Here’s Why Big Pharma Profits are Deflating

Drug makers saw a 29% decline in profits this year over last year due to fewer drugs making it past the final phases of development. The industry’s returns on research and development fell from 11.8% to 8.4% this year according to a study by Deloitte. Deloitte looked at the top 12 spenders on R & D, who were Pfizer (NYSE:PFE), Sanofi (NYSE:SNY), Takeda Pharmaceutical Co., Roche Holding AG, AstraZeneca Plc (NYSE:AZN), Merck & Co. (NYSE:MRK), Amgen Inc. (NASDAQ:AMGN), Eli Lilly & Co. (NYSE:LLY), Johnson & Johnson (NYSE:JNJ), Bristol-Myers Squibb Co. (NYSE:BMY), Novartis AG (NYSE:NVS), and GlaxoSmithKline Plc. (NYSE:GSK).

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The number of drugs in the final phases of development or undergoing regulatory reviews was down to an average of 18 per company this year versus 23 last year. The study also found that the cost of bringing new drugs to market is increasing. In 2010 it cost roughly $830 million to debut a drug, but this year the number rose to $1.05 billion. Deloitte also said that more drugs were failing in late stages, eating up lots of funds, but providing no return on investment.

Bloomberg quoted Deloitte partner and author of the study, Julian Remnant, said, “We continue to see a level of late stage drug failures. That’s something that should not be happening to the extent it still is.”

Erik Gordon, a business professor at the University of Michigan said, “The ROI story over the last few years has been gloomy news,” per Bloomberg. He believes that the pharmaceutical companies are looking for drugs to more complex diseases, but are not being rewarded for their efforts. “It’s more expensive to get to the failure, and there are more failures.”

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