• Industry: Healthcare
  • Type: Press release
  • Date: 6/30/2014

Pharma R&D innovation showing signs of resurgence after a decade of decline 

  • Outsourcing and collaboration is increasing, shifting from cost-saving to accelerated innovation
  • Excessive administration and complexity holds scientists back from devoting time to vital R&D

Pharmaceutical and life sciences companies may have turned a corner in their efforts to get more from their substantial investment in R&D, according to a new report from KPMG International. Growing the pipeline, growing the bottom line: Shifts in pharmaceutical R&D innovation, looks at the great research challenge through the eyes of senior R&D executives, and discusses how to overcome barriers to innovation. 


According to the report, “the pharma sector invests more money in research than any other, yet between 2004 and 2013, the estimated cost of bringing a new chemical or biological entity to market more than trebled to US$1.5 billion,” says Chris Stirling, Global Chair, Life Sciences for KPMG International. “In recent years, however, the average number of annual US Food and Drug Administration (FDA) approvals for new molecular entities – a good indicator of innovation – has risen from 23 to 32, which is a promising sign.”


The executives interviewed appear to share a high degree of optimism over the potential for breakthroughs in drug development. Seventy percent believe their companies are enjoying a resurgence in research productivity, and over half are satisfied with their portfolio’s ability to address unmet medical needs.


Regulatory authorities may be contributing to this revival by cutting back on red tape, simplifying and speeding up the approval process. And, as Chris Stirling points out, the industry has made a concerted effort to improve productivity: “One notable phenomenon is the trend for R&D outsourcing and collaboration, with a growing portion of research budgets used externally. According to the report, globally, the amount spent on drug discovery outsourcing is forecast to double to US$25 billion by 2018.” 


These figures are reinforced by the study: within the next five-to-ten years, almost two-thirds of the respondents feel at least half of their R&D budget will be spent externally. Companies are also forging stronger alliances with universities, with some co-locating their R&D headquarters closer to campuses.


Obstacles to productivity persist


Despite significant progress, the report finds considerable frustration with the levels of organizational bureaucracy. Seventy-two percent of the executives in the study claim that excessive administrative work prevents scientists from devoting time to research.


“The sheer size and complexity of big pharma is partly to blame,” argues KPMG’s Chris Stirling. “Some enlightened players are looking at alternative models of R&D, creating smaller, autonomous divisions to carry out early phase development, incorporating “Lean” principles to speed up decision-making.” 


One of the main challenges to productivity is managing risk without restricting innovation. Given the huge sums spent on R&D, there is a big temptation to take the conservative route rather than seek genuinely exciting new compounds. KPMG’s report suggests that many pharma companies are still struggling to determine their risk appetite. Over half of the executives polled are concerned with over-subjectivity in decision-making – while others say their organizations are too cautious.


Chris Stirling believes this uncertainty can lead to sub-optimal choices: “In the
absence of reliable, definitive data, the opinions of the most powerful and influential project leaders can prevail. The move towards value-based pricing – where payers link payment for a medicine to the value – can/should sharpen the R&D focus on clinical and commercial effectiveness. Life sciences businesses should also involve regulators earlier, to demonstrate how their new compounds satisfy unmet medical needs, thereby helping to speed up the approval process.”


Enhancing future R&D innovation


KPMG’s report highlights a number of ways in which the pharma sector can better strategize to improve R&D efforts. At the start, collaboration can make a big difference. Internally, firms should consider cross-pollination of Commercial, Finance and R&D, to achieve a better balance between clinical and business objectives. Externally, they need to embrace joint development and harness the skills of networks through an open culture that encourages scientific dialogue and sharing of findings.


Chris Stirling also advocates placing the customer/patient at the heart of the R&D process: “Value should be measured in terms of outcomes and improved quality of life, and this should dictate decisions across all phases of the discovery cycle. We need a wider range of metrics that consider patient health and wellbeing and not just financial return on investment.”



For further information, contact:

Kent Miller

Global Communications, KPMG International

+1 201-307-8632 (office)

+1 908-313-5037 (mobile)

About the report

Growing the pipeline, growing the bottom line: Shifts in pharmaceutical R&D innovation is a new report from KPMG’s Global Healthcare Practice, looking at trends in R&D innovation and discussing ways to overcome barriers to research productivity. Featuring the views of senior R&D professionals from many of the world’s leading pharmaceuticals and life sciences companies, the study covers issues such as attitudes to risk, organizational structure and governance, and puts forward some valuable ideas for increasing innovation to feed the pipeline of new products.


About KPMG International

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 155,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.


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Growing the pipeline, growing the bottom line: Shifts in pharmaceutical R&D innovation

Pharmaceutical R&D Innovation
The new report innovation looks at the research challenge through the eyes of senior R&D executives from some of the world’s leading pharma companies.

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