Projected returns on Big Pharma R&D decline to 3.7% in 2015 vs 10.1% in 2010, according to latest Deloitte report.
Once again the holiday season fails to bring much cheer for Big Pharma (a cohort of 12 companies) when it comes to R&D success. Deloitte’s latest analysis https://www2.deloitte.com/uk/en/pages/life-sciences-and-healthcare/articles/measuring-return-from-pharmaceutical-innovation.html concludes that the forecast return on the latest tranche of phase 3 and submitted drug assets has fallen to just 3.7%. Furthermore, average peak sales projections have fallen to $394m per asset, a year on year fall of 11% pa since 2010. While the average cost of bringing a drug to market has fallen slightly to $1539m the report does point out that in the light of future pricing constraints even this R&D cost is unsustainable.
While the report concludes, among other things, that a period of M&A is likely in order to recharge the pipeline with additional assets, what it doesn’t say is that a rigorous and systematic reappraisal of promotional spending is also feasible. The Deloitte methodology uses average cash flow margins over the previous three years as part of its cost assumption. In other words there is no suggestion that these costs could be re-evaluated. However, the application of leading edge statistical methodology could be applied to promotional spending and save perhaps 20% of such costs. Typically this could add 5% points to margins, thus more than doubling returns on R&D with no change in R&D methodology. While it cannot be advocated that the industry should neglect all reasonable ways to improve the R&D process nor should it ignore the low hanging fruit of a low cost application of statistical methods to quantify the impact of promotional activity on sales.
The author was a Pharmaceutical Analyst at Lehman Brothers for 23 years as well as being involved with the PharmaFutures projects www.pharmafutures.org but is now writing independently. Stewart Adkins also “carried the bag” for Dista Products (Lilly Industries )in the early 1980s. Currently, Stewart Adkins is a Director of Pharmaforensic Limited www.pharmaforensic.co.uk and runs his own consultancy Stewart Adkins Advisors Limited.
Stewart Adkins was a Pharmaceutical Analyst at Lehman Brothers for 23 years and was involved with the Pharmafutures projects.