Pharma R&D productivity seen improving for the first time in years

While the return on R&D investment from biopharma companies has been a disappointment since 2010 — with a notable exception in 2020 and 2021 due to COVID-19 — productivity appears to have turned a corner in 2023.

A new report from Deloitte found that from 2000-2019, productivity from R&D spending had been in decline. While it got a brief spurt in 2020 and 2021 due to the fast development of COVID vaccines and therapies, return on investment declined again in 2022.

Deloitte said that the internal rate of return from pharma R&D rose to 4.1% in 2023 compared to just 1.2% in 2022 based on its evaluation.

The report, “Unleash AI’s potential: Measuring the return from pharmaceutical innovation,” evaluated R&D efficiency by looking at the top 20 biopharmas based on R&D spend.

Overall R&D spend from these 20 companies rose to $145.5B in 2023 from $139.2B in 2022. At the same time, the average R&D cost to move an asset from discovery to launch was an average $2.284B in 2023, the same amount as is 2022.

Meanwhile, the group’s average forecast peak sales per pipeline asset fell to $362M in 2023 from $389M in 2022. The average reached a peak of $500M in 2021 thanks to COVID assets.

However, because of the approval of therapies that bring in high revenue, the overall revenue for the cohort increased by 9.6% in fiscal year 2022 to $719.2B from $656.2B in fiscal 2021.

Despite the increase in revenue in 2023, “improving productivity in biopharma R&D will never be easy given the need to balance efficiency (cost) and value creation (sales), each of which depends on multiple factors that can influence the drivers of change,” Deloitte argues.

The firm adds that regulatory changes, the loss of exclusivity of many high value drugs, inflation, scientific and technological advances, and increasing protocol design complexity “are all placing significant pressures on the current R&D operating model.”

One of the key ways to address these issues, according to Deloitte, is to look at artificial intelligence more in the R&D process.

“The biopharma industry is on the brink of large-scale disruption driven by interoperable data, advances in AI and analytics, open and secure platforms and patient-centric care, which have the potential to deliver less costly and more productive drug development,” Deloitte says in its report. “When developing the business case for investment in digital and AI, the short-term costs need to be balanced against the long-term efficiency gains.”

Other ways Deloitte says R&D efficiency can be helped is through improvements in the clinical trial experience, better understanding of the strategic impacts of regulatory changes, engaging teams throughout the biopharma value chain from the beginning, and looking beyond therapy areas that are already heavily saturated with development.