Pharmaceutical R&D internal rate of return falls for a second year

‘Measuring the return from pharmaceutical innovation 2012’ – a new report from Deloitte and Thomson Reuters has just been published.

 Internal rate of return falls for a second year to 7.2%, but is stabilising;

  • Number of product approvals increased by a third between 2010-11 and 2011-12, but value has fallen 30%;
  • By contrast, the number of new compounds entering the late stage pipeline, and their value, has doubled between 2010-11 and 2011-12;
  • Average cost of successfully bringing a product to market has remained relatively constant at $1,137m.


The R&D internal rate of return (IRR) of leading pharmaceutical companies has fallen for a second successive year to 7.2% in 2012 from 7.7% in 2011.  This is according to the findings of the latest review of pharmaceutical R&D returns performance by Deloitte, the business advisory firm, and Thomson Reuters.  However, indications are the decline is beginning to stabilise as these companies have improved the upstream movement of compounds into the late stage pipeline.

Measuring the return from pharmaceutical innovation 2012’, the annual study of the top 12 research-based pharmaceutical companies globally, reveals the number of product approvals increased by a third between 2010-11 and 2011-12.  Conversely, the 32 approvals in 2010-11 accounted for forecast revenues of $309bn, the 41 in 2011-12 just $211bn.

Of the 12 companies considered, 10 have improved the replenishment of their late stage pipelines.  The number of new compounds entering the late stage pipeline has more than doubled from 35 in 2010-11, to 78 in 2011-12.  The forecast value of these assets has also doubled, from $193bn in 2010-11 to $378bn in 2011-12.

Julian Remnant, head of Deloitte’s European R&D advisory practice, comments: “While the number of compound approvals has increased by approximately 30% in the last 12 months, the expected revenue has also declined by 30%.  This has resulted in the net value realised through product commercialisation declining in over half of the 12 companies analysed.  Time will tell whether the encouraging wave of new late stage compounds is able to reverse this trend and achieve an increase in returns in future years.”

'John Cole, solutions director, business practice at Thomson Reuters, comments: “This uplift in replenishment of the late-stage pipeline is promising.  A variety of factors – including an increased acceptance of novel innovation models, sharing of precompetitive data and assets, and the expanding scientific knowledge base to determine new patient populations and disease indications for drug development – is starting to pay dividends by increasing the breadth, depth and potentially quality of the late-stage pipeline.”

However, the group of 12 companies seems to be struggling to make headway in terms of reducing the impact of late stage terminations, which has remained relatively static.  Comparing 2010-11 and 2011-12, the number of terminations was 19 and 22, respectively.  The value of revenue lost due to late stage terminations was $73bn in 2010-11 and $77bn in 2011-12.

Remnant says: “Seven of the 12 companies have seen value eroded due to the increased influence of late stage terminations relative to successful product launches.  Earlier and increased rigour on defining unmet need and gathering evidence of value are key to driving improved returns.  Once a compound proceeds to late stage development, the cost of failure increases significantly.  Repositioning or repurposing is one avenue that could be used to recoup a proportion of R&D costs from failed compounds.”

The report shows a continuing decline in the average projected commercial value of each late stage product.  Between 2011 and 2012, the average value declined by 7% to $2,166m, continuing the trend of an 8% year-on-year decrease between 2010 and 2011.

Cole comments: “This continuing decline in inflow exerts significant pressure on companies’ returns from R&D.  Constraining market access conditions, pricing pressures and payor concerns continue to place pressure on potential revenues.  However, companies can successfully navigate the payor/reimbursement challenges through well-designed clinical trials in appropriate targeted patient populations and/or comparative studies.  We are seeing an increase in the acceptance of this ‘niche-buster’ strategy which is driving revenues in smaller, well-defined patient populations.”

Over the three years from 2010 to 2012, the average cost of successfully bringing a product to market has remained relatively constant.  Between 2010 and 2012, the average cost has increased by 4%, from $1,089m to $1,137m. 

Remnant adds: “Overall, our findings suggest a mixed picture of performance in 2012 relative to 2011.  It will take a number of years for the full picture on R&D productivity to emerge and definitive conclusions to be drawn.  The companies that are successful in the business of R&D will be systematic in their corroboration of unmet need, leaders in marshalling the best science, developments in biology and advances in diagnostics, and in deploying a flexible, collaborative research model that focuses early on gathering evidence of medical value.”


About the Report

Deloitte and Thomson Reuters have collaborated in this study of R&D value measurement combining Deloitte’s R&D advisory experience and financial expertise with Thomson Reuters R&D data and business insights.

About the Deloitte Centre for Health Solutions

The Deloitte Centre for Health Solutions, part of Deloitte UK, generates insights and thought leadership based on the key trends, challenges and opportunities within the healthcare and life sciences industry.  Working closely with other centres in the Deloitte network, including the US centre in Washington, our team of researchers develop ideas, innovations and insights that encourage collaboration across the health value chain, connecting the public and private sectors, health providers and purchasers, and consumers and suppliers.

About Deloitte

In this press release, references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

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Member of Deloitte Touche Tohmatsu Limited.


About Thomson Reuters

Thomson Reuters is the world's leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial and risk, legal, tax and accounting, intellectual property and science and media markets, powered by the world's most trusted news organization. With headquarters in New York and major operations in London and Eagan, Minnesota, Thomson Reuters employs approximately 60,000 people and operates in over 100 countries. For more information, go to



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