cohort companies have become more like the ones in the original cohort over time and are now more likely to partner to access capability and innovation.

Cycle times continue to have a negative impact on R&D productivity

This year’s analysis shows that clinical trial cycle times have continued to lengthen. The average clinical cycle time (from the start of Phase I to completion of Phase III) for the combined cohort reached a seven-year high of 7.14 years in 2020, despite an increase in the proportion of assets receiving special designations,  which regulators see as a way of expediting the development and approval of new drugs (Figure 4).

Figure 4. Clinical cycle time versus number of pipeline assets with special designations, 2014-20 – combined cohort.
Figure 4

Note: Special designations include assets with breakthrough, fast track, accelerated approval, priority review and orphan drug status.
Source: Deloitte LLP, 2021.

This continuing trend towards longer cycle times has been driven by the growing complexity of drug development; increasing competition in enrolling participants for clinical trials and difficulties in retaining them; as well as complex data capture, collection, and management to satisfy regulatory requirements. In addition, the pipeline of most companies has a strong focus on oncology, whose cycle times are twice as long as those for other therapy areas, mainly because oncology trials involve complex protocols with stringent selection criteria, making it difficult to identify and recruit eligible patients.

COVID-19 has helped accelerate and scale the use of digital technologies to improve R&D productivity

The overall decline in IRR and rising cycle times come at a time when emerging technologies and transformative approaches to drug development are showing signs of success. Over the past few years, biopharma companies have begun tapping the potential of digital transformation through the application of artificial intelligence (AI) and other digital technologies in clinical development. Indeed, our reports, Intelligent drug discovery: Powered by AI and Intelligent clinical trials: Transforming through AI-enabled engagement, found that most biopharma companies are attempting to integrate AI into drug discovery and development processes to transform many of the key steps in clinical trials, from protocol design to study execution. Upscaling their use will be essential to reduce cycle times and improve productivity altogether.

In 2020, the COVID-19 pandemic disrupted clinical trials across the globe and galvanised the industry into adopting innovative approaches to R&D, including accelerating the rate of adoption of digital technologies in conducting trials. The pandemic also led to the development of novel COVID-19 vaccines and therapies in record time through extraordinary collaboration and partnerships. Thus, despite the disruptions, there were ‘silver linings’ from the COVID-19 experience that have sown the seeds of change for a more productive future for biopharma R&D. Moreover, we expect the investment in the accelerated development of COVID-19 therapies and vaccines could potentially uplift the industry IRR over the coming years, while leading to a greater focus on preventative therapies in the future.

What’s next for biopharma R&D and how should companies prepare?

We predict that post-pandemic the seeds of change will continue to accelerate the transformation of the industry towards a new future for R&D, in which wider use of technologies and innovative development approaches could reverse the decline in IRR. However, these seeds of change sown during the pandemic must be nurtured. This will require companies to take steps to:

  • continue collaborating
  • invest in technology infrastructure (such as real-world evidence platforms and AI) to increase data utility
  • expand the use of digital technologies to run decentralised and virtual clinical trials
  • adopt transformative approaches to expedite drug development at scale.

Biopharma companies will also have to attract and retain people with new and relevant skills and talent, including data scientists and bioinformaticians, as well as skilled interdisciplinary leaders who are AI-friendly and tech-savvy. By being willing to embrace new business and operating channels, the industry is well-positioned to look optimistically for a future with higher returns on pharmaceutical innovation.

If you want to listened to our subject matter experts Kevin Dondarski and Naveed Panjwani discuss their views on the factors driving the slight uptick in pharma R&D performance that we have seen in the 2020 analysis, and the extent to which the pandemic's impact on clinical trials might influence the future of R&D click here: https://deloi.tt/2RESEag

 

MJCphoto-deloitte

Maria João Cruz - Assistant Research Manager, Centre for Health Solutions

Maria João is an assistant research manager for the Centre for Health Solutions, the independent research hub of the Health Care and Life Sciences team. At the Centre, she conducts rigorous analysis and research to generate insights around trends, challenges and opportunities to support the life sciences practice. Maria João has a PhD in bioengineering and more than ten years of experience in scientific research. Her postgraduate research work was developed in collaboration between Imperial College London and Instituto Superior Técnico (IST), University of Lisbon. She holds a both Bachelor of Science and Master of Science degrees in biological engineering from IST, Lisbon.

Email | LinkedIn

Us-dup-sonal-shah

Sonal Shah - senior manager, Deloitte Center for Health Solutions - Deloitte Services LP

Sonal is a senior manager with the Deloitte Center for Health Solutions within Deloitte Services LP and leads the center’s life sciences research. Through her research, she helps inform Deloitte’s health care, life sciences, and government clients about emerging trends, challenges, and opportunities. Her research focuses on R&D and innovation, the impact of the ongoing health care transformation to life sciences companies, and value-based care. Prior to Deloitte, Sonal worked in the biopharma industry. Sonal has a Master of Business Administration in health care management from the Wharton School, and a Doctor of Pharmacy from the Rutgers University Ernest Mario School of Pharmacy.

Email | LinkedIn

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