Report: Big Drugmakers Spend More on R&D, Get Less from It

Are pharma companies getting what they pay for in terms of R&D spending? According to a new report from the Deloitte Center for Health Solutions, the answer is no.

The 34-page report — which calculates expected R&D results of 12 major drugmakers and four mid-sized ones with new products in the pipeline — concludes that larger companies spent more on R&D this year than at any point since 2010 and projects that they will see the lowest return on their investments over that same time frame.

The consulting firm’s report — “Measuring the Return From Pharmaceutical Innovation 2015” — attributes these issues to a range of factors, including “macroeconomic pressure continuing to reduce returns in the life sciences sector,” “internal productivity challenges” and “specific questions being raised over the pricing of innovative medicines.”

According to the report, the projected return on investments for 2015 is 4.2 percent of R&D expenditures, versus 10.1 percent projected in 2010. The report notes that development costs for new products rose 33 percent, from about $1.2 billion in 2010 to almost $1.6 billion this year. That compares poorly with average sales for new products among the 12 companies studied, which yielded $8.16 billion in 2010 but only $4.16 billion this year.

The report states that major pharmaceutical companies can stem those losses somewhat by sticking to their core development strategies, instead of pursuing the latest therapeutic fads.

“Companies [that] maintain a consistent therapy area footprint are projected to deliver higher R&D returns,” the report says. “We believe this is due to the deep knowledge and expertise that company accumulates when it focuses on specific diseases or mechanisms of action over a period of time. Companies that constantly change therapy area strategies and see large year-on-year shifts in the profile of their pipeline may require higher investments to achieve similar returns.”

The findings were decidedly more upbeat for mid-sized companies, which Deloitte recently added to the report. Smaller companies delivered a significantly higher rate of return on R& D investments — 17 percent — with sales 130 percent higher than the major drugmakers in the study and 25 percent lower development costs.

The report contends that this improved performance demonstrates “the economic viability of a different R&D business model which [major drugmakers] could learn from.”

Read the report here: — Cameron Ayers

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