Biopharma's return on R&D spend is half what it was in 2010, report says

The world's largest drug developers are getting less and less from their R&D spends, according to a report, and they're struggling to deal with ever-escalating development costs as returns diminish.

Despite a recent spike in drug approvals, the average internal rate of return for the 12 biggest R&D spenders was just 4.8%, according to a study by Deloitte and Thomson Reuters, down from 7.2% last year and 10.5% in 2010. Meanwhile, the cost of getting a drug to market has soared 18% over the same period, reaching $1.3 billion this year, according to the study.

And things don't look like they're getting much better. In 2010, the average peak-sales forecast for an in-development asset was $816 million, the study notes. In 2013, that figure is a more pedestrian $466 million, a 43% drop. And while the largest players in biopharma are getting drugs approved at an impressive clip, they'll need to boost the value of their late-stage pipelines if they expect to have much to show for it, Deloitte's Julian Remnant said.

"Overall, R&D organizations are commercializing effectively; this has been particularly apparent over the last year," Remnant said in a statement. "But they are failing to match this level of performance in other drivers of R&D economics, for example reducing the cost of success and boosting the rate of innovation."

Remnant recommends drug developers maximize the value of their science by seeking out true unmet needs, better preserving their R&D talent and taking advantage of the growing power of data analytics in their decisionmaking processes.

All that said, the 4.8% average rate of return covers up some wide variation among the industry's 12 biggest spenders. Five of the companies studied are poised to post R&D returns above 7% this year, according to the study, a rate dragged down by the least-efficient drug developers.

- read the statement

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