Amgen research cuts buck top pharma trend

Amgen has now confirmed that it is to reduce its research and development employees by some 380 positions. The number represents just over a 2% reduction in Amgen�s total workforce, but around 10% of those involved in R&D. However, those observers who have welcomed the cuts as a sign that Amgen is bringing its R&D commitments into line with pharma industry norms, may need to re-examine the industry-wide spending data.

Amgen has said that the reductions are part of a move to shift resources towards expensive later-stage research. The profile of the development pipeline of the Thousand Oaks, California company does not have the same balance as most of the member of the pharmaceutical industry's elite. Its Phase I assets constitute nearly 60% of its development pipeline by number, while its Phase III compounds represent only 11% (see Table 1).

By contrast, the averages for the companies that top the revenues leagued (Top 20 companies apart from Amgen) show a different picture: around 40% of clinical assets are in Phase I and nearly 20% are in Phase III.

Table 1. Distribution of clinical assets: Amgen versus Top 20 Pharma

	Phase I	Phase II	Phase III
Top 20 pharma Amgen	39% 59%	40% 31%	19% 11%

Source: Company data compiled by Informa Healthcare

With the company�s third quarter results expected on 24 October, observers are keen to anticipate how the figures will reflect other changes the company�s strategic manoeuvres. Some analysts have indicated that Amgen�s commitment to R&D– the company�s R&D expenditure in 2010 was equivalent to around 19.7% of its pharmaceutical revenues – are out of step with some of its large pharma rivals. Now that the company is committed to paying shareholders a quarterly dividend, analysts appear to be looking for alignment with longer-established firms.

However, Amgen does not really appear to be an outlier in the pharmaceutical spectrum in terms of the percentage of revenue it spends on R&D overall..

Its 19.7% R&D/revenue ratio is lower than that of many of the top 10 companies ranked by revenue, including Merck, Roche, Lilly, and Novartis, and Johnson & Johnson. Amgen, which was the 14th largest revenue earner in 2010, does have a higher R&D spending ratio than Pfizer, AstraZeneca, Sanofi and GlaxoSmithKline.

Table 2. Percentages of revenue spent on pharma R&D

Company	2010	2009
Merck & Corp Boehringer Ingelheim Roche Lilly Daiichi Sankyo Takeda Astellas Top 10 Average Top 11-20 Average Novartis Johnson & Johnson Amgen Abbott Laboratories Bristol-Myers Squibb Pfizer Bayer AstraZeneca Novo Nordisk Sanofi-Aventis GlaxoSmithKline Teva	27.6% 25.3% 24.5% 23.2% 23.2% 22.8% 22.8% 24.9% 24.9% 19.8% 19.8% 19.7% 18.7% 18.3% 16.1% 16.1% 16.0% 15.8% 14.5% 13.3% 5.8%	23.2% 22.0% 22.8% 21.7% 20.7% 22.5% 20.1% 22.2% 22.2% 17.9% 20.4% 20.0% 16.6% 19.4% 17.3% 15.0% 13.4% 15.4% 15.6% 13.0% 5.8%

Source: Company data compiled by Informa Healthcare

Amgen�s first quarter 2011 result showed a 14% year-on-year increase in R&D spending to $703 million due to increased investment in late stage clinical trials and higher staff costs that occurred as a result of international expansion and a greater emphasis on discovery. Q2 2011 R&D expenses increased 26% over the same period in 2010, again due to later-stage clinical programmes and an increase in discovery and early pipeline activities.

The latest cuts can thus be seen as an attempt to manage those escalating costs so that R&D expenses remain within the company�s forecasted range of 18-20% of revenues.