February 21, 2023 | Procurement Strategy
Heading into Q1 of 2023, R&D spend continues to climb, in spite of pressure to reduce costs, shrink budgets and improve margins. R&D spend in the life sciences industry was expected to hit $2.5 trillion by the end of 2022, a 5.5% increase over 2021 levels.
There are some market headwinds that may impede the pace of innovation, including high financing costs due to inflation or competition pressure from generics as a result of patent cliff.
In addition, new laws like the Inflation Reduction Act in the US may impact pharmaceutical companies’ investments in R&D. Provisions in the IRA allow Medicare to negotiate drug prices, with a nine-year exemption from negotiated prices for “small-molecule” drugs, which are mainly pills, and a 13-year exemption for “large molecule” biologics, which are generally injections or infusions.
Drugmakers have criticized the exemptions, saying it could inhibit investment in new research for small molecule medicines and alter how companies develop medicines. Eli Lilly has already dropped a small-molecule blood cancer drug from its R&D pipeline and is reconsidering how it develops small-molecule drugs.
Despite these challenges, R&D organizations can develop competitive advantage for firms and serve as engines of growth. R&D leaders should support this position by actively building a culture of innovation and agile decision-making. What’s the best way to do that?
Technological advances have allowed life science companies to become faster, leaner and more productive while faced with challenges like a changing regulatory environment, increasing patient expectations and new diseases. Digital transformation enables firms to streamline processes, build more resilient supply chains and drive faster, better decision making.
As the time and cost to bring new drugs to market increases (nine years and $1.3 billion for the average clinical trial process, according to studies), the drive to decentralize the clinical trial process is rising. Technologies like artificial intelligence, machine learning and remote monitoring are enabling firms to create flatter R&D organizations that spur more agile decision-making and a more fluid drug-development process.
Despite concerns over a potential recession, mergers and acquisitions activity in the life sciences industry is expected to continue and provides methods to advance R&D through new technologies.
Recently, German vaccine maker BioNTech acquired AI startup InstaDeep to accelerate its biotech research. Meanwhile, Bayer and Google Cloud have announced a partnership to drive drug discovery, using machine learning to scale Bayer’s quantum chemistry calculations.
Acquisitions of key technologies and cross-enterprise collaboration can help life sciences companies continue to drive innovation in R&D, despite the challenges that exist.
Despite challenges in the marketplace that are shaping investment and development decisions (for instance, the current incentives for large-molecule vs. small-molecule drugs), prioritizing research and development is critical to success for life sciences companies. Focusing on digital transformation of R&D functions and deploying AI/ML technologies will allow companies to streamline and accelerate the pace of innovation in 2023.