The rise of R&D investment

The quest for breakthroughs is becoming more and more expensive: the combined R&D expenditure of the U.S. pharma industry totaled 80 billion U.S. dollars in 2018. Some financial experts feel this level of investment is wasteful and highlight the fact that the industry spends about 20 percent of its revenues on R&D projects. It is clear that spending does not automatically lead to profits, and the average return on R&D investment is low. In the biopharmaceutical industry, companies with a large market capitalization have seen their rate of return decline steadily over the past decade.

Why do companies invest in R&D?

Swiss pharmaceutical company Novartis had the largest R&D pipeline in 2020, with around 220 drugs in its development portfolio. Many companies rely on discovering previously unknown drugs to fill their R&D pipeline, but adding value to existing products is also important. Allergan, which had an R&D expense of 1.8 billion U.S. dollars in 2019, continues to find new possibilities for its existing blockbuster drug, Botox. As the world waits for a COVID-19 vaccine, pharma companies stand to gain by becoming the first to market a safe product, and several have increased their market capitalization as a result of being involved in the research.

The characteristics of the R&D pipeline

The R&D pipeline is fraught with difficulties. In the United States, the probability of a new drug successfully progressing from phase one to full approval is less than ten percent. Pharma companies continue to unlock innovations in the fight against various cancers, paving the way for more anticancer drugs in the R&D pipeline – the immunological cancer treatments category was the top therapeutic area worldwide in 2020. The rise of biopharmaceuticals is expected to continue over the coming years, but drugs that are primarily made from synthetic chemical sources account for roughly 50 percent of those in the R&D pipeline.

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