Novartis and Roche spend heavily to get to the top

By 2020, four of the world’s five biggest pharma companies by prescription sales will be European, with Novartis and Roche leading the pack. And the Swiss giants are spending to get to the top – both are forecast to be investing more than $10bn in R&D by 2020, considerably more than any other drug developer, EvaluatePharma World Preview 2014, reveals.

The analyses show that most big pharma companies are expected to up spending on research over the next six years – Merck & Co and Eli Lilly are the exceptions – although looking at their investment as a percentage of sales reveals that on this measure many are cutting back. And this helps explains why growth in R&D spending across the entire industry is seen as lagging the projected rise in sales (see graphs below or click here for the full report).

EvaluatePharma data projects 2.4% growth in R&D spending on average each year out to 2020, with investment reaching $162bn that year. An analysis outlined yesterday showed that prescription sales are forecast to rise 5.1% a year over the same period, topping $1tn for the first time in 2020 (Growth picture ought to suit pharma industry to a T, June 24, 2014).

As such it is not surprising to see that the industry’s spend as a percentage of sales is shrinking – from 19.1% in 2013 to 15.9% in 2020. This is the least spent proportionately since at least 2006, the World Preview reveals.

A look at who is cutting reveals that the biggest drug makers almost without exception are shrinking their R&D budgets as a percentage of sales.

For example Novartis and Roche both spent just over 20% of their drug sales on R&D in 2013; by 2020 that proportion is forecast to shrink to 19.5% and 19.7% respectively.

These companies commit a much greater proportion of their sales to new research than many other peers – Sanofi’s spend is seen shrinking from 16.2% of sales to 14.1% in 2020, while Pfizer stays steady at 14.6% to 14.4%. Of the big pharma names only Lilly is seen keeping R&D investment up well above 20% of sales – 25.6% in 2020 – although given a run of disappointing pipeline news the company is under immense pressure to justify this level of investment.

However, the importance of the world’s biggest drug developers to the global R&D effort cannot be underestimated. Of the $162bn forecast to be invested in 2020, $101bn of that will be committed in the labs of the 20 biggest spenders, the report finds.

It is interesting to see how the list of the biggest spenders differs from the company’s booking the most sales. The top four reads the same, but from then on it shifts.

Most notably, Gilead makes it into the top 10 drug makers by prescription sales in 2020, a remarkable achievement on many levels, not least its relatively small investment in R&D compared to other big pharma names. For this elevation it has hepatitis C franchise Sovaldi to thank, which is forecast to contribute almost half of its sales in 2020. It is clear that much rests on enduring demand for the product.

Novo Nordisk’s move up the rankings is also notable, and illustrates how it stands to benefit from its years of focused research into the diabetes space.

The big pharma companies can only look on their projected sales growth rates with envy, particularly as these data suggest that almost none will grow their share of the world’s drug market over the next years. The exception here is Bristol-Myers Squibb, which is seen growing sales by 8% a year through 2020, although this forecast will depend a lot on its anti-PD-1 antibody nivolumab living up to huge expectations.

The report also shows that the 20 biggest drug makers by prescription sales will see their share of the drug’s market shrink from 64.3% in 2012 to 57% in 2020. This suggests that these companies will remain highly motivated to find sources of growth from outside their own labs.

Download a free copy of the World Preview 2014 here.

(All images are thumbnails).

To contact the writer of this story email Amy Brown in London at [email protected] or  follow @AmyEPVantage on Twitter