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May 1, 2011 (Vol. 31, No. 9)

Biopharma R&D Spending for 2012 Under Seige

Restructuring and Budgetary Cuts Threaten to Lower Industry Expenditures

  • On March 16, Novartis said that it will decrease R&D in the U.K. with reports putting the number of jobs to be cut between 400 and 550. This places the pharma giant in the company of GlaxoSmithKline, Merck & Co., Pfizer, and Roche. Over the past two years all have reported R&D layoffs and laboratory closings tied to restructurings following blockbuster mergers and acquisitions (M&As). Another pharma giant, sanofi-aventis, said it can’t rule out cutbacks if its planned multibillion-dollar acquisition of Genzyme goes through.

    Yet these same companies were among pharma, biopharma, and biotech firms that in aggregate spent more money than ever last year for R&D on new medicines and vaccines. The industry group Pharmaceutical Research and Manufacturers of America (PhRMA) trumpeted this feat in a study released a day before Novartis announced its cutbacks. PhRMA and study partner Burrill & Co. found that biopharma spending on R&D last year rose by $1.5 billion, or 2.3%, to a record-high $67.4 billion.

    The numbers may not be so upbeat next year, though. The majority of R&D spending comes from the biggest of big pharma companies, which will have some juggling to do. On the one hand there is a need to cut costs after all their M&A activities. On the other hand, they face the need to replenish research pipelines as patent protection ends for some of their best-selling drugs.

  • R&D Budgets in 2010

    For 2010, big biotech R&D spending held below double digits. Among big-name biotechs, the biggest spender was Amgen at $2.894 billion, up 7% from $2.694 in ’09. Next was Biogen Idec with $1.248 billion, down slightly from $1.283 billion a year earlier. Genzyme, which is soon to merge with sanofi-aventis, followed with $847.3 million, up slightly from 2009’s $833.85 million.

    Within big pharma, Roche’s pharma unit spent $9 billion of the $10 billion set aside for corporate R&D in 2010. That’s down 5% from just over $9.8 billion the previous year, when Roche first began scrambling to cut costs following its $46.8 billion merger with biotech giant Genentech. The company axed RNAi and four research and early development sites, saying resources would go to external research partnerships and Phase II programs.

    Roche ended its membership with PhRMA in 2009, soon after the Genentech deal was announced. Among members of PhRMA, R&D spending increased 6.5%, or about $3 billion, to $49.4 billion in 2010. That is 73% of the overall $67.4 billion attributed to all of biopharma.

    Unlike Roche, four of the five PhRMA members with the largest R&D budgets increased their spending during 2010. Merck posted the biggest R&D spending gain within big pharma, nearly doubling its budget to $10.991 billion last year from $5.845 billion in 2009.

    Pfizer’s spending climbed 21% in 2010 to about $9.4 billion from over $7.7 billion in 2009. Novartis’ expenditures for its Sandoz, vaccines, and diagnostics units rose 7.3% to $7.277 billion in 2010 compared with $6.783 billion the previous year. For GSK, R&D spending for vaccine and pharmaceutical development inched up to £3.634 billion (about $5.915 billion) from £3.624 billion (approximately $5.897 billion) in ’09. Sanofi-aventis rounds up the top-five list but saw a drop in R&D expenses last year.

    These five firms together contribute about 56.57% of the total $67.4 billion in R&D spending. And while the likes of Merck, Pfizer, Novartis, and GSK may have reported bigger budgets last year, it remains to be seen whether this upward trajectory in R&D spending will continue.

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