Even though Roche (RHHBY) was the pharma company that pumped the most money into R&D in 2019 - an astonishing $12.06 billion - AstraZeneca (AZN) recorded the greatest increase in spending at 21%. The company also invested the most as a percentage of sales last year (24.8%).
As we look forward, we see that Covid-19 has thrown a wrench in the plans of pharmaceutical companies. Spending is likely to be down overall in 2020 primarily because a number of clinical trials have been delayed, although some may resume shortly. On the other hand, the pandemic has ignited a race to find treatment and vaccine options against Covid-19.
I listed the 10 top spenders on pharmaceutical R&D last year in a recent GuruFocus article. Today, we’ll review the R&D focus of the top five on the list, as well as their recent launches and promiising pipeline treatments.
1. Roche
R&D budget: 11.7 billion Swiss francs ($12.06 billion)
Change from 2018: +6%
Total 2019 revenue: Fr. 61.47 billion ($63.34 billion)
R&D budget as percentage of revenue: 19%
Roche is expected to lose about $4 billion in revenue as biosimilars eat away at its top three antibodies, Avastin, Rituxan and Herceptin. More bad news is that another top seller, the eye disease therapy Lucentis, is also due to lose patent protection this year.
Oncology continues to capture a high percentage of R&D funding at Roche. Last year saw some promising results from its biggest individual product program, the cancer drug Tecentriq. Among a number of other cancer drugs that hit the market last year were Polivy and Rozlytrek.
By the end of 2019, there were 72 new molecular entities in Roche’s biopharma pipeline, and the company says it expects spending on R&D to rise ahead of other costs at the company as it advances “an unprecedented number” of phase 3 programs through the clinic.
2. Johnson & Johnson
R&D budget: $11.36 billion
Change from 2018: +5.3%
Total 2019 revenue: $82.1 billion
R&D budget as percentage of revenue: 13.8%
Johnson & Johnson’s (JNJ, Financial) relatively low ranking on R&D spend as a percentage of sales is because of the company’s large consumer business, which is included in revenue but doesn’t require much in the way of R&D.
In 2019, the company bagged new approvals for two big-selling blood cancer drugs and launched a treatment for depression, the first in a new class in decades. So far, 2020 has seen approval of cancer drug Darzalex and Imbruvica for leukemia.
J&J hopes to file for approval of 10 drugs in the next three years, and despite the pandemic, many of those filings are expected to occur this year, including a treatment for multiple sclerosis.
3. Merck & Co.
R&D budget: $9.9 billion
Total 2019 revenue: $46.84 billion
Change from 2018: +1%
R&D budget as percentage of revenue: 21.1%
Chewing up a substantial portion of Merck’s (MRK, Financial) R&D spend is the number of studies being conducted on the blockbuster that is driving the company’s sales: Keytruda. The drug was approved for a number of cancers last year and still more are expected.
Merck is concerned about becoming a one-trick pony with Keytruda, as the drug accounted for just under a quarter of the company’s sales in 2019 and an even higher percentage the first quarter in 2020.
Merck insists, however, that its pipeline has a lot more to shout about than Keytruda, with or without add-on cancer drugs..
Like many members of pharma, Merck has seen R&D decline a little in the first quarter due to pandemic-related delays in clinical trials. However, the company said no trials have been completely stopped and new trials are being started on schedule.
4. Novartis
R&D budget: $9.4 billion
Change from 2018: +13%
Total 2019 revenue: $47.45 billion
R&D budget as percentage of revenue: 19.8%
Switzerland-based Novartis (NVS, Financial) has gone out on a limb, promising to launch an astounding 25 blockbuster drugs in the next few years. The company’s off to a good start, gaining six drug approvals last year.
Novartis’ big coup last year was the U.S. Food & Drug Administration’s approval of Zolgensma for spinal muscular atrophy, thus making it only the second FDA-approved gene. The drug is expected to generate sales of $2 billion annually at its peak.
Among the company’s other newer offerings is Piqray, which became the first drug approved specifically for a certain type of breast cancer.
Duplicating Novartis’ success in 2020 is going to be a challenge, but the company thinks it’s up to the task with several new major launches this year.
Novartis has some 300 drug trials underway involving nearly 100,000 patients, yet the pandemic has caused only minor disruptions as the company relies more on digital tech and remote monitoring visits.
Novartis has started testing three of its drugs as potential treatments for Covid-19.
5. Pfizer
R&D budget: $8.65 billion
Change from 2018: +8%
Total 2019 revenue: $51.8 billion
R&D budget as percentage of revenue: 16.7%
When Ian Read left the top spot at Pfizer (PFE, Financial), he charged his successor, Albert Bourla, with continuing what he had started: a revamp of the company and a greater commitment to R&D.
Pfizer has lost patent protection of a number of its key drugs during the past several years, including the blockbuster Lyrica in 2019. That really one hurt because generics can now go after about $3.6 billion of Lyrica’s $5 billion in sales. On the bright side, Pfizer’s other drugs have patent protection until 2026. That means the company can concentrate on building its pipeline. It has an objective called "15 in five," that is, bringing 15 blockbusters to market between 2018 and 2022.
One of the big successes for Pfizer’s R&D ops in 2019 was securing FDA approval for a heart drug with billion-dollar sales potential. Vyndaqel appears to be right on plan, tallying sales of $231 million in the first quarter of the year.
At the end of April, Bourlas said there has been a “brief pause” in clinical trial recruitments due to the pandemic, but that most of the company’s pipeline programs are moving forwarded.
Disclosure: The author has positions in Johnson & Johnson and Pfizer.
Read more here:
- Roche, Johnson & Johnson Top R&D Spenders in 2019
- Vertex CEO Provided Best Value for Investors​
- Pliant Therapeutics Share Have Climbed Since IPO
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