Determining the ROI of R&D

Since 2010, Deloitte has released an annual pharmaceutical R&D report, tracking the return on investment (ROI) of an original cohort of 12 biopharma firms. For the past eight years—including throughout the pandemic—the company has tracked the performance of a separate extension cohort of four more companies, which after a merger, was reduced to three in 2020. This year’s analysis, Nurturing growth: Measuring the return from pharmaceutical innovation, featuring findings for the combined cohort, presented intriguing results, such as the average IRR (internal rate of return) increasing slightly, and a “much larger improvement” and a productivity boost in 2021.

Pharmaceutical Commerce spoke with Sonal Shah, senior manager and Center for Health Solutions Life Sciences research leader, Deloitte Services LP, along with Neil Lesser, principal and US Life Sciences R&D leader with Deloitte Consulting LLP, to take a closer look into the study’s findings, and what they truly signify for the industry’s research and development sector.

*Note: responses may have been edited slightly for brevity.

Deloitte has been conducting this study since 2010. In simplest terms, can you describe the methodology used to measure the return from pharma innovation? Has the methodology changed over the years?

Sonal Shah: Deloitte’s annual report on measuring the return on pharmaceutical innovation provides estimates of the returns that the top biopharma companies (by R&D spend) might expect to achieve from their late-stage pipeline of assets (those in Phase III or Phase II with breakthrough designations). The report calculates the internal rate of return on these assets by looking at revenues forecasts, R&D spending, and aggregate cycle time data available from third parties and annual filings. The methodology has evolved over time to become more dynamic and to enhance the rigor of underlying assumptions and data quality. Fundamentally, the core methodology has not changed, which allows us to trend the data over time and look at how the industry is trending.

Sonal Shah

Being that until 2020, the report’s combined cohort had seen a decade-long decline in terms of R&D productivity, to what factors would you attribute the sudden uptick? How does this translate over to projected ROIs rising to 7%, up from 2.7% the previous year?

Shah: In 2021, we see the largest increase since we started this report—from 2.7% to 7%. This is largely attributed to a rapid increase in the number of COVID-19 vaccines and therapies that entered the pipeline. However, even when we exclude all of the vaccines and therapies that have received emergency use approval from our analysis, we still see an increase from 2.7% to 3.2%. In fact, 2020 represented the beginning of a reversal, when we saw returns from 1.5% to 2.7%. We believe that this upward trend reflects investments companies have been making to make clinical trials more efficient and effective, including the use of digital technology, data science and decentralized trials. Many of these investments were rapidly accelerated by the pandemic.

According to your report, the cost of bringing an asset to market over the past three years (2019-2021) has declined, while peak sales forecasts have increased to $521 million on average. What factors have driven this trend? Do you see it continuing over the next few years?

Neil Lesser: While absolute R&D spending across our cohort has increased, the cost of bringing an asset to market has declined, as companies have increased the number of assets in development. Essentially, companies are developing more assets with proportionally less money spent on each one. This is likely due to greater efficiencies in drug development, including better protocol design, more targeted clinical trials and use of digital technologies.

The combination of these factors—higher value programs, lower cost to develop and faster cycle times—all have contributed to this year’s increase in the returns on innovation. Time will tell if companies will be able to sustain this momentum.

The report also notes that sources of innovation are largely external, meaning that most recently, 46% of forecasted revenues come from co-developed assets. What factors do you see contributing to this shift? Would you say that capital investments are playing a major role?

Lesser: Co-development is certainly not a true trend, but the increase is likely driven by advancements in science being drive by academic institutions and smaller companies. We see companies increasingly partnering to access the latest advances in science (e.g., mRNA vaccine platforms). Large biopharma companies, like the ones in our cohort, are typically able to leverage their scale and existing infrastructure to bring these potential therapies through clinical development, regulatory approval, and through to commercialization much faster and more efficiently than smaller companies.

Neil Lesser

As previously alluded to, the average cost to develop a new drug has dipped in recent years. Looking ahead, what do you believe can be done to lower R&D costs? Will continued advances in science and technology theoretically make R&D investments more efficient?

Shah: Digital technologies, applications of data sciences and real-world data, collaboration, and novel trial designs all have the potential to make R&D more efficient. We saw the application of these during the Covid-19 pandemic, contributing to the speed at which therapies and vaccines were able to receive emergency approval. It will be interesting to see if companies can take these lessons and apply them more broadly across the portfolio to sustain the trend of increasing returns on R&D.

After climbing for four years, cycle times have now declined to 6.9 years, due in part to COVID-19-related vaccine and treatment assets. In relation, COVID-19 Phase III trials were 3.7 times faster than non-COVID infectious disease trials. How can we optimize processes across other infectious disease pipeline assets? What other lessons stemming from R&D approaches adopted for COVID-19 have you learned, and how can those be adopted into routine clinical development?

Shah: The report discusses some key lessons learned from the rapid development of COVID-19 vaccines and therapies. A few of these include better planning, design, and execution of clinical trials:

• Planning: Collaborative dialogue with regulators was a key factor to the success of COVID-19 vaccines and therapies, and is something that companies should continue to do in order to define novel study designs and endpoints of interest. Further, companies should find ways to accelerate internal decision-making and resourcing for high priority programs that can address significant unmet need like they did with urgent COVID-19 vaccines and therapies.
• Design: During COVID-19, trial protocols were streamlined to focus on a limited number of relevant endpoints to determine the safety and efficacy of repurposed drugs and new therapies that could work against the virus. One example is the UK RECOVERY trial, a master protocol that evaluated 13 potential COVID-19 treatments—from steroids to antibodies—across 40,000 patients within a year. The trial protocol involved capturing the most relevant patient outcomes (death, discharge and need for ventilation), inputting key patient data into a simple online form and mandating only one follow up assessment, reducing the load on already stressed clinical staff. This example of focusing a protocol on the most important and relevant scientific questions could accelerate trials and make them easier for investigators to execute. In addition to streamlining protocol design, companies should look to include transformative trial designs such as master protocols and adaptive trial designs—which were used widely for COVID-19 therapies and vaccines—in other therapy areas.
• Execute: The pandemic led the industry to adopt digital technologies to run hybrid studies to ensure continuity of routine development activity, to identify hot spots and move clinical trials, to optimize site selection for COVID-19 trials, and to enhance recruitment of diverse trial participants. We expect companies to continue to expand the use of digital technologies for these purposes across their portfolios. In fact, our biopharma digital innovation survey found 82 percent of respondents believe digitalization of biopharma operations are likely to continue post-pandemic.

Any other trends or takeaways from the report that you would like to note?

Lesser: The reversal of a decade-long decline in the returns on innovation is very encouraging news for the industry. This reflects the culmination of ingenuity at responding to the global pandemic, as well as the acceleration of pre-pandemic investments in digital technologies to make trials more efficient. Time will tell if the industry will be able to sustain this trend.