After pandemic breather, Big Pharma sees drug development costs rise and returns sink: report

While COVID-19 may have briefly held down the average cost of developing a drug while inflating the potential returns, the party is well and truly over. At least that's what a report from Deloitte indicates, with Big Pharma back on the pre-pandemic path of spending ever more to make a medicine with shrinking rewards to show for it.

Specifically, the cost to take a drug candidate from discovery stage all the way to market launch hit $2.3 billion—a $298 million rise from 2021, although still below 2019 and 2020 levels. The figures come from the latest annual report from Deloitte (PDF), which examines the current state of R&D returns by analyzing projected return on investment (ROI) from late-stage pipelines of the 20 biggest pharmas.

While costs began to creep up again, the amount of money an approved drug was expected to bring in dropped. In 2022, average peak sales per asset were projected to be $389 million per year, plunging from $500 million in 2021 and closer to 2020's return rate of $398 million.

If COVID-19 emergency use approval assets are excluded from the count, average peak sales forecasts still decreased, though not quite as drastically—from $340 million in 2021 to $284 million last year. The decline in anticipated peak sales is driven by a longer development cycle and several unnamed high-value forecasted assets that left the pipeline in 2022, Deloitte said in the report.

"The decline in this year's results is broadly driven by the successful approval and commercialization of multiple new drugs and products this year,” Kevin Dondarski, life sciences R&D strategy leader and partner for Deloitte Consulting, explained in a company release. “This is partly a reflection of the challenges R&D organizations face in cultivating a sustainable pipeline flow."

There was a minor bump in overall assets housed by the 20 pharmas, up from 273 assets in 2021 to 278 in 2022. However, that increase is the lowest year-on-year rise since 2018, though the average number of late-stage assets across the companies remained stable.

So, where do the assets measured in the revenue forecasts come from? In 2022, 51% were home-grown, a jump from just 29% in the previous year. Meanwhile, the proportion of expected revenue from co-developed assets nearly halved, stumbling from 46% in 2021 to 18% in 2022—numbers that reflect last year’s frosty M&A market.

Overall, ROI in pharma R&D fell to 1.2% in 2022, the lowest ROI reported in the 13 years that Deloitte has been publishing its report. The drop was especially noticeable coming after the historic, pandemic-fueled growth to 6.8% ROI in 2021. The steep drop-off last year was likely driven by approvals of high forecast value drugs and medicines—vaccines and treatments for COVID-19 in particular—and a gap in late-stage pipeline assets to replace them, according to Deloitte.

"After an unprecedented increase in ROI in 2021, we anticipated a decline in 2022 but this steep drop is greater than what many in the industry expected,” said Pete Lyons, U.S. life sciences sector leader and principal at Deloitte Consulting.