In-house projects an ever-thinner slice of sales for big pharma

Insights

In-house R&D investment fell from fashion for big pharma during the years of the patent cliff, but the scale of the external shift has only been realised recently. An analysis of EvaluatePharma data through 2015 shows that six of the top 10 drugmakers will derive less than 20% of drug sales from products developed in their own laboratories.

Pfizer’s $5.2bn takeout of Anacor Pharmaceuticals last week exemplifies this trend, as it bought in an eczema project that could be launched early next year if approved on schedule by the FDA. The cost of trials and the risk of failure have long been a drag on productivity, and for many it is simply more sensible to shift these hazards by buying rather than building (see table below).

Keeping laboratory doors open

The extent to which these large players have shifted their eyes to licensing partners or acquisition targets is further demonstrated by the fact that only three received more than half of their revenue from agents developed internally; these are Novartis, AstraZeneca and GlaxoSmithKline.

The first of these three, of course, has ridden its own pipeline to be the number one seller of prescription drugs in the world. The last two, on the other hand, have struggled to make headway in launching organically derived products.

And the three have been taking different approaches to pipeline investment, with only Astra increasing R&D spending in 2015. Its pipeline investment has not come up with killer products of late: of the four marketed Astra products with more than $100m in sales and growing at double-digit rates only one, Brilinta, came from its own labs.

Share of big pharma sales from in-house projects*
2010 2011 2012 2013 2014 2015
AbbVie n/a 12% 10% 10% 8% 5%
Allergan 39% 24% 29% 24% 13% 7%
AstraZeneca 69% 67% 65% 66% 62% 59%
GlaxoSmithKline 69% 65% 66% 67% 67% 55%
Johnson & Johnson 25% 24% 22% 20% 17% 17%
Merck & Co 40% 44% 44% 40% 42% 40%
Novartis 79% 71% 69% 67% 64% 60%
Pfizer 17% 18% 18% 18% 18% 18%
Roche 17% 17% 16% 14% 11% 8%
Sanofi 26% 21% 21% 20% 19% 19%
Note: *based on product sales where the sourcing strategy is available.

At the bottom end are three groups that receive less than a tenth of sales from their own R&D investment: Roche, Allergan and AbbVie.

Allergan has made its name with a furious pace of mergers and acquisitions, so its appearance here should come as no surprise. Roche has benefited from its 2009 acquisition of the remainder of Genentech, which has delivered Avastin, Herceptin and Lucentis, to name three; AbbVie’s two biggest forecast sellers, Humira and Imbruvica, came to it via acquisitions of BASF's pharmaceuticals business, Knoll, and Pharmacyclics respectively.

Decreases have been nearly across the board, the only exception being Merck & Co, which started and ended the period of this analysis deriving 40% of its sales from its own laboratories.

Off a cliff

A more stark view comes from the absolute sales that these companies receive from organic products. From $113bn in 2010 this has fallen 24% in six years.

EP Vantage has previously noted that 2016 will be the year when products acquired through M&A begin to match those produced in house for the top 20 companies, but for the top 10 M&A is even more important: in 2015 acquisition-derived sales were $158bn (Buying in growth beats innovation for pharma, September 18, 2015).

With so many well-financed companies shifting their spending from laboratories to business development, it is no wonder that acquisition targets have become scarce assets and their prices have risen (M&A values soar as big pharma shows signs of re-entering the game, January 16, 2015).

While the biotechnology market’s 10-month lull has allowed for valuations to settle, as long as big pharma prefers to write cheques to shareholders rather than scientists the pressure on acquisition prices might continue.

To contact the writer of this story email Jonathan Gardner in London at jonathang@epvantage.com or follow @ByJonGardner on Twitter

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