A common saying among investors is that you have to spend money to make money. If that's the case, the top R&D spenders in the pharmaceutical industry should have a high potential to be among the leading cash generators in the industry going forward, which would be good news for investors in the companies.
Heading the 2020 rankings once again is Roche (RHHBY). The Swiss company poured nearly $14 billion to discover and develop new products last year. That's more than a 9% increase from 2019 and represents more than 22% of the company's revenue, according to FierceBiotech.
Roche saw its revenue dip in 2020 as certain segments took a hit due to Covid. However, in Roche's case, Covid also boosted some segments, and the diagnostics business saw its sales jump 14%. The company has also introduced 15 tests for Covid in the past year.
In 2020, Roche also signed several new agreements, including one with Cambridge Quantum Computing for Alzheimer's disease and another with Enterprise Therapeutics on cystic fibrosis. The company also and discarded several drugs and programs that it didn't see a future for.
Merck & Co. Inc. (MRK) jumped one place to second in the 2020 rankings, with R&D spending climbing 27% to $13.6 billion. Its budget was more than 28% of revenue.
Merck spent a lot of money last year trying to capitalize on the Covid market, but its efforts didn't work out so well. The company was unable to develop an effective vaccine. Merck also bought OncoImmune to get access to that company's Covid drug, but the Food and Drug Administration wants more clinical data, delaying Merck's supply contract and costing the company millions for further tests.
To boost its opportunities in cancer, Merck made several deals to acquire treatments from Artiva Biotherapeutics, Taiho Oncology and Astex Pharmaceuticals. The company also spent $2.75 billion to buy VelosBio.
Johnson & Johnson (JNJ) slipped one place to number three on the 2020 list as it was supplanted by Merck. The diversified health care giant spent just over $12 billion on R&D, up about 6% from the previous year. Its R&D spend as a percentage of sales was well below Roche and Merck's at 14.7%.
J&J developed a Covid vaccine that, while not as effective as the others from Moderna Inc. (MRNA) and Pfizer Inc. (PFE) / BioNTech SE (BNTX), does have the big advantage of requiring only one shot.
J&J spent $6.5 billion to buy Momenta Pharmaceuticals and its number of potential blockbusters. The company is also hoping for the 2021 approval of its new cancer drug amivantamab, which has been shown to shrink tumors in 40% of lung cancer patients.
Other companies that made the top ten for R&D spending are:
4. Bristol-Myers Squibb Co. (BMY), R&D $11.1 billion, up 45%, representing 26% of revenue
5. Pfizer Inc. (PFE), budget $9.4 billion, up 8%, representing 22.4% of revenue
6. Novartis (NVS), budget $8.9 billion, up 8%, representing 18.2% of revenue
7. GlaxoSmithKline (GSK), budget $7.7 billion, representing 16.1% of revenue
8. Sanofi (SNY), budget $6.6 billion, up 8%, representing 15.3% of revenue
9. AbbVie Inc.(ABBV), budget $6.6 billion, up 2.3%, representing 14.3% of revenue
10. Eli Lilly and Co. (LLY), budget $6.08 billion, up 8%, representing 24.8% of revenue
Disclosure: The author has positions in Johnson & Johnson, Bristol-Myers, Sanofi, AbbVie, and Eli Lilly.
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