Member Article

Pharmaceutical companies lower ‘walls of secrecy’

The pharmaceutical industry is facing a challenging period in which the rising cost of bringing a product to market, and poor revenue forecasts are impacting R&D returns.

According to Deloitte’s 2011 annual review, ‘Measuring the Return from Innovation’, conducted in collaboraiton with Thomson Reuters, the R&D Internal Rate of Return drops year-on-year from 11.8% to 8.4%.

Julian Remnant, head of Deloitte’s European R&D advisory practice, comments: “While this picture reflects a snapshot of the very real productivity challenges the industry is facing, it belies some underlying successes.

“Of the 12 companies we analyse each year, the top 12 research-based pharmaceutical companies globally, nearly two-thirds succeeded in realising more value from product commercialisation than has been lost from late stage product failures.

“Also, across the 12 companies, non-R&D costs have declined, resulting in a higher operating margin, which helps to free up cash flow that could be reinvested in R&D.”

Julian went on to explain the changing landscape within the pharmaceutical industry.

He said: “Taking a more innovative approach through greater collaboration has already proved successful. The walls of secrecy are coming down in some cases and there are increasing numbers of players within the industry forming alliances and joint ventures to pool research knowledge in a particular disease area or indication.

“Similarly, companies are striving to work more closely with payers at an earlier stage in development, to ensure that their innovation investments are directed towards therapies and propositions that are attractive to payers.”

He went on to add that the pharmaceutical R&D sector could do more to work together, for example sharing knowledge on the science behind failed molecules and studies.

This would improve success rates, and ultimately bring down the cost of developing new medicines.

Sharing capabilities in non-competitive areas of the R&D operation was also highlighted, as shared drug development would remove duplication, maximise capacity utilisation, and drive scale economies within service providers.

Julian concluded: “We’re likely to see companies establishing centres of excellence which bring together value analytics, simulation and modeling expertise, and finance and portfolio management capabilities to inform capital allocation decision during drug development.”

Deloitte indicate the successful implementation of such capabilities will better position R&D leaders to gain investment in R&D, and continue to develop medicines to benefit patients and society.

This was posted in Bdaily's Members' News section by Tom Keighley .