Are Pharma R&D Returns Turning A Corner?

Author:Ms Karen Young

This week we launched our latest annual report on ' Measuring the return from pharmaceutical innovation' . Since 2010, we have been measuring the projected returns that the leading 12 life science companies are likely to deliver from the drugs they are developing in their late stage pipelines.

Despite an overall decline in R&D returns, from 10.1% in 2010 to 5.5% in 2014, our analysis shows that R&D returns may actually be turning a corner. This year, we estimate late stage pipelines returns for the cohort of companies to be 5.5%, representing an uplift from 5.1% in 2013. The most successful of the 12 companies in our analysis had an estimated R&D return of 11.7 per cent in 2014; the lowest R&D return for an individual company was estimated to be -0.7 per cent.

Over the last five years, the 12 companies have launched, in total, 143 products with projected, total lifetime revenues of $955 billion. Over the same period their R&D divisions have progressed 236 assets into their late stage pipelines, with projected, total lifetime revenues of $1,171 billion. This is no mean feat considering the continuing market hurdles they face including; ongoing austerity measures, increasing complexity of regulatory scrutiny and the scientific uncertainty in being able to address unmet need successfully.

Many of the companies in our cohort are negotiating these hurdles successfully and are continuing to populate their late stage pipelines with promising new compounds and bring new medical innovation to patients. However, our analysis reveals that challenges remain;

the cost of bringing an asset to market, including accounting for failures, has risen for the fifth consecutive year to $1,401 million late stage terminations continue to cost the industry dear - across our cohort, for every $5 that has been launched, $2 has been lost to failure. This year's findings indicate that the quality of assets in late stage development is improving. For the first time since 2010 the average forecast revenues of an individual asset have increased, regaining most of the ground lost since 2012, and the average forecast peak sales per asset have also recovered slightly, by $5 million since 2013.

The dynamics behind the uplift in R&D returns are complex with wide variations at the individual company level. This year, our analysis focussed on identifying characteristics of outperformance; what is it that sets apart those companies that are delivering higher than average...

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