The amount of money that the industry invests in supporting product pipeline development continues to escalate. The massive boost in their research budgets in recent years is being made possible by the ability of public companies to continue to readily access the public markets and raise capital. For example, in the past three years more than $103 billion has been generated from public offerings, including IPOs, with $32 billion of that total flowing to companies last year. Approximately $10 billion of that amount found its way into the coffers of nine of the top 20 R&D spenders, including Celgene Corp. and Gilead Sciences Inc., which both completed follow-on offerings of $3 billion each.

Analysis

An in-depth analysis by BioWorld Insight of the 2017 year-end financial reports of 130 of the leading public biopharmaceutical companies by market cap found that they collectively invested approximately 13 percent more in R&D last year than they did in the comparable period in 2016. Those companies spent a combined total of $36.5 billion on research and development compared to $32.4 billion the prior year.

The top 20 companies accounted for 73 percent of the total spending in 2017, and together they upped their R&D investments by 9 percent. (See Top 20 biopharmaceutical companies by R&D spending, below.)

Biopharma companies, however, still have a ways to go to compete with the R&D budgets of big pharma companies. According to the annual reports of the top 13 pharma companies, including Pfizer Inc., which reported $11.6 billion in research expenses, and Merck & Co. Inc., spending $10.2 billion, their combined R&D spending for last year amounted to $76.5 billion, a 2 percent year-over-year increase.

Big spenders

In terms of total expenditures, Celgene Corp., the third largest biopharmaceutical company by market cap, topped the list with almost $5.9 billion devoted to R&D last year, a healthy 32 percent increase compared to the amount it spent in 2016. The amount also ranks it in sixth place when compared with big pharma's annual research spending.

Foster City, Calif.-based Gilead Sciences Inc. claimed second spot in terms of total R&D spending, at $3.7 billion, which represented a significant 27 percent drop from what the company spent in the same period the previous year. The company noted that the decrease was primarily due to the 2016 impacts of business development activities resulting in up-front collaboration expense related to the license and collaboration agreement with Galapagos NV and an impairment charge related to in-process R&D (IPR&D), partially offset by the acquisition of Cell Design Labs Inc. in a deal valued at up to $567 million, which included an up-front payment of approximately $175 million, subject to certain adjustments, and additional payments of up to $322 million to Cell Design shareholders based on development and approval milestones. (See BioWorld, Dec. 11, 2017.)

Amgen Inc. also recorded a 7 percent reduction in R&D spending at $3.5 billion, driven, the company reported. by decreased costs associated with later-stage clinical program support, lower external business development expense in drug discovery, toxicology, pharmacokinetics and drug metabolism, and process development, and lower marketed-product support. "All categories of R&D spend benefited from savings from transformation and process improvement efforts," it stated in its 10-K report.

More investments

Dublin-based Horizon Pharma plc took the top honors for the percentage increase in research and development expenses. In its 10-Q filing, the company noted its expenses increased $164.3 million to $225 million during the year. Approximately $150 million of that total related to the acquisition of River Vision; and it also licensed HZN-003 (formerly MEDI-4945), a preclinical, genetically engineered uricase derivative combined with site-specific pegylation, from MedImmune, the global biologics research and development arm of Astrazeneca plc. The company reported it paid Medimmune an up-front cash payment of $12 million.

Incyte Corp., of Wilmington, Del., was also a big R&D spender – doubling its research and development expenses to $1.3 billion. The company attributed the increase to up-front and milestone expenses related to a number of collaborative agreements that were struck during the year as well as an overall increase in development costs to advance the clinical pipeline. In January 2017, Incyte signed a global collaboration and license agreement with Calithera Biosciences Inc. for the research, development and commercialization of the latter's first-in-class, small-molecule arginase inhibitor, CB-1158, in hematology and oncology. The product is being tested in a monotherapy dose-escalation trial and additional studies are expected to evaluate CB-1158 in combination with immuno-oncology agents, including anti-PD-1 therapy. The terms of the agreement included an up-front payment of $45 million and an equity investment $8 million. (See BioWorld Today, Jan.31, 2017.)

Downstream, Calithera will be eligible to receive more than $430 million in potential development, regulatory and commercialization milestones.

Incyte also inked an agreement with Macrogenics Inc., paying $150 million up front for exclusive global rights to develop and commercialize MGA-012, a phase I monoclonal antibody that inhibits PD-1. (See BioWorld, Oct. 26, 2017.)

Assuming all milestones are met, Macrogenics would receive a further $900 million under the terms of the deal.

An agreement with Merus NV, signed in December 2016, also had an impact on Incyte's R&D expenses in 2017. The deal covering the Utrecht, Netherlands-based company's bispecific antibodies platform cost $120 million up front and an equity investment of $80 million. In all, Incyte reported $359.1 million in charges related to those three deals.

In June last year, Loxo Oncology Inc. added its name to the long list of companies who successfully completed a follow-on offering. It raised gross proceeds of about $260.8 million, which helped to fuel the company's $140 million R&D spend, a 140 percent increase over its prior year spending.

Specifically, Loxo said it would deploy the net proceeds from the offering for early commercialization activities for larotrectinib, an oral and selective investigational new drug in clinical development for the treatment of patients with cancers that harbor abnormalities involving the tropomyosin receptor kinases (TRKs).

The compound attracted the attention of Bayer AG, which entered a potential $1.55 billion deal covering larotrectinib and LOXO-195, a next-generation TRK inhibitor. (See BioWorld, Nov. 15, 2017.)

More of the same

It is likely that the biopharma industry will surpass last year's R&D expenditures if the first quarter 2018 follow-on financings are any indication. The period was characterized by a tsunami of cash flooding into the coffers of public companies, which generated $14.6 billion in the period, 42 percent more than the second highest first-quarter total achieved in 2015, when $8.4 billion was raised. (See BioWorld Insight, April 9, 2018.)