[BLOG] Pipeline advancement responsible for upturn in global pharma R&D

Mr Dion

The world’s leading 30 pharmaceutical companies spent a combined $112 billion on research and development (R&D) in 2013, an increase of $723 million over the previous year. According to our new Global Pharmaceutical Benchmark Report, Roche was the R&D spending leader, outlaying nearly $10 billion in 2013. Meanwhile, Novartis and Johnson & Johnson (J&J) increased their R&D spending the most between 2012 and 2013, with each adding around $500 million to their respective clinics. Novartis’ R&D spending grew by 5.6% to $9.8 billion, and J&J spent $8.2 billion, which was up by 6.8% from 2012.

Prescription drug development costs skyrocket

The increase in R&D spending was partly due to drug makers advancing their pipeline programs into later-stage clinical trials, which are generally more costly. Despite the sector increase in R&D spending, a number of large pharmaceutical firms pulled back on clinical investment in 2013. In efforts to improve profit margins, cost-cutting still remains a strategic necessity for some players. Many companies reduced their workforces to help stabilize profits in the aftermath of patent losses. Pfizer shaved over $1.2 billion in R&D spending after losing market exclusivity on Lipitor (atorvastatin) and Caduet (amlodipine/atorvastatin), and Merck continued with its multiyear restructuring program, cutting over $600 million from its clinical operations in 2013 after its respiratory therapy Singulair (montelukast) saw its patent lapse.

Roche: $10B

F. Hoffmann-La Roche was the R&D spending leader in 2013, outlaying almost $10 billion in the clinic, representing 19.8% of the company’s total sales. The $9.9 billion Roche spent was far above the peer group average for this metric, which was $3.6 billion. Roche’s R&D spending was bolstered by continued investments in oncology and neuroscience therapeutic areas, such as the company’s investigational anti-PD-L1 antibody targeting lung cancer and the advancement of its programs for Alzheimer’s disease.

Read more FormularyWatch Blogs

Novartis: $9.8B

Novartis’ R&D spending increased 5.6% year to year, from $9.3 billion in 2012 to $9.8 billion in 2013. The rise was largely due to Novartis’ subsidiary Alcon, which made significant investments in R&D to develop new eye care products to replace sales lost to generic competition. In the company’s vaccine and diagnostic products business, Novartis allocated considerable resources to fully develop and bring to market new vaccines including Bexsero (meningococcal group B vaccine [rDNA, component, adsorbed]), the first broadly effective meningitis B vaccine for all age groups, including infants.

Johnson & Johnson: $8.2B

J&J’s R&D spending grew by 6.8% to $8.2 billion. This was the result of higher litigation expenses and the write-down of assets and impairment of in-process (IP) R&D assets related to the Crucell vaccine business, and to the discontinuation of the phase 3 clinical development of bapineuzumab.

Merck: $7.5B

Merck’s R&D spending dropped 8.1% year to year to $7.5 billion in 2013. Merck cut its R&D costs through targeted reductions and less early clinical development spending as a result of portfolio prioritization, as well as lower payments for licensing activities. Merck also recognized $1.7 billion in restructuring costs in 2013, which contributed favorably to cost savings in the company’s clinic in the form of headcount reductions and asset abandonment.

Pfizer: $6.7B

Pfizer’s R&D expenses decreased 15.1% year to year from $7.8 billion in 2012 to $6.7 billion in 2013. The cut in R&D spending was the result of Pfizer’s continued implementation of cost-reduction and productivity initiatives, including the termination of R&D projects in therapeutic areas with little or no commercial value. Also contributing to the decline in R&D spending was Pfizer not recognizing a $250 million upfront payment the company made to AstraZeneca in 2012 to obtain the rights to over-the-counter Nexium (esomeprazole magnesium) for treating symptoms of gastroesophageal reflux disease.

Sanofi: $6.3B

Sanofi’s R&D expenses remained relatively unchanged in 2013 on a translated currency basis representing about 14.5% of total sales. On a segment basis, R&D spending in the company’s pharmaceuticals business decreased as a result of favorable exchange rates and ongoing portfolio rationalization. In Sanofi’s vaccine segment, R&D spending fell by 3.7% largely due to the end of enrollment of patients for clinical trials for dengue fever vaccine.

GlaxoSmithKline: $6.1B

GSK’s R&D expenses declined 2.4% to approximately $6.1 billion in 2013 as a result of lower spending in the company’s vaccine business. This was partially offset by increased investments in consumer healthcare, however, mainly in its vitamin, nutrient, and oral care product segments.

Eli Lilly: $5.5B

Eli Lilly’s R&D expenditure as a percentage of revenue was 23.9% in 2013, which was 50 basis points higher than 2012. This was the result of $97.2 million in milestone payments made to its collaboration partner, Boehringer Ingelheim, following regulatory submissions for the sodium glucose co-transporter-2 (SGLT2) diabetes drug empagliflozin, which the FDA rejected in March 2014, but the European Union subsequently approved. Also, Eli Lilly recognized IPR&D charges of $57.1 million resulting from its acquisition of all development and commercial rights for a calcitonin gene-related peptide antibody, which the company purchased from Arteaus Therapeutics. The antibody is being examined as a potential treatment for the prevention of frequent, recurrent migraine headaches. Eli Lilly witnessed this charge following the molecule’s successful phase 2 proof-of-concept study.

AstraZeneca: $4.8B

AstraZeneca’s R&D expenses fell by 6% to $4.8 billion in 2013, mainly due to the termination of certain pipeline projects, and headcount reductions, as the company continues with its previously announced restructuring program. These restructuring initiatives have been created to fuel investment behind growth platforms in diabetes and respiratory franchises.

Bayer: $4.2B

In 2013, Bayer’s R&D expenses spiked 10% to over $4.2 billion. Bayer’s pharmaceuticals segment witnessed an increase in drug discovery mainly focused in the areas of cardiology, oncology, hematology, and mechanism research in ophthalmology. The company’s expenses also grew due to special charges related to claims concerning Yasmin/Yaz (drospirenone and ethinyl estradiol) birth control pills, and for the integration of Conceptus, which Bayer acquired in April 2013.

Amgen: $4.1B

Amgen’s R&D spending grew by 20.8% year to year, from $3.4 billion in 2012 to $4.1 billion in 2013. GlobalData attributes the rise primarily due to an increase of $665 million in Amgen’s later-stage clinical projects, including phase 3 studies evaluating evolocumab (AMG-145), a PCSK9 program for lowering low-density lipoprotein cholesterol; and romosozumab (developed with UCB), currently in phase 2 for treating postmenopausal osteoporosis. Amgen’s R&D spending also increased through the acquisition of clinical trials for Kyprolis (carfilzomib), which the company gained when it purchased orphan drugmaker Onyx Pharmaceuticals back in October 2013.

Bristol-Myers Squibb: $3.7B

R&D expenses for BMS decreased 4.4% from $3.9 billion in 2012 to $3.7 billion in 2013. This decline was attributed to prior year impairment charges related to the termination of development of BMS-986094 (formerly INX-189), a hepatitis C virus compound to which the company gained rights after it acquired Inhibitex.

Celgene: $2.2B

Celgene’s R&D expenses grew by over $500 million in 2013, or 29.1% when compared to the same period in 2012. This growth was far above the peer group average, which was only 3.1% in 2013. The increase was primarily due to a $446.3 million increase in payments made related to R&D collaboration agreements. This spike was partly offset, however, by a 2012 IPR&D asset impairment charge of $122.5 million, of which $53.4 million was accrued related to the peripheral T-cell lymphoma drug Istodax (romidepsin). Furthermore, $69.1 million was received due to an adjustment related to future sales of Celgene’s pipeline candidate CC-292, which is being studied to treat chronic lymphocytic leukemia.

Gilead: $2.1B

Gilead’s R&D spending soared 20.4% to over $2.1 billion in 2013. GlobalData attributes this to the progression of clinical studies, particularly phase 3 studies in oncology, liver diseases, and HIV. This includes $58.3 million in amortization expenses related to the transition of the IPR&D asset, Sovaldi (sofosbuvir), on FDA’s approval and commercial launch.

Read more on Gilead

UCB: $1.1B

UCB saw its R&D expenses tick up slightly in 2013 to $1.13 billion, from $1.1 billion in 2012, as the company moved a number of its drug candidates into phase 3. UCB advanced its phase 3 program for epratuzumab, which continued to enroll patients with systemic lupus erythematosus. In March 2013, Vimpat (lacosamide) generated positive phase 3 results as a monotherapy treatment in adult epilepsy patients with partial-onset seizures. These pipeline movements were in addition to the company’s 2 new regulatory filings in February 2013 with FDA and the European Medicines Agency to extend the marketing authorization for Cimzia (certolizumab pegol) for the treatment of adult patients with active psoriatic arthritis and for adult patients with active axial spondyloarthritis.

Allergan: $1B

Allergan’s R&D spending increased 5.3% year on year to $1 billion in 2013. GlobalData attributes this mainly to the company’s ophthalmology pipeline, which included completing an analysis of data from the phase 2 trial for AGN-150998 (a protein for retinal diseases) comparing 2 doses of the drug against Lucentis (ranibizumab). Although the data showed some product differentiation, it did not support AGN-150998 to move into phase 3. Allergan also submitted a supplemental new drug application with FDA, seeking approval of Ozurdex (dexamethasone intravitreal) to treat diabetic macular edema.

Mr Dion is an industry analyst with GlobalData Pharma.