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Why expenditure in life science R&D eclipses the costs of other product phases

Posted on 15 November 2022 by Emma Hobbs

Website Banner   Desktop (4)

Why expenditure in life science R&D eclipses the costs of other product phases

Posted on 15 November 2022 by Emma Hobbs

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The research and development stage is the first and arguably most pivotal stage of any product life cycle. It is at this point (particularly in life sciences) where an upcoming project can either gain a boost and momentum, but also could be discontinued to nothing if it proves unviable or unproductive.

As a result, many life science companies invest disproportionately in R&D, especially when making significant innovation in a new therapeutic area or ground-breaking research is taking place. Biopharmaceutical company, Incyte spent US$2.2 Billion on R&D in 2021, which equated to 83.10% of it’ their entire revenue. This shows the emphasis and importance placed on the R&D function.

It should be noted however that whilst R&D can be the costliest element of a life science project, it is also the first stage and with only 1 in 3 projects making it past the first phase 2 clinical trials it is understandable that there is disproportionate investment initially compared to during the rest of the product development timeline.

 

But, why?

Investment in R&D will be determined by a variety of factors. With one of the leading costs being the recruitment and appointment of personnel, due to the demand for specialism and competition in the sector. As well as this, R&D expenditure is also determined by;

·       Anticipated lifetime global revenues from the new drug or product

·       Expected costs to develop the drug or product

·       Partnerships and collaborations with other biotechs and businesses

·       Pressure to innovate and meet timeline milestones

Pharmaceutical and biotech companies often face greater pressure to innovate quickly and have highly successful R&D stages because of the time-limited patent protection of name-brand drugs and products.

By nature of our developing science and understanding of the life science space, the industry relies and is based upon innovation. If a life science business can utilise R&D to make unique discoveries this could lead to significant profits as well as recognition, which has various benefits such as attracting top future talent.

 

The cost of failed R&D

Bernard Munos, founder of InnoThink Center for Research in Biomedical Innovation says in Alzheimer’s disease alone, in the past 12 years companies have poured $18 billion into testing 211 drug candidates; 95 of those have already been abandoned.

This highlights the probability of a failed R&D project being high and the fact that if companies prioritise one or a few R&D projects and they fail it could be detrimental to a company’s entire survival and future.

Reasons for R&D failure and thus a project falling through can be wide ranging, however sufficient investment and quality recruitment as well as planning can alleviate this risk. An R&D failure could also refer to longer than expected timelines or more resources required than anticipated, which means competitor companies are able to get further and therefore harm the competitive nature of some findings and products / drugs.

How this affects hiring for R&D

As a result of the niche skillsets required in most senior R&D roles, supply is low for candidates and demand remains high as the number of new projects increases, firms have shorter targeted milestones, and collaborations and partnerships between specialist organisations become more commonplace. An example is Oxford Biomedica’s R&D collaboration with Microsoft, using the cloud and machine learning to improve gene and cell therapy development and manufacturing. 

However, collaborations cannot always close this skills gap and certain roles are in high demand, this creates an extremely competitive, candidate-led market whereby companies must offer attractive packages and opportunities and develop strategies to populate their talent pipeline. Despite this being an initial high investment, firms reap the rewards of high-performing and specialised teams further down the line.

Despite research and development costs, quality investment in R&D is critical for life science companies’ survival as a business, as R&D is a critical risk point at which projects can flourish or end completely, and too many failures could lead to financial crisis. R&D prioritisation can also increase a company’s competitiveness in the market, as unique products and drug discoveries will mean fresh eyes on a business and therefore more sale and future investment. As well as this commercial benefit, this is also a huge draw for future talent, so creates a USP for recruiting and helps attract the top candidates available.