The $10 billion benchmark has been breached by a handful of the industry's largest players , with Roche having consistently spent around this much on R&D in recent years, and its Swiss rival Novartis not far behind.
Pfizer and Merck & Co. have both spent similar amounts on R&D in the past, but only as a result of their most recent 'major' M&A activities (the acquisitions of Wyeth and Schering-Plough, respectively, in 2009). In both cases, each company has sought to reduce its R&D expenditure in subsequent years, with Pfizer's R&D budget declining by approximately $1.1 billion between 2012 and 2013. Versus the previous year, Merck's R&D expenditure declined by $665 million in 2013, while AstraZeneca's budget shrunk by $422 million – CEO Pascal Soriot has been charged with the balancing act of reducing costs in the face of key patent expirations, but also delivering meaningful pipeline advancement to drive mid-to-long term evolution of the company's product portfolio.
As a proportion of its pharmaceutical sales, Eli Lilly continues to deliver the highest R&D margin at 26.7 percent; the company anticipates that a commitment to heavy research expenditure will bear its rewards over the next couple of years when a handful of key new products are expected to reach the market.
With Roche, Novartis and Johnson & Johnson widely recognised as being among the more innovative players within the pharma industry – based on new molecular entity (NME) approval rates – it is perhaps not surprising to see their R&D budgets as among the industry's largest and steadily growing, or in Roche's case remaining consistent (Johnson & Johnson's budget is a broad representation of R&D spend beyond its pharmaceutical division).
Does success breed success? – perhaps. More pertinently, it may afford companies to take the risks (and thus spend more money) that real innovation demands – see In Focus: How Johnson & Johnson's pharma growth is laying the foundations for long-term success.
That said, it is not surprising to see a handful of players looking to reduce their R&D expenditure, or maintain similar levels of investment, but 'refocus' where this is targeted at the very least.
Despite a promising performance in 2012 – when the number of NMEs approved by the FDA jumped significantly – it is widely recognised that the rate at which new drugs are being approved has failed to match stellar increases in R&D spending.
A key reason for this, argues one renowned R&D commentator and the former Head of Innovation at Eli Lilly, is that innovation within the industry is being suffocated by the sheer amount of money being invested.
"Money numbs innovation, because you remove a sense of urgency. If you don't have to worry about where your next grant is coming from, you have no reason to challenge yourself," the person said.
This suggests that even those companies deemed to be more successful at R&D productivity are in danger of 'over-spending.' – see Stakeholder Perspectives: Innovation within the Biopharma Industry.
More encouragingly, FDA director Janet Woodcock recently said that she was "quite astonished" that the administration had received over 100 breakthrough therapy applications since the beginning of 2012. Interestingly, however, it is Novartis and J&J who are among those companies with the most designations granted to date, while Roche was one of the first companies to gain approval for a 'breakthrough' drug - its chronic lymphocytic leukaemia treatment Gazyva.
Does the pharma industry continue to overspend versus its output? - It's difficult to assess accurately, but an $85 billion R&D budget (which versus the 27 NMEs approved by the FDA in 2013 is equal to $3.2 billion per product) shared across the 15 largest spenders provides pause for thought. (Ver)