The High Price of R&D

Editor’s Note: This article was published in Pharmaceutical Technology Europe’s March 2020 print issue.

It probably comes as no surprise that R&D expenditure in the bio/pharma industry is one of the highest on average, with companies spending approximately 17% of revenues on R&D, according to market research (1). And, investments into R&D worldwide are on the rise and expected to reach US$203.9 billion (188.1 billion Euros) by the year 2024 (2).

Within the Europe Union, figures have shown that nearly 320 billion Euros was spent on R&D in 2017 (3), and according to data from Strategy&, of the top 1000 global corporate R&D spenders, 41 companies were European pharma/biotech ones (4). Additionally, the data highlight that Roche, Johnson & Johnson, Novartis, and Pfizer are bio/pharma companies that have been in the top 20 R&D spenders every year since 2005, and healthcare companies are on track to be the biggest R&D spenders by 2020 (4). Although companies in the United States are still proportionally dominant in healthcare R&D spending (49% of companies in the sector on the top 1000 list), Europe is not far behind at 31% (5).

Delving deeper

In performing its own research, R&D tax credit specialist, RIFT Research and Development, revealed that Swiss companies in the top 1000 list actually spend the most on R&D annually, followed by US, Australian, Swedish, and German companies (6). The United Kingdom is placed at seventh for R&D expenditure, according to RIFT’s research (6). When examining the UK companies that commit the biggest investments into R&D in particular, RIFT noted that pharma companies are frontrunners, with GW Pharmaceuticals designating £115 million (137 million Euros)-1349.9% of total annual revenue-and Circassia Pharmaceuticals committing £101 million (120 million Euros)-210.4% of its revenue (6).

“Research and development has become a big business, and this is demonstrated by some of the huge spends across some of the biggest companies operating in the UK,” said Sarah Collins, director of RIFT Research and Development, in a press release (6). “However, while certain names are helping drive R&D within the UK at the very highest level, we still have some way to go before we catch the national frontrunners elsewhere around the world. The great thing about R&D is that claims aren’t limited to these giants, and regardless of how established your company is, any work done to progress your sector can qualify and help push the UK to the top of the table.”

The UK company that ranks highest on the top 1000 list is GlaxoSmithKline, which has generally seen its R&D expenses rise year-on-year-an exception being a drop in 2015 (4). According to a news story in the Financial Times, the company is stepping up investment in R&D as well as product launches in 2020 by way of reinvigorating its pipeline, but it has warned that profits will suffer as a result (7).

GSK’s profit warning has the potential to ring true throughout the industry as companies are seeing their investments in R&D reap smaller and smaller returns. As reported by Deloitte in its 10-year analysis on the return from pharmaceutical innovation of a selection of large capital biopharma companies, R&D returns have been steadily declining, while the cost to bring an asset to market has increased since 2010 (8).

Additionally, Deloitte iterated that as a result of the changing treatment modalities, companies are also required to adapt R&D models (8). Factors such as the amassing prevalence of biologics in the pipeline and increasing development cycle times are driving the shift in R&D model (8). Furthermore, the rise of biosimilars, which is particularly apparent in Europe, is adding to the risk of creating a more competitive landscape and hence having a negative impact on revenues (8).

What is clear is that R&D production efficiencies need to be improved so that the high cost of R&D is in fact translated to new, innovative therapies from small and large companies alike actually becoming commercially available, allowing the industry to thrive.

References

1. Investopedia, “Average Research & Development Costs for Pharmaceutical Companies,” Investopedia.com, Article, 8 Aug. 2019. 
2. A. Singh, “Pharmaceutical R&D Global Spending Trends in 2019,” prescouter.com, Article, June 2019.
3. Eurostat, “R&D Expenditure,” ec.europa.eu, Statistical Data, September 2019.
4. Strategy&, “The 2018 Global Innovation 1000 Study,” strategyand.pwc.com, October 2018.
5. B. Jaruzelski, R. Chwalik, and B. Goehle, “What the Top Innovators Get Right,” strategy-business.com, Article, 30 Oct. 2018.
6. RIFT, “Pharmaceutical Giants Driving UK R&D Business,” riftresearch.com, Press Release, 19 Feb. 2020.
7. S. Neville and S. Provan, “GSK Warns Profits to Fall as it Steps Up R&D Spending,” ft.com, News Story, 5 Feb. 2020.
8. Deloitte, “Ten Years On: Measuring the Return from Pharmaceutical Innovation 2019,” deloitte.com, Annual Report (2019).  

Article Details

Pharmaceutical Technology Europe
Vol. 32, No. 3
March 2020
Page: 5

Citation 

When referring to this article, please cite it as F. Thomas, “The High Price of R&D,” Pharmaceutical Technology Europe 32 (3) 2020.