Wyeth's R&D rationalisation confirms a new trend in research

Analysis

News that Wyeth is rationalising its R&D efforts, by significantly reducing the number of therapeutic areas and diseases for which it intends to develop new drugs, follows in the footsteps of peers such as Pfizer and Bristol-Myers Squibb who have implemented similar restructuring programmes.

A review of R&D forecast data from EvaluatePharma reveals that despite these initiatives research budgets within US big pharma companies are set to grow faster than pharmaceutical revenues between 2007 and 2014. Whilst the programmes implemented by Pfizer and BMS are reflected in the groups’ forecast to record the slowest growth in R&D spend, the analysis also highlights a conflicting strategy by the likes of Schering-Plough and Abbott Laboratories who appear set to continue making significant investments in R&D over this seven year period.

Is R&D spend still sacred?

The table below shows that one of the fundamental tenets of the pharmaceutical industry that R&D spend will forever remain sacred is under threat. Although overall R&D spend by these companies is expected to grow on average by 4% between 2007 and 2014, compared to an average growth rate of 13% between 2000 and 2007, in relative terms US big pharma appears to be significantly scaling down its research efforts.
 

  Pharma R&D ($m) CAGR (07 - 14) CAGR (00 - 07)   WW Rx & OTC Sales ($m) CAGR (07 - 14)   % R&D spend / Pharma sales
  2007 2014       2007 2014     2007 2014
Schering-Plough 2,926 5,449 9.3% 11.9%   13,394 21,739 7%   21.8% 25.1%
Abbott Laboratories 1,614 2,548 6.7% 13.9%   16,133 23,890 6%   10.0% 10.7%
Genentech 2,446 3,570 5.5% 25.8%   8,540 15,492 9%   28.6% 23.0%
Eli Lilly 3,387 4,763 5.0% 8.2%   16,936 18,617 1%   20.0% 25.6%
Johnson & Johnson 5,296 7,323 4.7% 14.3%   27,339 31,664 2%   19.4% 23.1%
Wyeth 3,029 3,853 3.5% 11.2%   16,968 21,387 3%   17.8% 18.0%
Amgen 3,147 3,973 3.4% 20.7%   14,311 18,425 4%   22.0% 21.6%
Merck & Co 4,558 5,386 2.4% 10.0%   25,934 26,926 1%   17.6% 20.0%
Bristol-Myers Squibb 3,006 3,437 1.9% 8.4%   13,713 14,719 1%   21.9% 23.4%
Pfizer 7,215 6,980 (0.5%) 8.9%   42,635 29,683 (5%)   16.9% 23.5%
                       
Average CAGR (07 -14)     4% 13%       3%      

Interestingly, the only companies where growth in pharmaceutical revenues will outstrip a rise in R&D spend are the two biotech giants, Genentech and Amgen.

Whilst all companies are decelerating growth in their R&D budgets, Schering-Plough and Abbott stick out as companies that appear to be keeping faith with the concept that continuing to invest in research will ultimately reap significant rewards.

Wyeth hoping for maximum R&D impact

The streamlining of Wyeth’s research efforts revealed yesterday is part of a broader cost-cutting initiative called Project Impact announced in January. Wyeth intends to reduce the number of therapeutic areas it works on from 14 to 6, whilst focusing on developing drugs for just 27 diseases compared to the 60 diseases it is currently researching.

The therapeutic areas Wyeth is pinning its hopes on are; oncology, inflammation, neuroscience, vaccines, metabolic diseases and muscular-skeletal disorders, with an enhanced focus on developing biological products.

Wyeth claims its R&D budget will not be cut and will continue to work on clinical phase drugs that are outside the core therapeutic areas. However, it will cut out all pre-clinical candidates and research projects which are not in keeping with the new research strategy. At least half of the 34 early stage projects therefore likely to be culled.

  Total number of pipeline candidates  Late stage pipeline (Filed, PIII, PII)  % of pipeline in late stage 
 Pfizer 171 61 36%
 Merck & Co 122 32 26%
 Schering-Plough 97 34 35%
 Wyeth 71 26 37%
 Johnson & Johnson 79 34 43%
 Amgen 58 21 36%
 Genentech 64 18 28%
 Eli Lilly 73 31 42%
 Abbott Laboratories 43 22 51%
 Bristol-Myers Squibb   76 23 30%

Need for change

Whilst a re-focusing of research efforts is common place within cash-strapped biotech companies, it now appears that big pharma is also feeling the effects of an increasingly tough regulatory environment and that these pharma giants are starting to accept they simply cannot cover all the bases they used to.

With the huge increase in R&D spend between 2000 and 2007 failing to deliver a new wave of blockbuster products to help ease big pharma through the looming patent cliff, investors will be hoping that this latest trend for rationalising and focusing of research efforts pays off in the long run.

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