The top 15 spenders in the glob­al drug R&D busi­ness: 2017

The top 15 spenders in the glob­al drug R&D busi­ness: 2017

You usu­al­ly don’t see much an­nu­al fluc­tu­a­tion in the over­all R&D bud­gets of the top 15 com­pa­nies. The trend over the last few years has been to keep the lid on spend­ing, par­tic­u­lar­ly among the gi­ants in Big Phar­ma. Com­pa­nies didn’t cut much over­all, but there was plen­ty of re­align­ment go­ing on as the in­dus­try re­fo­cused pipelines and con­tin­ued a mi­gra­tion to the big hubs.

This past year, though, it was clear that a few com­pa­nies want­ed to turn up the heat in drug de­vel­op­ment, and this kind of fu­el costs re­al mon­ey for com­pa­nies that tra­di­tion­al­ly fo­cus heav­i­ly on late-stage block­buster drug re­search.

The top five in the busi­ness saw their col­lec­tive spend­ing jump by more than $5 bil­lion, from 2015 to 2016, based on the an­nu­al num­bers filed large­ly — though not en­tire­ly — with the SEC and gath­ered by End­points News. Two of those com­pa­nies, Roche and the new num­ber 2, a hard charg­ing Mer­ck, ac­count­ed for the li­on’s share of the in­crease. (To be sure, some one­time non-R&D spend­ing, such as Mer­ck’s patent set­tle­ment with Bris­tol-My­ers on Keytru­da, fig­ured in. But so did bread and but­ter spend­ing.)

Gilead al­so saw a sig­nif­i­cant in­crease in re­search costs, with Eli Lil­ly — now off course fol­low­ing two bad set­backs for solanezum­ab and baric­i­tinib — and the ever ag­gres­sive Cel­gene join­ing the ac­tion as they pressed the ac­cel­er­a­tor on new drug pro­grams.

Cu­ri­ous­ly, the added spend­ing co­in­cid­ed with a bad drop in new drug ap­provals in 2016. But they don’t cor­re­late, and we’ve al­ready seen that turn­around un­der way as reg­u­la­tors get busy with a brand new year — and soon a brand new FDA com­mis­sion­er.

Para­dox­i­cal­ly, one of the rea­sons why some of these R&D bud­gets have been ris­ing is that de­vel­op­ment has been pick­ing up speed. That’s abun­dant­ly clear now in the can­cer field, where suc­cess with im­muno-on­col­o­gy has trig­gered a land rush men­tal­i­ty, with top play­ers stak­ing out as much ter­ri­to­ry as fast as pos­si­ble. Any­thing left on the ta­ble won’t stay there for long, and first mover ad­van­tage can be crit­i­cal. So in­vest now, reap your re­wards lat­er.

In the process, treat­ing new on­col­o­gy cas­es is grad­u­al­ly be­ing rev­o­lu­tion­ized. And that’s not PR talk.

R&D re­or­ga­ni­za­tion, once aimed at mas­sive cost cut­ting sev­er­al years ago at places like Mer­ck, Glax­o­SmithK­line, Pfiz­er and As­traZeneca, is still with us. But the form and sub­stance has changed. Now these com­pa­nies, along with a pres­sured No­var­tis and a bot­tom-line fo­cused Am­gen, have been look­ing to win­kle out cost sav­ings wher­ev­er they can be found. But many are al­so in­vest­ing heav­i­ly in new R&D cen­ters in San Fran­cis­co and Boston/Cam­bridge.

Mean­while, some of the top play­ers, like Sanofi, in­creas­ing­ly ap­pear to be stuck. Their in-house or­ga­ni­za­tions have been large­ly un­pro­duc­tive. Their part­ner­ships are re­spon­si­ble for turn­ing out the key new ap­provals.

We’ve seen some M&A deals, of course, but not an abun­dance of ac­qui­si­tions from the big 10. Roche doesn’t feel it needs to. Mer­ck hasn’t been buy­ing much. As­traZeneca — which is in­creas­ing­ly cash re­strict­ed — has been sell­ing off its dis­ap­point­ments, gin­ning some cash flow in the process.

The M&A stand­outs have been Pfiz­er (of course) and J&J, which care­ful­ly stepped up to buy Acte­lion’s port­fo­lio for $30 bil­lion. Ab­b­Vie is get­ting a rep for over­spend­ing on its deals.

Mean­while Sanofi prac­ti­cal­ly has to do a deal to prove it knows how af­ter let­ting Medi­va­tion and Acte­lion slip through its fin­gers, and not just to high­er bids. And Gilead is be­ing or­dered to get in­to gear by an­a­lysts who have been kept wait­ing too long.

We’re still wait­ing for the big one.

And that re­mains the key here. Per­haps af­ter tax re­form, if that hap­pens, we’ll see some of those over­seas bil­lions put to use in buy­outs. But it’s a long time com­ing.

1. Roche

2016: $11.41 bil­lion (11.53 bil­lion CHF to­tal: 10.15 bil­lion CHF for phar­ma, the rest di­ag­nos­tics)
2015: $9.2 bil­lion (9.3 bil­lion CHF to­tal:  8.1 bil­lion CHF for phar­ma, the rest for di­ag­nos­tics)
Rev­enue: 50.5 bil­lion CHF
R&D as a per­cent­age of rev­enue: 22%
Mar­ket: $RHH­BY
R&D chief: Michael D. Var­ney, gRED; John Reed, pRED

A block­buster bud­get de­liv­ers in Phase III

Give Roche cred­it where it’s due. The but­toned-down Swiss gi­ant ac­quired Genen­tech and didn’t man­age to kill the cre­ative chem­istry, a rare event in this busi­ness. And as a re­sult, Roche has main­tained a rep­u­ta­tion for in-house in­no­va­tion that has al­lowed its ex­ec­u­tive crew to re­main large­ly ex­empt from pres­sure to join the ex­pen­sive M&A game — at least for now.

Roche is a con­sis­tent play­er at the top of the list of R&D big spenders, shelling out con­sid­er­able cash for two groups — Basel-based pRED and Genen­tech’s gRED in Cal­i­for­nia — and still buys the oc­ca­sion­al ther­a­py for its pipeline. Just look at the re­cent deal it com­plet­ed with Bris­tol-My­ers Squibb, bag­ging the an­ti-myo­statin Ad­nectin in de­vel­op­ment for Duchenne mus­cu­lar dy­s­tro­phy with $170 mil­lion up­front plus $205 mil­lion in mile­stones.

The big em­pha­sis in the late-stage pipeline has been on block­busters. And that has paid off with a re­cent ap­proval for Ocre­vus, a new mul­ti­ple scle­ro­sis drug look­ing to dis­rupt that mar­ket, fol­low­ing the big score last year on Tecen­triq, the first of the PD-L1 can­cer check­points.

Suc­cess for new can­cer drugs opens the door to a mul­ti­tude of com­bi­na­tion stud­ies, which Roche has en­gaged in ea­ger­ly when it comes to its big check­point con­tender. In ad­di­tion, the gi­ant scored an­oth­er re­cent win for its can­cer fran­chise, re­port­ing that a key Phase III tri­al adding Per­je­ta to Her­ceptin and chemother­a­py out­per­formed the two old­er stan­dards alone in re­duc­ing the risk of death or re­lapse for ear­ly-stage breast can­cer pa­tients af­ter surgery.

An­a­lysts crowed that the clin­i­cal vic­to­ry sig­nals a ma­jor ad­vance for Roche, like­ly adding bil­lions to its megablock­buster on­col­o­gy fran­chise.

Its new drugs are al­so beat­ing a path for­ward in the clin­ic, as we saw when Ale­cen­sa beat out Xalko­ri in ALK-pos­i­tive non-small cell lung can­cer.

Roche has high hopes for emi­cizum­ab (ACE910) for he­mo­phil­ia, but in­ves­ti­ga­tors con­tin­ue to raise fresh ques­tions about its safe­ty fol­low­ing the death of one pa­tient and a slate of se­ri­ous ad­verse events in the piv­otal Phase III. And it’s brought gan­tenerum­ab back from the dead for its Alzheimer’s Phase III pipeline, which al­so in­cludes the new­ly added fol­low up late-stage study for crenezum­ab.

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