Despite Challenges, Biopharmaceutical R&D Has a Positive Outlook

The biopharmaceutical industry continues to face a very challenging research and development (R&D) environment and has yet to turn a corner in terms of its value proposition and returns, according to a new report by the Deloitte Centre for Health Solutions on the return of investment for pharmaceutical innovation globally in 2017. However, the report sees room for optimism because of improvements in the efficiency of certain R&D processes and the wider adoption of new technologies.

The key findings include:

• R&D returns have declined to 3.2%, down from 10.1% in 2010.
• It now costs these companies almost $2 billion to bring a drug to market.
• Projected peak sales per asset were more than halved between 2010 and 2016 but have increased by 18% in 2017.
• This year’s uptick in costs and sales per asset is due to the drop in the number of assets in late-stage pipelines, from 189 in 2017 to 159 in 2017. The primary drivers of the decline in existing pipeline value in 2017 were the emergence of new competitors and positive competitor data. An increase in generic and biosimilar erosion of innovator sales also played a role.

Pricing remains perhaps the most publicized challenge, especially in the context of escalating overall healthcare costs, and payers are increasingly demanding that biopharma demonstrate the value of its products. “It is no longer enough to show only product efficacy and safety at the point of registration; payers want to see improved outcomes, based on real-world evidence, as the foundation for a value-based pricing model,” the report states.

Other key findings include the following:

• Smaller firms outperform their larger peers. Four mid-tier biopharma companies have been added to the study of 12 original companies studied in past reports, and these continue to outperform the original biopharma cohort, with projected returns of 11.9% in 2017 (up from 9.9% in 2016), but are still below the record high of 17.7% in 2014.
• The rise of cancer therapies. From 2010 through 2017, the percentage of forecast late-stage pipeline revenue from oncology for the top 12 companies increased significantly, from 18% in 2010 to 37% in 2017. Immunotherapy has emerged as a transformational breakthrough for cancer, but is still in its infancy; while many immunotherapies have been effective in treating rare cancers and cancers that are resistant to chemotherapy and radiation, the optimism about immunotherapy has been met with new challenges in the difficulties companies have in finding enough eligible, accessible patients to complete clinical trials in the required timelines. In addition, many immunotherapy treatments are only effective for a select group of patients, and it has been difficult to produce predictive models of treatment efficacy and patient response.
• Emerging technology and new drug development paradigms offer promise. Emerging technologies, such as artificial intelligence, real-world evidence, and new clinical trial models have the potential to transform drug discovery and development.

The focus of the report is on projected financial returns and the outlook for the future of biopharma R&D, Deloitte notes, but it would be a mistake to use these projected financial returns as the only measure of the industry’s ability to innovate. Despite the decrease in returns for the original cohort, Deloitte sees positives in the increase in forecast peak sales per asset, as companies target areas of unmet medical need and/or rare disorders. There has been an increase in the number of approvals of new molecular entities, orphan, breakthrough, or fast-track designations, and the approval of the first-ever CAR-T therapies in 2017 shows that innovation is contributing to an optimistic outlook for the future of the biopharma industry.

“This leads us to present an overall optimistic view of biopharma’s potential, although in our view, much improvement is still needed across R&D to balance revenues and costs,” the report concludes.

Drug development continues to be challenging, complex, costly, and time-consuming, which coincides with a growing tidal wave of confounding communicable and non-communicable diseases that threaten global public health. “Although there are promising platforms emerging to tackle these complex diseases, the challenge will be to develop these platforms in an accelerated, efficient way to create near-term value for all stakeholders,” the report concludes. “It will require a transformed model that involves new paradigms for drug development and emerging technologies.”