[Gorodenkoff/Adobe Stock]
The companies with the highest highest R&D spend ratios such as Regeneron Pharmaceuticals for example, had the highest R&D spend ratio at 33.84%, followed by Vertex Pharmaceuticals at 32.05%, despite having lower revenue numbers compared to the top earners. Meanwhile, companies with relatively modest R&D budgets, for instance, metabolic leaders Eli Lilly and Novo Nordisk, achieved impressive annual returns of 60.91% and 54.84%, respectively, while maintaining R&D spend ratios of 27.29% and 13.97%.
Another outlier is Bausch Health, formerly Valeant Pharmaceuticals, which achieved an annual return of 27.71% despite having one of the lowest R&D spend ratios at 6.90%. The company is not a pure-play pharma firm, however.
In the bubble chart below, each bubble’s size represent corresponds to revenue. Meanwhile, the X-axis shows the company’s R&D spend ratio (%) while the y-axis displays the annual return (%), reflecting their financial performance over the year. Companies sitting on the axis broke even, while those below it lost investors money in 2023
The sometimes elusive nature of R&D spending has been documented by researchers. For instance, the 2020 Berkeley honors thesis, “The Relationship Between Pharmaceutical R&D Spending and NME Development” from Taylor Wang concluded that there was “no appreciable relationship between R&D expenditure and NME production.” The paper sought to uncover a potential connection between R&D spending and NME production drawing on data from 1999 to 2016.
The “Measuring the return from pharmaceutical innovation – 14th edition” report from Deloitte found that ROI returns from R&D spending continue to remain stubborn. The report, however, noted a slight increase in the Internal Rate of Return (IRR) for biopharma R&D to 4.1% in 2023, up from 1.2% in the previous year, following a long-term decline over the past decade plus. Despite a 4.5% increase in total R&D spending by the top 20 companies, reaching $145.5 billion in 2023, the average cost to bring an asset from discovery to launch remained flat at $2.284 billion per asset, the report noted. Deloitte also noted a decline in the average forecast peak sales per asset, falling from $389 million in 2022 to $362 million in 2023.
| Company | Revenue (2023) | R&D Spend (2023) | R&D Ratio (2023) | Annual Return (2023) |
|---|---|---|---|---|
| Merck (MRK) | $60.12B | $30.53B | 50.79% | 1.01% |
| Pfizer (PFE) | $58.50B | $10.68B | 18.26% | -41.26% |
| Johnson & Johnson (JNJ) | $54.76B | $11.96B | 21.85% | -8.58% |
| AbbVie (ABBV) | $54.32B | $7.68B | 14.13% | -0.23% |
| Roche (ROG.SW) | $51.42B | $12.79B | 24.87% | -12.71% |
| Sanofi (SAN.PA) | $46.59B | $7.28B | 15.62% | 3.64% |
| AstraZeneca (AZN) | $45.81B | $10.94B | 23.87% | 1.44% |
| Novartis (NVS) | $45.44B | $11.37B | 25.03% | 16.14% |
| Bristol-Myers Squibb (BMY) | $45.01B | $9.30B | 20.66% | -26.14% |
| GlaxoSmithKline (GSK) | $37.73B | $7.74B | 20.52% | 9.71% |
| Eli Lilly (LLY) | $28.54B | $7.78B | 27.29% | 60.91% |
| Novo Nordisk (NVO) | $24.43B | $3.41B | 13.97% | 54.84% |
| Takeda Pharmaceutical (TAK) | $23.29B | $3.84B | 16.50% | 17.80% |
| Gilead Sciences (GILD) | $21.66B | $5.04B | 23.28% | 38.06% |
| Amgen (AMGN) | $21.38B | $3.55B | 16.61% | -2.34% |
| Regeneron Pharmaceuticals (REGN) | $13.12B | $4.44B | 33.84% | 21.73% |
| Astellas Pharma (ALPMY) | $11.41B | $2.09B | 18.34% | -21.50% |
| Daiichi Sankyo (DSNKY) | $11.40B | $2.59B | 22.74% | -15.04% |
| Vertex Pharmaceuticals (VRTX) | $9.87B | $3.16B | 32.05% | 40.90% |
| Bausch Health (BHC) | $8.76B | $0.60B | 6.90% | 27.71% |
Filed Under: clinical trials, Drug Discovery and Development
