The Positive Momentum Behind Pharma Innovation

In a video interview with Pharma Commerce, Kevin Dondarski, Deloitte’s life sciences R&D strategy leader, describes how his company’s 15th annual Deloitte report on the return on investment (ROI) in pharmaceutical R&D reveals a continued upward trend, with a projected ROI of 5.9% for 2024. This marks a notable reversal from the consistent decline seen throughout much of the 2010s. During that period, ROI dropped largely due to a more challenging commercial environment, which reduced the projected value of drug pipelines. This was influenced by both business dynamics and a shift toward developing treatments for more specific, nuanced patient populations, often with smaller market sizes.

However, the past two years have shown a positive turnaround, with year-over-year increases in projected ROI. Two key drivers are behind this recent momentum. First, the overall projected value of late-stage drug pipelines has grown, especially when adjusted for risk, signaling stronger confidence in the commercial viability and clinical success of these therapies.

Second, a small number of exceptionally high-value drug programs have had an outsized impact. Among these, treatments in the GLP-1/obesity space stand out, significantly boosting the total value of the late-stage pipeline. These high-potential programs are reshaping expectations and driving much of the improvement in projected R&D returns.

The renewed optimism in pharma R&D ROI is largely attributed to an increase in risk-adjusted value across the pipeline and the emergence of breakthrough therapies in lucrative areas such as obesity treatment, highlighting a shift toward more valuable and promising innovation.

Dondarski also comments on the strategies companies can adopt to manage or mitigate escalating drug development costs; current best practices for balancing long-term pipeline sustainability with short-term financial returns; how GLP-1’s success influence future investment strategies in high unmet-need areas; how AI and automation realistically reduce clinical development timelines; and much more.

A transcript of his conversation with PC can be found below.

PC: Deloitte’s annual ROI of R&D report—now in its 15th year—highlights a continued rise in projected R&D ROI to 5.9% in 2024. What key factors do you believe are driving this positive momentum in pharmaceutical innovation?

Dondarski: We've written the report for 15 years now. If you were to look at the year-over-year changes in the IRR figure, for much of the 2010s, we saw a pretty consistent decline, and that was attributable to many factors.

I would say first and foremost was a tighter commercial environment, and so the projected value of what was in the pipeline was decreasing. Some of that's driven up by the commercial nature of the business, but then, some of it reflects the shift in terms of more nuanced patient populations. Over the last couple of years, we've seen the opposite happen. We've seen a year-over-year year increase last year, then again this year.

That's attributable to a few things, but I would call out two things specifically. Number one is what I was just articulating—it's the projected value of what's in the late-stage pipeline, and from a risk adjustment perspective, it's increased in both those last two years.

Then, the second is really what specifically is driving that, and I think we've seen this year in particular that a substantial amount of that increase is driven by a disproportionately small number of exceptionally high value programs, and so particularly in the GLP-1/obesity space, there's an outsized amount of value in that category that has driven up, primarily the increase year over year.