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Pharmaceutical R&D: the road to positive returns

Nature Reviews Drug Discovery volume 8, pages 609–610 (2009)Cite this article

Sizing the challenge

Key factors driving the downward trend are well known. For example, our industry interviews and analysis of the Pharmaprojects database indicate that, over the past decade, the overall probability of success (POS) for small molecules has decreased by 5 percentage points and the time required for R&D has increased by 12–18 months. Furthermore, R&D costs have been rising ∼8% annually for the past several years, and prices are under substantial pressure globally. It could be argued that companies should shift much of their R&D investment to biologics, as the average biologic currently offers a greater return (NPV ≈ $1.26 billion; IRR ≈ 13%) owing to higher average peak sales and slower decay of sales following loss of exclusivity (Fig. 2a). However, increased investment in biologics alone is not the solution, given the limited number of such molecules and the expected erosion of returns as biosimilars competition mounts.

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Figure 1: Improving the return on small-molecule R&D.
Figure 2: Output of model.

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Authors and Affiliations

  1. Eric David, M.D., Tony Tramontin, Ph.D., and Rodney Zemmel, Ph.D., are at McKinsey & Company, 55 East 52nd Street, New York, New York 10055, USA. Eric_David@mckinsey.com; Rodney_Zemmel@mckinsey.com,

    Eric David, Tony Tramontin & Rodney Zemmel

  2. Tony_Tramontin@mckinsey.com,

    Eric David, Tony Tramontin & Rodney Zemmel

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  1. Eric David
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  2. Tony Tramontin
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  3. Rodney Zemmel
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Supplementary information

Supplementary information S1 (box)

Methodology to estimate the internal rate of return on R&D investments (PDF 296 kb)

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David, E., Tramontin, T. & Zemmel, R. Pharmaceutical R&D: the road to positive returns. Nat Rev Drug Discov 8, 609–610 (2009). https://doi.org/10.1038/nrd2948

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