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Stagnant R&D spending may restrict growth of global pharma giants in 2017

Sanjay Pingle, Mumbai
Monday, October 9, 2017, 08:00 Hrs  [IST]

The overall growth of 15 leading global pharma companies may come under pressure soon as their research and development (R&D) spending has not shown any positive results. Although their R&D expenditures are growing and many products are in several stages of clinical trials, not many new molecules are expected to be blockbusters. These companies failed to launch any new blockbuster, sales over US$ one billion, product during the first half. The cost of new product research is going up significantly with risk of uncertainty and longer gestation period. Further, patent expiration and competition from generic players is putting tough challenges on these companies.

R&D expenditure of 15 major international companies increased only by 2.3 per cent to $44 billion during the first half ended June 2017 from $43 billion in the corresponding half year ended June 2016. The R&D expenditure of these companies for the year ended December 2016 was at $91 billion as against $88 billion in the previous year. R&D spending as percentage of net sales of these 15 companies declined during the first half ended June 2017 to 15.9 per cent from 16.1 per cent in the same period of last year. Out of 15 companies only four companies registered double digit growth in R&D spending and five companies shown decline in spending. Major companies like Novartis, Pfizer and Merck failed to invest higher amount in R&D activities.

The R&D expenditure of Novartis and Pfizer stayed almost same at $4,231 million and $3,487 million during the first half ended June 2017 and that of Merck & Co declined by 7 per cent to $3,545 million from $3,810 million in the similar period of last year. Further R&D expenditure of Gilead Sciences declined sharply by 34.7 per cent to $1,795 million from $2,749 million and that of AstraZeneca, Eli Lilly & Co and Amgen have also declined by 4.9 per cent, 2.7 per cent and 7.3 per cent respectively. Bristol-Myers Squibb Co, GlaxoSmithKilne and Teva Pharma invested strongly in the R&D activities during first half and their R&D expenditure increased by over 20 per cent. AbbVie achieved double digit growth of 13.9 per cent and Sanofi, Roche and Bayer notched up R&D expenditure growth of 9.2 per cent, 7.6 per cent and 7.2 per cent respectively

Out of the Pharmabiz sample of 15 international pharma companies, Roche has highest R&D spendingof $5,244 million followed by Johnson & Johnson (J&J) at $4,345 million as these companies are also undertaking R&D in diagnostic segment. Similarly, Bayer is undertaking R&D activities also in Crop Science area.

The R&D activities of these companies are focused on various therapies and several products are in late-stage pipeline. GlaxoSmithKline is focusing on strengthening pharmaceutical pipeline with cost base improvements. GSK has created new priorities to strengthen innovation, improve performance and build trust. Its pharmaceutical R&D pipeline reviewed with target over time to allocate 80 per cent of capital to priority assets in two current (respiratory and HIV/infectious diseases) and two potential (oncology and immuno-inflammation) therapy areas. It has decided to stop more than 30 pre-clinical and clinical programmes that are unlikely to generate sufficient returns. It extended cost reduction programme expected to deliver addition Pound one billion annual cost savings by 2020 driven be new business priorities, improved supply chain efficiency and reduced administrative costs.

Pfizer has 96 assets in pipeline as at the end of January 2017 and many of its R&D pipeline's new molecular entities are focus on cancer. Its pipeline covers a range of cancers, including kidney, breast, prostate, lung and blood cancers, and includes biologics, chemicals, immuno therapies, gene therapies and biosimilars. As at the end of December 2016, there were 77 ongoing or completed collaborative Ibrance studies with investigators, 43 of which are in breast cancer and 34 in non-breast tumors including pancreatic and head and neck cancers. The company has 14 biosimilars in the pipeline, which are expected to compete in a global market that may grow to $17-20 billion over the next five to 10 years.

Pfizer has developed a hemophilia gene therapy in partnership with SPARK Therapeutics, Inc. It acquired Bamboo Therapeutics, Inc. a privately held biotechnology company, focused on developing gene therapies for the potential treatment of patients with certain rare diseases including Duchenne muscular dystrophy and Friedreich's ataxia. Through this acquisition, it acquired a number of novel assets, key technology and manufacturing capabilities.

AstraZeneca has a deep-rooted heritage in oncology and offers a growing line of new medicines that has the potential to transform patients' lives. At least six oncology medicines are expected to be launched between 2014 and 2020. An extensive pipeline of small-molelcule and biologic medicines is in development stage.

Novartis has one of the industry's most competitive pipelines with more than 200 projects in clinical development. Its Kisqali received a positive CHMP opinion as a first-line option for metastatic breast cancer in combination with any aromatase inhibitor. Zykadia received FDA and EMA approval for first line use in ALK-positive advanced non-small cell lung cancer. The company is strengthening its pipeline and its RTH258 demonstrated non-inferiority to aflibercept. Its ACZ885 reduced cardiovascular risk in people who survived a heart attack. biosimilars Erelzi (etanercept) and Rixathon (rituximab) were approved in the EU and biosimilars for adalimumab and infliximab were accepted for regulatory review by EMA.

Johnson & Johnson received an additional indication for Darzalex in combination with pomalidomide and dexamethasone for the treatment of patiients with multiple myeloma. The European Commission granted approval for Darzalex The company submitted a supplemental New Drug Application to the US FDA to update the prescribing information for Xarelto.

The stagnant R&D spending and limited final outcome has put pressure on working of these companies during the first half ended June 2017. The net sales of these 15 global pharma companies increased only by 3.7 per cent during the first half ended June 2017 to $280 billion from $270 billion in the corresponding period of last year. Their pharmaceutical and vaccine sales increased only by 1.6 per cent to $223 billion from $220 billion. The pharmaceutical sales in US increased by 4.3 per cent to $99 billion from $95 billion and Pfizer remained on top in US sales of $13 billion. For the full year ended December 2016, the pharmaceutical sales of these 15 companies were increased only by 2.4 per cent to $443 billion from $433 billion in the previous year.

Novartis maintained its leading position with pharmaceutical sales of $23,781 million, though its sales declined by 1.2 per cent from $24,070 million. Pfizer, at second spot, received setback and its pharmaceutical sales declined by 5.4 per cent to $22,740 million from $24,050 million in the last period. Roche, remained at third rank, registered pharmaceutical sales of $21,421 million, a small growth of 2.3 per cent. Sanofi, GlaxoSmithKline and Teva Pharma registered relatively stronger growth in pharmaceutical sales of 11.9 per cent, 12.4 per cent and 14.9 per cent respectively.

The net profit of 15 companies improved by 28.4 per cent to $64 billion during the first half of 2017 from $50 billion in the similar period of last year. Teva Pharma registered strong growth in net profit which reached at $5,329 million as against $875 million in the last period and Sanofi clocked up net profit growth of over 200 per cent to $7,761 million as against $2,533 million. Similarly, GlaxoSmithKline earned a net profit of $1,475 million as against a loss of $188 million. Eli Lilly's net profit declined by 24.4 per cent to $897 million from $1,187 million and that of Novartis declined by 4.5 per cent to $3,644 million from $3,817 million. The net profit of Gilead Sciences declined by 18.3 per cent to $5,768 million. AstraZeneca notched up strong growth of over 61 per cent in net profit to $958 million as against $595 million. And Merck & Co posted growth of 50 per cent and its net profit moved up to $3,496 million as compared to $2,330 million. AbbVie and Pfizer registered net profit growth of over 20 per cent.


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