PharmExec Blog

Study Points to Dramatic Drop In R&D Expenditure

Pharma expenditure on R&D has dropped to an estimated $68 billion, according to Thomson Reuters’ 2011 Pharmaceutical R&D Factbook.

The three-year low demonstrates the receding trends of drug success, the amount of drugs entering Phase I and II trials and the number of new molecular entities (NMEs) launched in the global market.

Pfizer is a prime example. The firm’s R&D expenditure for 2012 is between $6.5 billion and $7 billion’ last year’s budget was between $8 and $8.5 billion budget. The areas in which Pfizer plans to cut R&D include allergy and respiratory diseases. Instead the key focus will be on vaccines, neuroscience, oncology, cardiovascular and inflammation treatments.

Another pharma giant slashing its R&D expenditure is GlaxoSmithKline. The company has downsized its Harlow R&D site and has claimed it will be wary of unnecessary R&D expenditure in areas such as depression, neuroscience and depression. Both Johnson & Johnson and Bristol Myers Squibb have reduced R&D expenditure by 2%.

The Factbook highlights that 21 NMEs were launched globally in 2010, compared to the 26 NMEs last year. Drugs entering Phase I and Phase II trials dropped 47% and 53%, respectively.

Phil Miller of Thomson Reuters, said: “High failure rates continue to be of great concern to the industry and this is compounded by the decrease in NMEs. The strategy of big pharma to in-license more drugs for development does not appear to be paying off at present. An earlier focus on clearing out weak drug candidates will be instrumental to successfully progressing drugs to market.”

On a positive note, clinical trials for anti-cancer drugs are experiencing growth and some industry experts believe that R&D productivity is, generally, quietly improving. Hans Poulsen, Head of Life Sciences Consulting at Thomson Reuters, said: “For the first time, drug companies are reducing costs in their R&D organizations and I believe we will see that trend continue. We could see an improvement but it may take four to six years before we can really say the trend has been reversed.”

Beth Kennedy

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One Comment

  1. Posted June 30, 2011 at 3:49 pm | Permalink

    The recently posted Bernstein/BCG chart on this prompted me to look at data for first in class innovative drugs instead of just “new molecules” that reflect marginal improvements (dosage forms, salts, “adding a methyl group”…) Take a look at this resulting meta-analysis using FDA and PhRMA data. It surprised me and shows that while “me-too” drug filings are declining, innovative drugs per $B spent actually started increasing in 2006, after similar declines to the Bernstein chart in the Factbook. Still dismal performance financially but are we nearing a bottom?

    This does not really link to value creation, but reflects a change I was unaware of. Perhaps mergers, downsizing, redirect towards biotech, etc. have begun to have an effect? Of course one can only hope innovation will create greater value…

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