Big pharma's return on investment for R&D expenditure fell to 3.7% in 2016, shows an annual report from Deloitte (Fig. 1). This marks a low point since the consultants started tracking these data in 2010.

Figure 1: R&D returns on investment.
figure 1

Source: Deloitte LLP.

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The analysis tracks the R&D returns of 12 large pharma companies: Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Novartis, Pfizer, Roche, Sanofi and Takeda. There was considerable variability within the returns of the cohort. Three companies achieved returns of more than 7%, and six companies fared better in 2016 than in 2015.

The report notes that revenue is increasingly coming from 'self-originated' assets that are developed in house: 58% of forecast revenue from the late-stage pipeline is from self-originated projects in 2016, up from 39% in 2013. This trend, combined with the falling returns, suggests that “companies are struggling to replace pipeline value through self-originated assets,” the authors write.

“We anticipate that the coming years will see increasing [merger and acquisition] activity in a quest for higher R&D returns through R&D cost synergies or the acquisition of valuable assets,” the authors write. This kind of remedy, however, can have a high financial, organizational and scientific price.

The report also notes that the average cost of moving an agent from discovery to launch stabilized for companies in this cohort, at just over US$1.5 billion. Last year, Joseph DiMasi, of Tufts University, Medford, Massachusetts, USA, and his colleagues used a different methodology from a different cohort of companies to calculate the cost of drug development at $1.4 billion. When they included the opportunity cost of drug development, the expense rose to $2.6 billion.