As drug approvals dive in 2016, returns on R&D deteriorate

LONDON (Reuters) - The global pharmaceuticals industry is set to win the lowest annual number of new drug approvals this year since 2010 and a new report on Tuesday suggests drugmakers’ returns on research investment are deteriorating.

Pharmaceutical tablets and capsules in foil strips are arranged on a table in this picture illustration taken in Ljubljana September 18, 2013. REUTERS/Srdjan Zivulovic

Only 19 new drugs have been approved in the key U.S. market so far in 2016 and, with less than three weeks to go, it is clear the full-year tally will be well down on 2015 and 2014’s bumper haul of 45 and 41 new products respectively.

At the same time the profitability of drug research is being squeezed by steadily rising costs and increasing political pressure over the high prices of many modern medicines.

As a result projected returns on investment in research and development (R&D) for the top 12 pharmaceutical companies have fallen to just 3.7 percent this year from a high of 10.1 percent in 2010, according to consultancy Deloitte.

“The majority of companies are struggling to achieve historical peak sales,” said Colin Terry, a director in Deloitte’s life sciences practice.

“As costs per product remain high, sales projections decline, and given it now takes the industry over 14 years to launch a drug, real questions should be raised about productivity and returns on innovation.”

Deloitte’s annual report calculates the return on investment that leading drug companies can expect based on long-term sales forecasts.

Many industry executives still remain upbeat about finding new medicines, given advances in understanding the genetic basis of a wide range of diseases. However, they acknowledge the peak approval rates seen in 2014 and 2015 were exceptional.

An increasing number of new treatments are being targeted at niche patient populations and are designed for rare diseases or very specific sub-types of cancer.

With a few more drugs still expected to win a green light from the U.S. Food and Drug Administration (FDA) this month, including Roche’s closely watched multiple sclerosis drug Ocrevus, Deutsche Bank analysts believe the final total of new approvals for 2016 will be around 22.

That is well below the 2005-2015 average of 28 but next year there could be a rebound, given the industry’s promising development pipeline. Some products that were delayed in 2016, such as Sanofi and Regeneron’s sarilumab for rheumatoid arthritis, could also get a green light.

As a result, Deutsche sees potential for a 2017 new drug tally of 37 - and the industry could receive a boost if FDA reform speeds up the approval process.

The European Medicines Agency (EMA) has also waved through fewer new products this year, recommending a total of 73 new medicines in the first 11 months of 2016 against a 2015 total of 93. Unlike the FDA, the EMA includes generic drugs in its list.

Editing by Greg Mahlich