The Answer Is Digital…Again 
Posted by Carlos on Dec 19, 2017

Is the answer here somewhere?

 

Deloitte recently published their annual report on returns generated by big pharma from their R&D investments. The PDF report is available here.

The report is divided into two sections. The first is an analysis of data from “12 large cap companies,” and focused on R&D spending and sales.

The report is generally well written, and indeed does provide some interesting financial perspectives. However, there are a few places where the lack of nuance or detailed understanding will be readily detected by most readers.

R&D ROI

There is no denying that novel drug discovery, development, and commercialization is becoming increasingly more difficult, and hence more expensive. While our understanding of many diseases continues to grow, the conversion of this understanding into products which are safe, effective, and relatively easy to develop has become increasingly difficult.

According to Deloitte, returns on R&D declined from 10% in 2010 to  3.2% in 2017. Costs to bring an asset to market approached $2 billion in 2017, while peak sales hover below $500 million p.a.

Note that these data are for the top 12 pharmaceutical companies. If an incremental number of companies is added to the data set, the numbers look better. For example, R&D returns are nearly 12%, with peak year sales exceeding $1 billion p.a.

Selected Challenges

The report highlights three areas where pharmaceutical innovation is desperately needed:

Cancer – Our increased understanding of the immune system has led to some remarkable advances in how we treat cancer, with CAR-T being an obvious example. Indeed, CAR-T was one of the highlights of this year. However, therapies like this present a number of challenges which negatively impact R&D ROI:

  • These therapies are complex to develop and manufacture;
  • These therapies are usually effective for only a subset of patients, making recruitment a major challenge;
  • Both of these facts lead towards products which are expensive to develop, are costly (both from a COGS and an administration perspective), and can negatively impact R&D ROI.

These are undoubtably difficult challenges. But how can we solve them? For example, faster recruitment via better trial marketing sounds great, but larger patient pools cannot be created. The competition for patients will inherently drive recruitment costs upward.

Will these factors cause some multinationals to step away from oncology? Probably not. However, the current trend towards very early-stage in-licensing in oncology may shift towards later-stage licensing, as we already see on other therapeutic areas, like cardiovascular.

Dementia / Alzheimer’s – We have not had a new approval for dementia in over a decade. Yet, this is not from a lack of trying. A lack of efficacy and/or toxicity concerns have made this one of the most challenging areas of research anywhere. The fact that we cannot (yet) agree on a disease pathophysiology is not helping matters. As the report correctly points out, numerous Phase II clinical failures negatively impact R&D ROI. Will companies leave dementia research for something “easier?”

Infectious DiseaseWe have written extensively about the alarmingly growing problem of bacterial resistance. Deloitte agrees, noting that “Antimicrobial resistance may become the biggest threat to global public health in the twenty-first century.” Considering the potential for rapid morbidity and mortality, we do not believe this is hyperbole. However, we remain unconvinced that infectious disease, especially antibacterials, are a major opportunity for Big Pharma.

Why?

Because the market fundamentals are simply not favorable to their business model:

  • While cheap, generic antibacterials are increasingly ineffective, they remain highly effective for the majority of cases;
  • Unlike oncology, pricing in this market is highly unfavorable at the moment;
  • Development failure is exceptionally high in anti-bacterial research, due to a variety of potential problems, such as poor solubility, poor PK, and difficulty demonstrating incremental clinical benefits over standard of care.

The scouts we have spoken with in infectious disease remain interested in the space, but are increasingly choosy. Vaccines and peptide antibacterials are increasingly preferred, both for human and animal / food production markets. There are exceptions, such as omadacycline, which hold great promise. However, we are not optimistic that this problem will be resolved, unless the market fundamentals change quickly.

 

The Answer?

So what is Deloitte’s answer to these challenges?

Telemedicine…wearables…artificial intelligence…social media…

This is where we find ourselves a bit disappointed with this report.

Now we recognize that Deloitte is producing this report to engender curiosity, and to engage potential clients with discussions about they can help pharma companies streamline product development and improve R&D ROI. Indeed, while we are not experts in some of these technologies, it is intuitively plausible that using artificial intelligence and other tools can improve R&D efficiency and reduce costs.

However, it strikes us as odd that multinational pharmaceutical companies are not aware of these tools, and are not already implementing them to the extent that is possible, given regulatory and financial constraints.

It reminds us of the situation where a politician’s term has expired, and the candidate from his/her party has to campaign on  platform of original ideas. Did the outgoing politician not have an awareness of these ideas? If not, why not? If so, why were they not implemented earlier?

The problems noted in this report are incredibly complex. And, we agree that digital tools and technologies can and should be used to accelerate product development, reduce costs, and get products to market faster and cheaper.

However, can digital tools improve patient recruitment in oncology? Can they help solve the problem of low reimbursement in antibacterials? How can artificial intelligence improve drug discovery in Alzheimer’s?

These are the questions which we were really longing to see addressed in this report. Perhaps a chat with a Deloitte sales person consultant would be beneficial.

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