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Investigating investment in biopharmaceutical R&D

Nature Reviews Drug Discovery volume 15, pages 673–674 (2016)Cite this article

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Recent studies have highlighted a reduction in projected financial returns associated with biopharmaceutical R&D, owing to decreased productivity, increases in costs and flattening revenue per new drug, prompting calls for dramatic revisions to R&D models. On the basis of previous financial modelling, the simplest hypothesis would be that new investment in such R&D should be minimal and focused on biologics in preference to small molecules, as the internal rate of return on investment for biologics projects has been reported to be higher (Nat. Rev. Drug Discov. 8, 609–610; 2009).

We sought to discern how investors have been acting in recent years, and so examined investment trends in nascent public biopharmaceutical companies located in the United States by constructing a database of such companies that had US initial public offerings (IPOs) between 2010 and 2014 (see Supplementary information S1 (box) for details). We then analysed the characteristics of the 113 companies that met our inclusion criteria, including their corporate strategy and therapeutic modality focus. Here, we present the key findings from this analysis and discuss its implications based on our own financial modelling.

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Figure 1: Characteristics of US-located biopharmaceutical companies with US initial public offerings between 2010 and 2014.
Figure 2: Comparison of the value of small-molecule and biologics projects.

Acknowledgements

E.R.B.'s research was supported in part by a National Institutes of Health (NIH) grant NIANIH/R01AG043560 to the National Bureau of Economic Research (NBER). Views expressed in this article are those of the authors, and are not necessarily those of the NIH or the NBER.

Author information

Authors and Affiliations

  1. Bristol-Myers Squibb Company, Research & Development, Route 206 and Province Line Road, Princeton, 08543, New Jersey, USA

    Percy H. Carter

  2. Sloan School of Management, Massachusetts Institute of Technology, 100 Main Street, Cambridge, 02139, Massachusetts, USA

    Ernst R. Berndt & Mark Trusheim

  3. Tufts Center for the Study of Drug Development, Tufts University, 75 Kneeland Street, Boston, 02111, Massachusetts, USA

    Joseph A. DiMasi

Authors
  1. Percy H. Carter
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  2. Ernst R. Berndt
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  3. Joseph A. DiMasi
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  4. Mark Trusheim
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Corresponding author

Correspondence to Percy H. Carter.

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Competing interests

P.H.C is an employee and shareholder of Bristol-Myers Squibb. M.T. is President of Co-Bio Consulting L.L.C., which provides management consulting services to biomedical firms.

Supplementary information

Supplementary information S1 (box)

Data sources and categorization for biopharmaceutical company IPOs: 2010–2014 (PDF 377 kb)

Supplementary information S2 (box)

Investment model (PDF 531 kb)

Supplementary information

Supplementary information S3 (table) (XLSX 101 kb)

Supplementary information S4 (box)

Discussion of factors that potentially underpin the paradoxical findings (PDF 220 kb)

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Carter, P., Berndt, E., DiMasi, J. et al. Investigating investment in biopharmaceutical R&D. Nat Rev Drug Discov 15, 673–674 (2016). https://doi.org/10.1038/nrd.2016.104

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