[Ip-health] News: FT.com- Drug groups' investments pay off

Terri Beswick Terri at haieurope.org
Thu Dec 2 06:13:15 PST 2010



Drug groups' investments pay off

By Andrew Jack in London


Published: November 30 2010 18:23 | Last updated: November 30 2010 18:23


The world's largest dozen pharmaceutical companies are set to generate
positive returns on investments from late-stage experimental drugs but
with wide variations, according to a study by Deloitte and Thomson


By scrutinising each of the companies' pipeline of late-stage drugs in
test or submitted for regulatory approval, the two consultancies
estimated internal rates of return on future lifetime sales of between
8.4 per cent and 18.4 per cent.


The analysis - which was anonymised and estimated from public data - was
designed to provide a new way to examine how to boost research and
development productivity, at a time when investors and companies alike
are frustrated by the high cost and low rate of success.


Several companies including GlaxoSmithKline have recently begun
publishing their own estimates of return on investment from research
activities, in an effort to persuade shareholders of the value of their
continued work in the development of new drugs.


Julian Remnant, head of R&D advisory in the life sciences and healthcare
practice at Deloitte, said: "In the future, we believe companies will
set performance targets and drive R&D strategy and decision making
around output-based value measures, such as internal rate of return."


The study used currently available standard industry benchmarks on
success rates and cash spent on product development, rather than
confidential precise in-house figures. However, Deloitte said its
estimate for GSK was within one percentage point of the company's own


It argued for new approaches by executives in judging how to allocate
their spending such as internal rate of return across all research and
development activities, in place of current practice which typically
considers forecasts of the percentage of future sales revenue generated
on each experimental product. 


It suggested the most effective way for companies to boost their rate of
return would come through achieving greater success rates in late-stage
testing and submission of experimental drugs; followed by simply cutting
back on research and development.


The companies selected, based on the largest spenders of research and
development funds in 2008-09, were Pfizer, Roche, Novartis,
Sanofi-Aventis, GlaxoSmithKline, Johnson & Johnson, AstraZeneca, Merck,
Eli Lilly, Bristol-Myers Squibb, Takeda and Amgen.


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