I wanted to be sure to mention this piece by Frank David on drug industry R&D spending, not least because I’ve pounded away several times on that topic myself. He’s writing about a short paper in Nature Reviews Drug Discovery that he and Richa Dixit have published (you can contact him for a PDF if you don’t have access; his address is in the Forbes link above), which examines R&D spending trends from 2005-2015. Looking at the ten biggest R&D spending companies over that period, they find a Compound Annual Growth Rate (CAGR) for revenues of -0.01% (which is not a wonderfully encouraging number, let it be noted). The companies’ SG&A expenses, meanwhile, had a CAGR of -1.12%.
But R&D spending during the same period had a CAGR of +1.76%. The biggest companies are not cutting back on research – in fact, they’re continuing to spend more on it in the face of flat revenues. And because SG&A is going down, the proportion of money spent on research is going up even more (all these numbers are normalized for inflation). Another interesting thing was the reaction of companies whose revenues went down by 5% or more in a given year. The response to these shocks was to either continue to increase R&D or (at worst) to decrease it but still less than the amount that SG&A went down. The implication is that companies are protecting their R&D spending, whenever possible.
These are not the results you’d expect if you asked people outside the industry to predict them – in fact, you’d probably get some different estimates from people inside the industry, particularly scientists who have been through layoffs and re-organizations. I’d be interested to know how well this trend holds up if you move further down the list of companies, but for the larger ones, there you have it: R&D is considered important, and spending on it is continuing to grow, even after things that could easily keep that from happening.