A longtime tracker on pharma R&D productivity takes a post-pandemic plunge back to a bleak reality

So much for the “turnaround.”

Bioregnum Opinion Column by John Carroll

The biopharma industry tossed the old playbook on R&D, broke every rule and bent every trend during the pandemic. Some of the players were rewarded with massive windfalls. And now that Covid-19 isn’t forcing radical change, some of the old trends are back.

With a vengeance.

Even the relentless drop in the internal rate of return (IRR) analysts at Deloitte had tracked at major pharma companies’ R&D groups for years before the pandemic sparked a remarkable rally has reared back up again.

For five straight years, IRR on drug R&D — a combination of the cost of getting a drug to market combined with forecasted sales — slid from 2014 to 2019, then ticked up slightly during 2020 and soared back close to 2014-levels during a booming 2021. Nine years ago, the IRR was 7.2%. Now it’s down to a record low — 1.2% — for 2022.

Covid-19 vaccines rolled out in record time and at low costs, along with the gilt-edged projections for a now-discredited Alzheimer’s drug, drove much of the sudden changeup. But looking at the top pharmas — a cohort that has grown over the years at Deloitte — average R&D costs are back up, Covid has been commercialized and the once-alluring Aduhelm is virtually dead.

It wasn’t supposed to be like this. Deloitte’s Sonal Shah, then-senior manager for the Deloitte Center for Health Solutions, told Endpoints News last year that it saw seeds of real change in what was happening. And it wasn’t just a Covid phenomenon. Deloitte spied some underlying changes that promised higher rates of return.

“This is a big reversal, after almost a decade-long decline in returns on innovation. So the fact that that turnaround is happening in spite of Covid is really exciting,” Shah said. (Shah has moved on to a new post elsewhere, according to LinkedIn.)

Lessons would be learned. R&D would adapt. It didn’t happen.

What did happen? This is a bit simplistic, but in part the R&D news got bad again after the mRNA revolution. In some cases, Deloitte notes, big blockbusters it was tracking were either seriously delayed or delivered bad data. Imagine that. The Inflation Reduction Act didn’t help, with new legislation that has already pushed companies to start tailoring their pipelines. And then there’s a European land war and inflation.

Not helpful.

That doesn’t mean that pharma companies are making less. In 2021, absolute pharma sales were up 80% over 2010, from $365 billion to $656 billion, with an 11% spike from 2020 to 2021. And the cost of R&D has gone up right alongside those figures, from an average of $85 billion in 2010 to $139 billion last year among the companies on the watch list.

Last year, says Deloitte, the Covid-inspired improvement in development cycles failed to materialize; the average cost of developing a drug jumped $300 million — to $2.3 billion.

Once again, 2021 proved to be a year of magical thinking for biopharma. And once again the big companies need to return to the drawing board to fix what ails them.

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