Results are getting worse for Life Sciences R&D. Failure rates of experimental drugs are on the rise, with the number of products abandoned in late-stage Phase 3 trials having doubled to almost 40 in 2007-2009, compared with 2004-2006. Now it takes 12-13 drugs to enter the pre-clinical phase to gain one commercial success vs. 8 in the year 2000. Direct and indirect costs to achieve one commercial success have nearly tripled, going from $800 million in the year 2000 to $2.5 billion in the year 2010. Meanwhile, R&D cost growth has outpaced sales growth rates significantly. Only one in five marketed drugs manages to recoup R&D costs and new products developed over the last five years account for merely 7% of current revenue. Worse, the growth rate of R&D outlays has outpaced the growth rates of Gross Margins since 1996.
In addition to the financial dynamics outlined above, R&D operational performance is poor. Greater than 90% of all clinical trials are delayed due to over-ambitious timelines and difficulty with patient enrollment. Approximately one-third (35%) of trials are substantially delayed due to ‘Rescue Mode’ patient recruitment activities. Also, eighty percent of studies run over by 30-42%, an average of 6 months.
What are Life Sciences companies doing to address these issues? They are cutting people and costs. In the first three months of 2010, the pharmaceutical industry cut 25,857 jobs. Life Sciences companies have also cut back on R&D activities in 2010 to preserve funds, with aggregate spending to develop new drugs falling by 0.3 percent. Overall, cumulative investment as a proportion of sales has decreased to 15 percent across the pharmaceutical industry.
Unfortunately, these effectiveness and efficiency challenges have all led to the same result: staggering failure rates. An incredible 65% of product launches fail and 46% of product development resources are spent on products that either fail or never make it to market.
These results combined with the aforementioned financial and operational challenges clearly show one thing: an R&D transformation is needed.