Findings from the latest Measuring the Return from Pharmaceutical Innovation, an annual report which analyses the late-stage drug development pipelines of the top 20 global biopharma companies, reveals an increase in the forecast internal rate of return (IRR) from 4.3% in 2023 to 5.9% in 2024. The research shows this uptick is attributed to a surge in new high value drugs entering the R&D pipeline, particularly in the GLP-1 space. Originally developed for diabetes treatment, GLP-1 drugs have demonstrated significant effectiveness in obesity management and are now also in development for neurological and cardiovascular conditions.
Deloitte’s analysis includes a comparison of the growth in potential treatments for obesity against 11 other therapy areas such as cardiovascular, infectious disease, and oncology, and found that forecast revenue in this area has increased from 1% in 2022, to 8% in 2023 and 16% in 2024.
Karen Taylor, director at the Deloitte Centre for Health Solutions, said: “While stubbornly high costs of bringing drugs to market presents an ongoing challenge, our analysis shows that shifting the dial to new treatment areas and shaking up traditional drug development methods can all boost efficiency and productivity. Investing in data analytics and AI tools can also be a game-changer, leading to smarter clinical trials and faster, more informed decisions."
The average R&D cost to progress a drug from discovery to launch increased from $2.12 billion in 2023 to $2.23 billion in 2024 - an upward trend observed in 12 out of the 20 companies analysed. Across all assets, the average forecast peak sales increased from $353 million in 2023 to $510 million in 2024. If GLP-1s were excluded from the analysis, the average peak sales drops to $370 million.
New types of drugs are leading to better treatments and higher profits
While representing a smaller proportion of overall therapies in development, Deloitte's analysis revealed that ‘novel mechanisms of action’ (MoAs), which are new ways a drug produces a pharmacological effect, demonstrate significantly higher revenue potential. While novel MoAs, including those which prevent symptoms of heart failure and strokes, make up a small portion of the development pipeline (averaging 23.5% over the past four years), these drugs are projected to generate a much larger share of revenue (37.3% on average over the four years of analysis).
Chris Aylott, Life Sciences Catalyst lead partner at Deloitte, commented: “When multiple companies concentrate their efforts on a limited number of diseases, the competition for crucial trial sites and eligible patient populations intensifies. Furthermore, a concentrated effort on a limited number of targets can stifle innovation in other areas and potentially limit treatment options for patients with unmet medical needs.
“Prioritising novel MoAs offers compelling advantages including improved efficacy and patient outcomes, greater share of eligible patients due to reduced competition, and ultimately, a higher return on investment.”
Bolder action is required to further improve returns
The number of drugs that generate annual sales of at least $1 billion, also known as ‘blockbuster assets’, have increased in 2024 – with 29 new blockbuster drugs entering the late-stage pipeline. This was a 53% increase on the previous year’s 19 new blockbuster assets. The new blockbuster assets target a wide range of conditions including type 2 diabetes, obesity, hyperlipidaemia, eczema, and non-small cell lung cancer.
The analysis also found that 10 other drugs across several therapy areas including neurology, oncology, and cardiovascular, had their forecast peak sale reduced by over $1 billion. According to the report, this was due to factors including lower-than-expected efficiency in trials, emerging side effects and an evolving treatment landscape with new competitors emerging before or shortly after the expected drug launch.
Colin Terry, Life Sciences partner at Deloitte, added: "The pharma industry is at a pivotal point and the evidence from our analysis shows that maintaining the status quo in pipeline strategy will limit pharma returns on investment in R&D.
“While the projected growth in returns is encouraging, companies must continue to adapt and evolve their pipeline strategies to navigate the complexities of the current landscape. That means prioritising areas where new treatments are desperately needed, ensuring that the highest potential treatments move into late-stage development, and being more open to collaboration and prioritising smaller, early-stage acquisitions.
“To be bolder, pharma companies need to address risk tolerance, build a flexible organisational structure and encourage ambitious leadership with a commitment to see these initiatives through.”
