The amount of money that the biopharma sector invests in research and development (R&D) continues to rise. Innovation certainly does not come cheap; it requires that companies developing breakthrough medicines have deep pockets as they need to invest up to $2.5 billion over a 10- to 15-year period in order to bring a new therapy to the marketplace, according to the most recent analysis by the Tufts Center for the Study of Drug Development of the average cost to develop and gain marketing approval for a new drug. This not insignificant investment also factors in to the high attrition rate biopharma companies face for their R&D endeavors, where it has been estimated about 88 percent of all candidate compounds entering phase I development fail at that point or at some later stage during the clinical trials process.
While the pressure is on companies to try to ameliorate those costs through increased efficiencies, the amount of money invested in R&D continues to rise. An in-depth analysis by BioWorld Insight of the third quarter financial reports of 130 of the leading public biopharmaceutical companies by market cap found that they invested approximately 6 percent more in R&D during 2017 than they did in the comparable period in 2016. These companies collectively spent a combined total of $26 billion on research and development year-to-date compared to $24.3 billion in the comparable period last year.
The top 20 R&D spenders during 2017, as a group, maintained the average investments in R&D over their 2016 expenses for the same period. (See Top 20 biopharmaceutical companies by R&D spending, right.)
In terms of total expenditures, Celgene Corp., the third largest biopharmaceutical company by market cap, was the leading spender with almost $3.2 billion devoted to R&D so far this year.
However, this total was a drop of about 5 percent compared to the amount it spent last year. In its 10-K filing for the third quarter the company reported that its research and development expenses decreased by $306 million to $1.3 billion for the three-month period ended Sept. 30, 2017 compared to the three-month period ended Sept. 30, 2016. The decrease was attributed to $623 million of R&D asset acquisition expense incurred in the prior year, partially offset by an increase of $266 million in expenses related to collaboration arrangements.
Contributing to this amount, Summit, N.J.-based Celgene paid $263 million to in-license the candidate, BGB-A317, a PD-1 inhibitor developed by Beijing-based Beigene Ltd. As part of the deal, Celgene is also investing about $150 million in Beigene, taking about a 6 percent stake in the company and pledging to collaborate with it on up to eight registrational studies for the candidate in solid tumors, including studies currently being planned by Beigene. (See BioWorld, July 12, 2017.)
Although Foster City, Calif.-based Gilead Sciences Inc. ranked second in terms of total R&D spending, at $2.6 billion in the nine months period of this year, this amount was a significant 33 percent drop from what the company spent in the same period last year. The company said the fall was primarily due to the 2016 impacts of a $200 million milestone expense associated with Nimbus Apollo Inc. and a $117 million impairment charge related to in-process R&D.
Interestingly, Amgen Inc. also recorded an almost 9 percent reduction in R&D spending at $2.5 billion. This decrease was, the company explained, driven by lower external business development expense and lower spending required to support certain later-stage clinical programs.
Increasing the pace
Among the top four biopharma companies, only Biogen Inc. reported a 16 percent increase in R&D spending in 2017, attributed to milestone and upfront expenses, partially offset by decreased costs incurred in connection with their marketed products and late stage and research and discovery programs.
Dublin-based Horizon Pharma plc took the top honors for the percentage increase in research and development expenses, which rose $157.3 million to $194.1 million during the nine months ended Sept. 30, 2017, from $36.8 million during the nine months ended Sept. 30, 2016.
In its 10-Q filing the company noted that "the increase was primarily attributable to $147.7 million related to the acquisition of River Vision Development Corp."
The transaction brought in-house River Vision's development-stage medicine teprotumumab (RV001), a fully human monoclonal antibody currently in development for thyroid eye disease, a rare, autoimmune inflammatory disorder.
Under the terms of the agreement, Horizon Pharma made an upfront cash payment of $145 million, with potential future milestone and earn-out payments contingent on the satisfaction of certain regulatory milestones and sales thresholds.
Horizon said it anticipates a potential peak annual U.S. sales opportunity for teprotumumab, if approved, in excess of $250 million.
Incyte Corp., of Wilmington, Del., was also a big R&D spender – doubling its research and development expenses this year to $879 million as compared to $420 million for the same period in 2016. The company said that this was as a result of expanding their clinical portfolio as well as upfront and milestone expenses of $209 million related to collaboration and license agreements.
With the costs of R&D continually rising, companies need significant cash resources to help keep their innovation engines ticking. Public biopharma companies appear to have had no problem in replenishing their bank balances so far this year with, according to BioWorld data, a whopping $27.2 billion raised through public offerings. This amount represents a 53 percent increase over the 17.4 billion raised at this point last year.