While the world's biopharma players are still working to solve the problem of R&D productivity, they're hardly being stingy in the process. R&D spending across the industry leapt 14% last year, according to EY, a sharp rebound reflecting renewed optimism among drug developers and their investors.
That increase, which made for $29.1 billion in 2013 R&D spending, outpaced the industry's 10% revenue growth in the same period, a first since the financial crisis, according to EY's latest annual look at the life sciences industry. The expansion was particularly brisk in the U.S., where the research budgets of publicly traded biotechs jumped 20% in the year.
And where they got the money is no mystery to anyone paying attention to biotech over the last year. Thanks to a frothy market for IPOs and a reinvigorated venture space, biotechs in North America and Europe raised a combined $31.6 billion in 2013, a 10% jump over the previous year and the highest total since 2003, according to EY.
But despite the liberal spending and a few major commercial successes, drug developers are still yet to crack the return on investment problems. The failure rate for drugs in Phase III still hovers around 40%, EY says. Because the cost of R&D spikes at each progressive stage of development, late failures are particularly costly and remain the central point of value leakage for drugmakers, according to the firm. Aside from high-flying outliers like Gilead Sciences' ($GILD) Sovaldi, and Biogen Idec's ($BIIB) Tecfidera, bearing down on R&D very rarely results in drug launches that meet or exceed analyst expectations, per EY.
"Product successes have boosted revenues, drawn investors and motivated large companies to invest strongly in R&D, but the vast majority of firms continue to face a resource-constrained environment and heightened product scrutiny from payers and investors," EY's Glen Giovannetti wrote in the report. "More than ever, biotech companies of all sizes need to adopt strategies to capture more value from the discovery and development process."
Biotech R&D will always be an inherently risky proposition, but EY believes drugmakers can bend the curves toward predictability by embracing new science, new technology and, essentially, one another.
The firm's tips for boosting research productivity include a wider use of adaptive clinical trials, which allow investigators to make mid-study decisions based on risk; a deeper dive into precision medicine, using well-defined biomarkers to target the ideal patients for a treatment and reduce the odds of failure; and more precompetitive competition, pointing to Big Pharma conglomerates like TransCelerate BioPharma as a model for developing shared solutions to common problems in R&D.
- check out the report