Those Returns On R&D Are Falling Fast
33 CommentsBy Ed Silverman // November 21st, 2011 // 8:58 am
It is no secret that every big drugmaker is struggling to transform research and development in the wake of the infamous patent cliff and accompany pipeline problems. But how have they been faring? A new report suggests what investors have largely known - not so well. Of a dozen big drugmakers analyzed, 10 showed a decline of nearly 29 percent in their internal rate of return on R&D.
Specifically, the internal rate of return on R&D fell to 8.4 percent this year from 11.8 percent in 2010 from 8.4 percent the year before. Meanwhile, the average cost of successfully bringing a drug to market rose by more than 25 percent, from $830 million in 2010 to $1.05 billion in 2011, although there was a wide variation among companies, ranging from $439 million to $2.5 billion.
As if this is not sobering enough, the number of late-stage compounds in development fell from 23 to 18, on average, per drugmaker. And the cost of developing each compound rose, on average, by 25 percent, but their underlying values have not increased. When factoring out attrition, this amounted to a 21 percent increase in cost.
These are the take-away findings from a report by the Deloitte consulting firms and Thomson Reuters. On the bright side, though, they also found that cost not related to R&D declined at 10 of the 12 companies, and nearly two-thirds succeeded in realizing more value from product commercialisation than has been lost from late stage product failures.
Another nugget revealed how costs are being allocated for drug development. From 2010 to 2011, expenses for the earlier phase - drug discovery to first toxicity dose - remain unchanged at 25 percent. But costs for the next stage - pre-clinical to Phase II - rose from 20 percent to 29 percent. And costs for the last stage - Phase III and submission - fell from 55 percent to 46 percent.
How to cope? “the pharmaceutical R&D sector can do more to work together, for example sharing knowledge on the science behind failed molecules and studies will help improve success rates, and ultimately bring down the cost to develop new medicines,” says Julian Remnant, head of Deloitte’s European R&D advisory practice, in a statement.
What else? He foresees more alliances since the “walls of secrecy are coming down.” And he also expects more drugmakers will create so-called centers of excellence to transform value analytics, simulation and modeling in order to enhance portfolio management and capital allocation decisions during drug development.
The study calculated internal rates of return by estimating the future value of sales from products in final-stage Phase III clinical trials, or those submitted for regulatory approval, using standard industry benchmarks for success rates. The drugmakers studied were Pfizer, Roche, Novartis, Sanofi, Amgen, GlaxoSmithKline, Johnson & Johnson, AstraZeneca, Merck, Eli Lilly, Bristol-Myers Squibb and Takeda.
keiner
“…for example sharing knowledge on the science behind failed molecules…”
UN-BE-LIEVABLE! When I was young, we called it scientific process, publishing data in peer-reviewed journals was common (at least on compound succeeding, but sometimes even for looser-compounds).
Future lies in history…
original industry insider
Does Boeing share trade secrets with Airbus?
Fughettaboutit.
original industry insider
We’ve known forever that Phase III eats up the lion’s share of a clinical budget. We used to spend 3-4 years in Phase II at relatively low cost in order to ensure greater than 95% probability of success in Phase III. Today, the bean counters and the Mouseketeers (i.e. Marketeers) running clinical R&D won’t stand for more than 2 years in the Phase II trials. This greatly reduces the likelhood of success in Phase III. It’s no mystery, really.
company insider
Mixing up the investigators and giving them new assignments every 6 months certainly does not help anything either.
Christopher
oii - I’d be very interested to know which company ever attained greater than 95% probability of success in phase III. That’s way outside the norm and, if accurate, a company one should never, ever leave. Are they looking for investors?
original industry insider
Christopher, I used the old Merck, Sharpe and Dohme in my example, NOT the new Merck or any other pharma co. of today. Under the leadership of Dr P Roy vagelos, Merck spent more years in Phase II than any company I’m aware of. Whether that number is exactly 95% I’m not sure, but one factor that increased the probability was that Merck would usually study 3-4 new indications in Phase II, and only take into Phase III the indication(s) with the greatest chance of success.
dzieczko
@OII - So what happened with Merck and Vioxx? The marketeers wrote the Phase III Protocol and thought they had it right with data collection to get to 95%?
Heck, I’ve got you beat - 1000 compounds went into Phase I a year - 3-5 made it to Phase II. Criteria depended on long term use acceptable AEs and efficacy (safety, of course, a given).
But we have moved way beyond in *possibilities* with DNA technology according to think tanks dedicated to thinking about possibilities for investment.
Here’s random snippets from the internet - all 3 articles have DNA and malaria control as the common topic. Let me know how *knowledge* could tie in with coordinating *old* world pharma science with DNA science to produce a better vaccine through a better designed Phase III clinical trial (ie. *cheaper in the long run*).
http://www.washingtonpost.com/business/army-drops-use-of-anti-malarial-drug-blamed-on-causing-psychiatric-symptoms/2011/11/19/gIQA5gEXbN_story.html
http://www.sciencedaily.com/releases/2009/09/090903163902.htm?mid=531
http://dsc.discovery.com/news/2007/11/05/king-tut-mummy.html?ewrd=1
Ah yes, sciencedaily article about the dreaded genetic *invasion* of the hunter and gatherers by farmers in Europe’s epoch past - got to give the Euros credit for never letting up on *genetic* explanations for man’s free will acts against man. But is using this kind of DNA science for medical research a *real* job? :-)
dzieczko
Sorry - wrong Tut link - this is the one about malaria - although the other article did have something of interest about body parts falling off :-)
http://dsc.discovery.com/news/2007/11/05/king-tut-mummy.html?ewrd=1
original industry insider
dz, I agree that Vioxx was a debacle, but it still doesn’t detract from the old Merck science driven culture that brought many new drugs for unmet medical needs to market. I think that Vioxx in part was the result of ossified R&D management that refused to recognize the flaws in their own data.
company insider
I thought the Vioxx problems did not really show up unhtil after a large number a patients wer etaking the drug. Knowing the drug was going to be a multiple Billion dollar drug, it would be hard to through away when some odd data showed up. If they did the trial over again, I am not sure they woud get the same results. Patients loved that drug and I would say a larger problem I saw was physicians leaving Vioxx on the 50 mg dose for extended periods of time, years, with no real medical reason for doing so. A lot of these were either workmans comp or medicaid and could have been stopped by the provider. As far as acute pain goes, none of the drugs were effective much past 7 days.
dzieczko
@both insiders - the *odd data* probably was there from Phase I - I attended a lunch time lecture at Sandoz given by an FDA officially teaching how to use his formula for mathematically predicting the incidence of an *odd* adverse event in the larger population.
Yes, the whole industry was at one point a *science driven culture*.
I’m not seeing that kind of clinical research science development incorporating the new DNA knowledge to bring mass-market therapy to market.
Shouldn’t so much data available now be un-spun and reviewed to ascertain the patient base (DNA) that did benefit from the drug in a very acceptable risk vs benefit ratio?
As for Merck and malaria - where would we be without the discovery of P450 - it’s still relevant :-)
pub med - “Cytochrome P450 genes: molecular cloning and overexpression in a pyrethroid-resistant strain of Anopheles minimus mosquito.”
I guess CSI used DNA technology and tracked down the mosquito that bit King Tut and are cloning her to learn how to kill all her offspring skeeters? :-))
How can anyone with $$$ to burn not be interested in investing in medical research?
dzieczko
sorry - allow me to clarify - an FDA reviewer of Phase I healthy volunteer data (mid 1990s) taught the lunch group his calculation for extrapolating the incidence of AE or “odd data”, if you will, from Phase I results. I bought it because his proof was air-tight that the formula was correct. That’s why you could decide go - no go for 1000 compounds - it was a win-win for everyone.
Interesting to know if the cost of legal battles went over cost of development - and that’s why R&D development, in general, at big pharma is taking the hit…?
Will DNA technology mis-steps be just as costly in court, or will the industry properly re-regulate itself so that it won’t be held responsible for adverse event analysis and reporting, or upper management decisions made for the shareholder?
original industry insider
“the *odd data* probably was there from Phase I”. Dz, you are describing what I call the “odd data hypothesis”. Reminds me of the “Odd Man Hypothesis” from Michael Crichton’s book “The Andromeda Strain”, an hypothesis that was invented for the story (see below) but which I think may have a kernal of validity.
Seriously, as you know, in Phae I there is a tendency to “kick the can down the road”. That is, when a potential safety signal is picked up in Phase I the notion is to wait until Phase II to see if it amplifies. When it doesn’t amplify, or amplify very little in Phase II and Phase III the groupthink response is that the signal was probably an “outlier” or “artifcact”. Then when it blows up on you postmarketing, you have already crossed the Rubicon into a world of hurt.
PS, I’m sure that some readers have already concluded that I an The Odd Man.
http://www.absoluteastronomy.com/topics/The_Andromeda_Strain
dzieczko
@OII - I thought we were in agreement that big pharma used to be a science driven culture - can’t follow your dismissal of the FACTS that the FDA and Phase I researchers were on the same page and NOT kicking the can down the road, what’s your point?
Let’s think about Phase I data this way - how can you ruin everything for your bubble gum competitor? Fawn over how great his *product* is with a media blitz when you KNOW it is the worst *product* you have ever seen. All that investment money chasing the loser…
Kicking the can down the road with Phase I data is NOT a science driven culture - it’s blowing yourself up by lying to yourself.
I knew that I woke up in an alternate universe the day it was announced at the beginning of the teleconference that my phone line was experiencing *technical difficulties*…”can’t hear you”…
original industry insider
dz, I concede your point, and will stipulate to the mathematical predictability of your odd data hypothesis to . HOWEVER, what I meant by the can kicking analogy is that the person making that go/no decision more and more these days is less likely to be a scientist viz olde pharma, and more likely to be either a marketeer or a bean counter with a little propeller cap on his head. These folks probably never got past y=mx + b in high school, so how would you expect them to understand Monte Carlo Simulations?
I’ll give you a practical example. My wife was formerly Director of Decision Analysis for a Big Pharma company, and it was her job to run the simulations and mathematical models upon which such go/no decisions would be made by the VP’s. At the end of the day they thanked her profusely for her work, proceded to file the incomprehensible (to them) data away in some bottom drawer, then made their usual decision by the seat of their pants (which sometimes meant kicking the can down the road), like industry executives have been doing since the dawn of pharma.
dzieczko
Industry executives have not been making decisions like that since the beginning of time. Need data?
What is your point on being on these boards, OII? Data is in that people who watched Fox News were less clear on the facts - and your comment makes no sense other than to admit that stupid people make the decision to go or not go and they hire a decade worth of liars to help them wing it until enough damage is done to people and their environment is not littered with molecules that kill them?
The *science* types who discovered the stuff worth 60 billion to Wall Street on a 17 year patent extension granted today are losing their homes to Wall Street. This can’t go on - this decision making by stupid people who get richer the stupider the decision. Gave you a shot at proving your billion dollar worth - glad you discovered pub med - I’m always the educator :-)
Still wondering what shape clinical trial science will take in the way of a protocol with scientific rigor akin to when there was once a science driven culture that was run to the ground from the beginning of time by the *industry executives*.
DNA stuff gets complex - all that targeted therapy. But proof of concept should be easy - a visual for the execs in the way of a human born with the nose where the navel once was and the navel where the nose once was….yup, shouldn’t be hard to produce a cut and paste protocol that states that is what they were trying to achieve and succeeded.
original industry insider
dz, I will even go farther than my previous point. We industry executives can cut our R&D budgets to ZERO tomorrow and still figure out how to make wheelbarrows full of money. Point of fact they don’t need science types like you and me anymore. The research based model of pharma, at least at the Big Pharma level is DEAD, don’t you get it? You can go to all of your luncheons and learn how to model safey signals, and it WON’T MATTER to the decision makers who have to figure out new ways to keep the shareholders happy.
Why should we reinvent the wheel, with all of the attendant costs and risk when we can reintroduce old drugs as brand new to emerging markets and squeeze every last yuan out of the poor Chinese laborer with Hep C?
Ball’s in your court.
original industry insider
Company insider you are spot on. I’ll repeat your point for emphasis. PATIENTS LOVED THAT DRUG (Vioxx). In fact, the outrage in the main was from PATIENTS when Vioxx was shelved, because for many of them it was the ONLY thing that worked for their pain. Celebrex? FUHGETTABOUTIT.
Because of the overwhelming demand by patients for Vioxx there are a number of anecdotal stories of doctors who hoarded as many samples as they could for their patients until the drug supply was exhausted.
dzieczko
Well, thanks, OII.
People can now make their own educated choices about the health care bill and whether the IRS can levy fines on people who do not buy for-profit health insurance.
original industry insider
R&D ROI’s are falling in part due to product liability set asides to offset payments to the legal shysters.
dzieczko
OII - “We industry executives can cut our R&D budgets to ZERO tomorrow and still figure out how to make wheelbarrows full of money. Point of fact they don’t need science types like you and me anymore. The research based model of pharma, at least at the Big Pharma level is DEAD, don’t you get it? You can go to all of your luncheons and learn how to model safey signals, and it WON’T MATTER to the decision makers who have to figure out new ways to keep the shareholders happy.”
the !KABOOM! heard around the world - how people “play god”…
original industry insider
dz, since you accuse us of playing god, let me give you the words of someone who said it better than I can. It’s a movie quote by Alec Baldwin, who plays Dr Jed Hill in the movie “Malice”. In this scene, Dr Hill has been accused of medical malpractice, and is being deposed by the plaintiff’s attorney. This is his reply when asked if he believes that he has a “God Complex”.
“I have an M.D. from Harvard, I am board certified in cardio-thoracic medicine and trauma surgery, I have been awarded citations from seven different medical boards in New England, and I am never, ever sick at sea. So I ask you; when someone goes into that chapel and they fall on their knees and they pray to God that their wife doesn’t miscarry or that their daughter doesn’t bleed to death or that their mother doesn’t suffer acute neural trama from postoperative shock, who do you think they’re praying to? Now, go ahead and read your Bible, Dennis, and you go to your church, and, with any luck, you might win the annual raffle, but if you’re looking for God, he was in operating room number two on November 17, and he doesn’t like to be second guessed. You ask me if I have a God complex. Let me tell you something: I am God.”
Well said.
Justice in MI
Amon Goeth, the Commandant of Plaszow (camp featured in Schindler’s List) said almost the exact same thing. Swear. Verbatim.
So I guess it’s less a question of what one pretends than what one actually does.
Unlike OII and me, Goeth had no Harvard degrees, but a lot of the top Nazi perps were MDs and PhDs. Mengele, for example.
Justice in MI
addendum: 50% of MDs in Nazi Germany joined the Nazi party, more than twice the percentage of members of any other profession (even those blood-sucking lawyers who joined at about 20%).
original industry insider
JiM, Amen Goth may have uttered something similar to the fictitious Dr Hill, but all of the doctors I know, even the most egocentric, don’t make a regular habit of using children for target practice.
dzieczko
Let me specify, I was referring to playing *god* by saying that medical research is “DEAD” - you put it in caps for emphasis.
So you may be *god* in Big Pharma (not hard to kick your customers down when they are already laid out with cancer or in a diabetic coma), but exactly HOW do you plan on shutting down all funding for *medical research* on the planet? Put *the enemy* (in this case rational humans capable of scientific thought) in a coma with molecules that break through the blood brain barrier and shut down all cerebral cortex activity? Hard not to notice that when War Lords and Drug Lords take over medical research, ala fascism style, people are quickly not allowed to make their lives less miserable through honest work like wiping out the bacteria that took over hospitals…
Obviously, people have free will to do just about anything to each other - as Nazi history shows - and eventually people will get together to do medical research - with or without *big global pharma*.
But back to the future of now - I completely agree that it is a huge waste of $$$ to conduct clinical trials on humans of all ages that were specifically designed to produce ambiguous data - data that can then be successfully argued as “not proved beyond doubt” in a court case brought on by any dead person’s family.
Funny how *victims* usually end up doing to others what was done to them….vicious circle jerk
Justice in MI
My point was that there may be something about medicine which makes it both enormously wonderful and enormously vulnerable–to a variety of forms of corruption. One is the flipside of the other.
Perhaps it is the same for all “divinities”–from Penn State on up.
Sigh
Hey Dzieczko, chill dude. The only things OII is a ‘God’ of are 1) the irrelevant anecdote copied from Google, 2) off-topic commentary on 75% of Pharmalot posts and 3) making out he is a high powered industry executive, but seemingly with enough spare time to complete points 1 & 2 at all hours of the day.
original industry insider
Sigh, I can do two things at once, i.e, eat lunch and type. I am also adept at multitasking, probably unlike you, so that I can close a contract for seven figures to write a clinical development plan, which I did this morning at 8AM, probably while you were still sleeping, and still have time to expound on this web site with half my brain tied behind my back (that’s from Rush Limbaugh, my muse). Must have taken you most of the morning to come up with some comment containing three bullet points of derogation.
original industry insider
BTW, dz, part of the deal I closed this morning recommends carring out the Clinical Plan with 50% fewer employees than the company’s R&D department has less. You may call that God-like; I simply call it getting a bigger bang for your buck. Maybe Amon Goeth can identify with the bang part.
original industry insider
Correction, it was only a five figure deal. Don’t wish to appear immodest
dzieczko
@
oii - This sentence doesn’t make sense - who “has less”?
“BTW, dz, part of the deal I closed this morning recommends carring out the Clinical Plan with 50% fewer employees than the company’s R&D department has less.”
@Justice in MI - Thanks for the clarification. I agree, and in human capital, what that means is that you will find 2 people with the same skill level who have the same two divergent view points - one is so proud of being so smart that he enjoys playing *god* and the other person equally as happy with their natural talents to help people.
Sigh
Ahh, the good ol’ imaginary clinical development plan and fictional seven figure contract (thanks for confirming a made-up amount there, I’m sure people were wondering)