Why Does Pharmaceutical Innovation Matter?

Pharmaceutical innovation does more than just push profits, its about improving lives. By developing cutting-edge therapies for diseases like diabetes, Alzheimer’s, and cancer, biopharma companies are helping patients live longer, and healthier. But there’s a significant cost to innovation. It can take over a whopping 8 years and can cost more than €2 billion to bring a single drug to market. This makes it essential for companies to maximise their returns on investment while ensuring that new treatments reach those who need them most.

"The investment required for developing a single new drug has risen to unprecedented levels, with the average cost now exceeding €2 billion." - Deloitte, 2024

The Good News: Returns Are Improving

After years of decline, the internal rate of return (IRR) for the top 20 biopharma companies has risen to 5.9% in 2024, up from 4.3% in 2023.

 

Are these returns enough to justify the investment in pharmaceutical innovation?

In truth, this progress remains fragile with rising costs, longer clinical trial times, and high failure rates still are significant road blocks to growth. To overcome these challanges, companies must adopt bold strategies focused on both innovation and efficiency.
Moreover, according to Deloitte's report "The return on pharmaceutical innovation is showing early signs of improvement, driven by high-value products and breakthrough therapies." - Deloitte, 2024, especially GLP-1 drugs for diabetes and obesity. These promising assets are forecasted to generate substantial revenue, with peak sales per asset increasing to €470 million.

 

Challenges Facing Biopharma Companies

1. Rising R&D Costs

As previously mentioned - the average cost of developing a new drug has now reached €2 billion in 2024. Several factors are pushing this increase:

• Complex diseases requiring advanced treatments, such as gene therapies.

• Difficulty recruiting patients for clinical trials.

• High failure rates during drug development.

2. Lengthening Cycle Times

"Clinical trial timelines are growing longer as competition for resources and patient recruitment becomes more intense." - Deloitte, 2024. Phase III trials, in particular, are slower due to competition for trial sites and eligible patients.

3. Intense Competition

Oncology remains the most crowded therapeutic area, with 37% of late-stage pipeline assets focusing on cancer treatments. While this indicates high demand, it also makes it harder to differentiate products and secure participants for trials.

Opportunities for Growth

Despite these challenges, there are exciting opportunities for biopharma companies willing to embrace change and take bold steps forward.

1. Focus on Unmet Medical Needs

Diseases like Alzheimer’s and multiple sclerosis have limited treatment options but significant patient populations. Investing in these areas can not only improve lives but also bring strong financial returns.

 

2. Leverage Novel Mechanisms of Action (MoAs)

Drugs with novel mechanisms of action, those that use entirely new approaches, make up only 23% of late-stage pipelines but are expected to generate 37% of forecasted revenue. Companies that prioritise transformative innovation over incremental improvements can unlock substantial value. "even though they represent a minority of late-stage assets." - Deloitte, 2024

 

3. Embrace Cutting-Edge Technologies

Artificial intelligence (AI), gene editing, and advanced analytics are transforming drug development. For example:

• AI can optimise clinical trial designs.

• Gene editing holds the potential for curing genetic disorders. Embracing technologies such as these is essential in "speeding up drug development and reducing costs in the long term." - Deloitte, 2024

4. Diversify Portfolios

While oncology dominates pipelines, expanding into less crowded areas such as stroke prevention or rare diseases can reduce competition and lead to higher returns.

 

A Call to Action: Be Brave, Be Bold

To succeed in today’s competitive landscape, biopharma companies must take bold action. By following these strategies, companies can not only improve their financial performance but also deliver life-changing therapies to patients across Europe:

• Prioritise innovation: Focus on breakthrough therapies, not just “me-too” drugs.

• Adopt evidence-driven strategies: Leverage real-world data and predictive analytics to guide decision-making.

• Collaborate creatively: Partner with academia or startups to access fresh ideas and insights.

• Optimise pipelines: Balance risk by investing in both novel mechanisms of action and proven approaches.

 

Closing Thoughts

Pharmaceutical innovation is a journey full of challenges but also immense rewards. By embracing bold and transformative strategies, biopharma companies can drive sustainable growth while making a meaningful impact on global health outcomes.

What do you think? Are these strategies enough to tackle the challenges the industry is facing? We’d love to hear your thoughts. Share your feedback below or get in touch with one of our experts at Panda International.

 

Reviewed by an industry professional

This summary was prepared by Gabriel Berg, a leader at Panda Intelligence with deep expertise in life sciences recruitment across Europe, based on Deloitte’s latest 2024 Annual Report. For further insights into pharmaceutical innovation or career opportunities in the life sciences sector, explore more at Panda International.

 

Sources:

Deloitte’s 2024 Annual Report on Measuring the Return from Pharmaceutical Innovation

https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/measuring-return-from-pharmaceutical-innovation.html