Losing$10bn in R&D: efficiency or new priorities?

The big fallers – Pfizer, Sanofi, GSK, Merck and AstraZeneca – between them took $10.3bn out of the R&D spending pot – a 26% reduction – between 2008 and 2013. And they did this while acquiring companies with R&D budgets totalling nearly $8.5bn.

During the same period, they have jointly contrived to lose sales worth $33bn, a 14% reduction.

It is possible that all of these companies now undertake R&D more efficiently and cheaply, and that the falling figures for R&D spend simply reflect that.

On the other hand, it might be that falling sales make it difficult for some management groups to continue to prioritise research and development as an investment in the future of pharma.

In this article, Scrip looks at the data behind these big falls in R&D spending.

If you want to know how the rest of big companies have fared,the Scrip20 R&D League Table infographic lets you explore how the R&D environment has changed from 2006 to the present day.

Pfizer – What's a Wyeth worth?

By the end of 2014, Pfizer may have lost two Wyethworth's of R&D spending, if trends continue. On average, it has cut $4.5bn from R&D spending in five years since 2008. The joint Pfizer-Wyeth R&D spend used to exceed $11bn in 2007-8. Pfizer-2013's R&D spend is $6.5bn.

Wyeth, which Pfizer acquired in 2009, used to spend around $3bn a year on R&D; Pfizer (pre-Wyeth) around $8bn.

A year post-merger, half a Wyethworth was already off the Pfizer books; an entire Wyethworth had gone by 2012; and another half a Wyethworth disappeared in 2013.

From 2006-2008, Pfizer ruled the R&D roost, striving but ultimately failing to maintain its Lipitor (atorvastatin) franchise. In the two years (2007-2008) before it acquired Wyeth, old Pfizer spent 18.1% of its pharma sales on pharma R&D, but that fraction was already starting to dwindle. Wyeth, in the same two years, had been more conservative: its R&D spend was 16.3% of drug sales.

Post-acquisition, new Pfizer continued the downward momentum: to a first approximation, its R&D spend was 18% of sales in 2008, 16% in 2010, 15% in 2012, and under 14% in 2013.

The concomitant fall in revenues from Lipitor and elsewhere means that the R&D/Sales ratio only tells half the story. The drug sales from the firms that now make up Pfizer (old Pfizer, Wyeth and King) peaked at around $65bn a year in 2007 and 2008. In 2013, they were just $48bn.

Adjusted for US inflation, R&D spending from Pfizer-2013 is just under 51% of the 2008 level.

Pfizer data

Before

Now

Rank

#1 (2006)

#4

Spend

$11.1bn (2007-2008)*

$6.5bn

R&D/Pharma sales

18% (2006)

14%

*Pfizer plus Wyeth

Merck - Plough and the sword

Merck's future looked uncertain in 2006 as it faced imminent waves of patent expiries and coped with fallout from Vioxx. But it didn't look at cutting R&D spending, it seems, until it bought Schering-Plough in 2009.

Schering-Plough, which itself had recently acquired Organon, was a research company with an R&D budget that was equivalent to around 25% of its pharma sales, matching Merck.

Together the two companies spent over $8bn a year in 2008. On paper, the merged company's R&D spend peaked in 2010 at nearly $11bn, although a large part of that increase occurred as Merck's accountants allocated back-dated R&D expenses to that year.

Since the merger, however, R&D spending has dropped, reaching $7.5bn in 2013, with further cuts scheduled for 2014.

Merck data

Before

Now

Rank

#2

#3

Spend

$8.4bn (2009)*

$7.5bn (2013)

R&D/Pharma sales

25% (2009)

20% (2013)

*Schering-Plough and Merck

GlaxoSmithDeKline

GlaxoSmithKline is the only company among the top five R&D spenders 2006 to have left the top five: it dropped to #6 in 2009 and is now at #8, sitting uncomfortably just above AstraZeneca.

GSK's R&D spending has mirrored precipitous drug sales sending GSK to eighth place. For GSK, R&D spending was held at 17-18% of pharma sales between 2006 and 2008; in the three most recent years it fell to 14-15% of sales, just as sales started falling (from $38.5bn in 2007 to $33.5bn in 2013, for instance).

The gradual loss of Avandia (rosiglitazone) sales, one of the triggers for Andrew Witty's 2009 restructuring plan, helped propel GSK down the R&D league.

To some extent, GSK was a victim of "currency headwinds". In 2007, one pound bought two dollars in R&D, but from 2009-2013 only $1.5-1.6. In pounds, GSK's sales grew at 1% (CAGR) between 2006 and 2012, but in dollars fell by 1.5% (CAGR). Its R&D spend over the same period grew 2% in pounds but shrank by over 3.5% in dollars. That is not a comfortable position for a company that still buys 70% of its R&D from outside the UK.

GSK data

Before

Now

Rank

#3

#8

Spend

$7bn (2007/8)*

$5.0bn (2013)

R&D/Pharma sales

17-18%

15%

Sanofi – the $6bn company

With diverse generics sales, one can expect Sanofi to be at the lower end of the spectrum of the Scrip20 drug companies. In the more optimistic days of 2008, before the Great Recession caught hold, Sanofi was spending 16.5% of pharma sales on R&D. With sales flattening, that figure fell 1% in each of the next two years to 14.5% in 2010.

The acquisition of Genzyme in 2011 ought to have increased the proportion of sales devoted to R&D at Sanofi. But it didn't. According to its 2010 figures, Genzyme was spending $850m a year on R&D, 25% of sales, an R&D-rich mouthful by Sanofi's standards. But although the acquistion boosted both R&D spending and sales at Sanofi, it didn't move the on R&D as a percentage of sales – still 14.5%.

Since then falling sales have boosted Sanofi's ratio to 15%.

Sanofi data

Before

Now

Rank

#4

#5

Spend

$8.0bn (2008)*

$6.1bn (2013)

R&D/Pharma sales

18.4% (2008)

14.9% (2013)

*Sanofi and Genzyme

AstraZeneca – recent faller

AstraZeneca has lost $7.5bn (22%) of sales since its dollar peak in 2011 and, unsurprisingly R&D has lost out. Until 2011 AstraZeneca had maintained R&D spending at over $5bn a year but then it became clear that AZ's statin, Crestor, was going to be victim of the collateral damage caused by falling Lipitor costs.

AstraZeneca data

Before

Now

Rank

#8

#9

Spend

$5.2bn (2007)*

$4.3bn (2013)

R&D/Pharma sales

17.5% (2007)

16.6% (2013)