The pharmaceuticals & biotechnology sector was the largest contributor to R&D in both the UK850 and the G1400 in 2007
- Eight of the top 25 R&D investors globally are pharmaceuticals companies: they include two UK firms, GlaxoSmithKline and
Astra Zeneca.
- GlaxoSmithKline and AstraZeneca dominate R&D spend in the UK pharmaceuticals sector: they spent (89% of the sector total, and 37% of the UK850 spend).
- Sixteen more pharmaceuticals & biotechnology companies entered the UK850 bringing the total to 130.
- R&D in the pharmaceuticals & biotechnology industry continues to grow more quickly than sales amongst the largest investors.
This summary provides a brief overview of R&D expenditure by companies within the pharmaceuticals & biotechnology sector based on the data which underpin the 2008 R&D Scoreboard. It:
- describes the broad features of R&D in the sector;
- explains the pattern of R&D both in the UK and globally;
- identifies the leading investors in the UK and globally; and
- highlights key trends in R&D spend by the sector.
The pharmaceuticals & biotechnology sector
The complex R&D processes in the pharmaceuticals & biotechnology sector can be divided into:
- basic research, which includes discovery and screening, lead development and preclinical evaluation; and
- the development process, which includes clinical trials.
The pattern of R&D expenditure
Amongst UK firms
The pharmaceuticals & biotechnology sector was the largest contributor to R&D in both the UK850 and the G1400 in 2007.
In 2007, the 130 UK pharmaceuticals & biotechnology sector firms among the UK850 invested £7.9 billion in R&D making the sector the largest investor in R&D by some distance and accounting for 37% of total R&D spend (see Table 1). Overall, there are 16 more firms from the sector in the UK850 than were in last year’s Scoreboard.
Three of the companies are FTSE 100 companies and a further two are FTSE Mid-250 companies. Between them, these five companies account for 77% of investment in R&D by firms from the UK850.
There are 56 foreign owned pharmaceuticals & biotechnology companies in the UK850, 16 more than in 2006. Between them, these firms invest 16% of the sector’s total R&D.
Table 1: The pharmaceuticals & biotechnology sector – key facts
Amongst global firms
In 2007, the 178 firms from the pharmaceuticals & biotechnology sector accounted for 19% of R&D investment by the G1400 with an R&D spend of £52.5 billion. They remained part of the largest sector, having overtaken technology & hardware in last year’s Scoreboard.
The top five companies in the sector accounted for 35% of total R&D spending within the sector, and 7% of the G1400. Over half the companies (93) were American and, of the rest, 60 were from Europe, with the UK having the largest number of companies (15) but Swiss companies accounted for proportionately more of the R&D expenditure.
The major firms
In the UK
Investment in R&D by the UK’s pharmaceutical and biotechnology sector continues to be dominated by GlaxoSmithKline and AstraZeneca (see Table 2). The two companies combined invested 82% of the sector’s R&D investment, and 27% of investment by the UK850 and both are in the top 25 global investors in R&D. This R&D concentration reflects these companies’ status amongst the global leaders in their industry.
Two of the other three companies amongst the largest five UK investors
in the sector – Shire and Pfizer - are the same as the previous year although their positions have reversed. Roche Products has replaced
Eli Lilly and Company.
All five of the largest investors in the sector are amongst the UK’s largest 25 companies in terms of expenditure on R&D.
Both AstraZeneca and Shire have increased their investment in R&D ahead of their sales whereas Pfizer and, to a lesser extent, GlaxoSmithKline saw R&D expenditure fall as a proportion of sales.
Both GlaxoSmithKline and Astra Zeneca have much higher operating profits as a proportion of their sales than the other leading investors in the sector.
Table 2: The top five UK investors in R&D in the pharmaceuticals & biotechnology sector
* - foreign owned firm
# - accounts not prepared using IFRS
Globally
The top five global investors in R&D 2007 were the same as in 2006: the significant difference from the previous year was that Roche had climbed to third place and GlaxoSmithKline had fallen to fifth.
Overall, the five companies increased their investment in R&D by nearly 9%. Three of the companies saw their investment in R&D rise ahead of their sales: Pfizer, Roche and Sanofi-Aventis.
The profitability of two of the five biggest investors (measured by operating profits as a percentage of sale) – Roche and Sanofi-Aventis - had increased over the last year in line with the average across the firms in the sector. In contrast, two firms - Pfizer and Johnson & Johnson – saw their profitability fall over the same period.
In total, eight of the top 25 global investors in R&D were from the pharmaceuticals & biotechnology sector: the other three largest investors were Novartis (Switzerland), Astra Zeneca and Merck (USA).
Table 3: The top five global investors in R&D in the pharmaceuticals & biotechnology sector
# - accounts not prepared using IFRS
Trends in R&D expenditure
In the UK
UK pharmaceutical & biotechnology companies have continued to increase their R&D spending faster than their sales: investment in R&D grew by 6.9% (down from 10.5% the previous year) whilst sales increased on average by 4.7% in 2007.
R&D as a percentage of sales of 15.9% was slightly higher for the global pharmaceutical sector than for the UK sector.
Globally
Like their UK counterparts, the G1400 pharmaceuticals & biotechnology companies increased their R&D spending ahead of their sales: R&D increased by 11.6% to £52.5 billion in 2007 while sales increased
by 9.4%.
Firms in the pharmaceuticals & biotechnology sector worldwide have increased their investment in R&D in response to a range of factors including increased regulatory stringency, safety concerns and high R&D attrition rates. Regulatory stringency has increased the need for more accurate prediction of drug safety and this has raised the cost of R&D. At the same time, high attrition rates have led to fewer drugs being approved, leaving companies with fewer new drugs to sell. These factors mean that increased investment in R&D alone will not necessarily produce new, innovative products: other important factors also affect the success of R&D, including the choice of therapy areas, the influence of alliances, the effectiveness of in-house R&D processes and talent recruitment.
