Here’s an interesting analysis of the industry from IDEA Pharma, via Endpoints. They’re looking at the revenues from the more recent drugs in the pipeline (approved in the last five years) and comparing that to each company’s total R&D spending. The list is all Big Pharma – the cutoff is companies that have at least five billion in revenues from such recent products. That makes sense, because otherwise the ratios would be dominated by small companies who have gotten their first products on the market, etc. But for the bigger outfits, the idea is to see how much revenue is being generated by the more established drugs versus the fresher ones.
Gilead is the big outlier – they have by far the largest revenue from recent approvals, both in sheer dollar terms and as a percentage of their R&D spending. Bristol-Myers Squibb is the only other company where the past five years’ approval revenues are actually higher than past five years’ R&D, and they’re almost even. Biogen is almost even, just on the other side, but they’re also an outlier in having the smallest R&D expenditures on the whole chart (both the total over the five years and the average annual spending). For everybody else, the revenues from recent drugs are a only a fraction of their recent R&D spending, typically around 20 to 40%. Roche (especially) and J&J are the outliers on that end, with comparatively small contributions from the last few years of approvals.
There are complications with these figures, as the article notes. Different companies can have different ways of assigning R&D expenditures, especially in the case of in-licensed compounds. And depending on their portfolios, some companies may be letting some older drugs just cruise along, while others are still pouring development money into them to expand their indications, combination therapies, and so on. That said, I found this part particularly interesting:
There is little similarity in these top performers. . .other than a dependency on one therapeutic area – in many cases one where the company was not dominant 10 years ago. That the drivers of revenue may have succeeded despite the company, not because of it, seems to hold for most. Leadership in a therapy area seems to lead to poorer decisions, rather than better ones (a factor that other industries have tried to solve for.)
No one in upper management likes to hear talk like that, but it’s a challenge to try to prove it wrong. It’s better for everyone’s career to have a narrative featuring bold, far-seeing leaders making the hard, gutsy decisions, followed by wise stewardship of their well-deserved revenue streams after their visions are realized. Does that sound just a bit like some press releases or annual reports you might have come across? All that stuff is just as worthwhile as watching sports interviews, where the winning pitcher/forward/quarterback informs the world that they just had to come together as a team, stick to their game plan, and give one hundred and ten percent.
Visiting space aliens would find it notable that victory always seems to go to the clubs that do these things, just as business success goes to those companies with strong corporate values and visionary leadership teams. Up in the saucer, one large-eyed greenish head turns to the other: “Xondegaark, I ask you, what are the odds that this can be coincidence?” I admit, it is possible that creatures who are able to fly a two-seater from Alpha Centauri might have come across the concept of confirmation bias. And if they spend as much time on the home planet BSing each other as we do down here, you wonder how they managed to discover faster-than-light travel in the first place.
Just to pick one example, if you’d appeared in Merck’s executive boardroom in 2008 or so and told them that they’d be an oncology powerhouse in ten years, they’d have looked at you like you were our buddy Xondegaark. Even if they’d believed you, they wouldn’t have believed how it happened, probably ascribing that future success to their visionary leadership, etc. But Keytruda was barely a footnote when Merck bought Schering-Plough in 2009, and the company was making plans to unload it on whoever might be interested. The company definitely gets credit for solid execution once Bristol-Myers Squibb showed them that a PD-1 compound could do something interesting, but Keytruda itself was part of nobody’s vision and no one’s plan. A lot of things aren’t. Management should be advertising how well they can deal with the curveballs that reality throws at them, rather than pretending that they can see them coming before the pitcher even goes into the windup.