Big Pharma's ROI for drug R&D saw 'welcome' rebound in 2023: report

Eagle-eyed watchers of Deloitte’s annual reports on Big Pharma will have noticed a depressing trend—ever-increasing costs for developing drugs over the past decade as the return on investment sinks.

A brief uptick in the internal rate of return (IRR) during the COVID-19 pandemic appeared to be an anomaly, with the long-term trend reasserting itself in 2022 to produce a IRR of just 1.2%, the lowest in the 14 years Deloitte has been monitoring the scene.

But the 2023 figures are now in, and they suggest the picture isn’t as bleak as feared. In fact, the IRR jumped up to a healthy 4.1% last year, according to the April 25 report. The authors branded this a “welcome sign of improvement.”

Interestingly, the companies analyzed seem to be on an increasingly similar path, with the lowest—unnamed —outlier “sitting well above the large negative IRRs we witnessed for some companies across 2019-2022.”

Deloitte’s report assesses the top 20 pharmas according to 2020 R&D spend. They noted that total R&D spend across these major players combined rose 4.5% from $139.2 billion in 2022 to $145.5 billion in 2023.

However, the average cost to take a drug from the discovery stage to commercial launch remained flat, sitting at $2.28 billion for the second year in a row. This reflected “an expanded range of assets and line extensions,” the report’s authors explained.

Peak sales per pipeline asset also appear to have, well, peaked. Sale forecasts per drug fell from $389 million in 2022 to $363 million in 2023, continuing a decline from the COVID-driven high point of $500 million in 2021.

On the upside, total revenue for these companies “continues to trend upwards without interruption,” the authors said, pointing to R&D sales for these 20 Big Pharmas jumping 9.6%. This “reflects the successful approval of high value assets which we have observed year-on-year,” they said.

Biopharma companies are also now “increasingly using technology-enabled approaches that use R&D data to inform their decision making,” the authors observed, which means the amount of data they’re producing from trials is “growing exponentially.”

To take advantage of this, the authors’ solution is the oft-cited key for solving the Big Pharma productivity puzzle: artificial intelligence.

“Advances in AI, including generative AI, can enable companies to demystify complex disease biology, expedite drug discovery, cut study timelines, revitalise the clinical trial experience and improve regulatory success,” they wrote in a foreword to the report. “Ultimately, unleashing AI’s potential could be the key to improving longstanding internal and external productivity challenges across the biopharma R&D industry but these activities need focus to ensure value is created.”