KPMG to Big Pharma: Show us your ROI on R&D

Over the past two years you've seen a lineup of the world's top pharma CEOs publicly confess their R&D sins. Spending billions a year delivered only a meager trickle of new drug approvals, leaving the chief executives to pledge bold new approaches that would both scale back the amount they were spending and boost their success rate. One, GlaxoSmithKline's Andrew Witty, even promised to spell out the company's rate of return on its R&D investment. And KPMG's Chris Stirling, who heads the firm's European chemicals and pharma division, is on the warpath to spur more of Witty's colleagues at rival companies to do the same.

"I think we're going to see more pressure from shareholders for greater transparency on research, which will lead to boards demanding more information from management on how they are going to ensure they get a decent return on their R&D investment in future," Stirling told Reuters' Ben Hirschler. And as Hirschler notes, while a company like Novartis ($NVS)--which has bucked the trend on productivity and vowed to keep up its investment in research--may not have a problem with it, many others are not likely to be too eager to follow suit.

KPMG's math illustrates the problem. Back in the halcyon days of 1990, the top 50 drugmakers could boast a 17% ROI on their research budgets. Last year that dropped to only 10%. And if some of the developers were forced to break out their ROI, they would be in the red. GSK ($GSK) reported an ROI of 11% with a goal of boosting that to 14%.

For now, KPMG expects most drug developers to stick with hype over hard numbers. Pipelines will continue to be described as "innovative" and stuffed with potential blockbusters. The exact figures won't follow until investors demand the data.

- here's the article from Reuters