Topics:

The R&D rankings: Big Biotech once again makes Big Pharma look small

Tools

There are two basic ways to analyze R&D productivity. You can look back over the last few years and see what's actually been accomplished in hard-dollar terms, and you can look forward a few years and try to conjure up peak performance and risk factors for drugs in the pipeline. Both methods leave a lot to be desired, but both offer some important insights into a multibillion-dollar issue: Is biopharma's R&D strategy sustainable over the long term?

Wall Street analyst Richard Evans has come up with his own set of metrics for ranking R&D productivity. Evans' 128-page report, which you can find at HiddenPipeline.com, sets out to look at key measures that can demonstrate whether a company is being effective at R&D, or not.

After a lengthy professional journey that stretched from venture capital through Roche and Bernstein, Evans tells FierceBiotech that he wanted to find metrics that can rate R&D performance, not unlike the way GE under Jack Welch set out to find where it was number one, number two or needed to divest. By focusing considerable attention on patents, he adds, it was possible to gauge near-current performance on innovation. And he's not a big fan of just looking at the late-stage pipeline and then making a judgment based on peak projections.

Some companies may have lost the farm at the poker game, he says by way of analogy, but they want to be judged solely by the hand they're holding. "It could be a great hand," says Evans, "but it doesn't make him a good gambler."

For Evans, the numbers indicate that a lot of these companies devote far too much of their research budget to internal R&D work rather than looking around the industry for the best new programs. At Eli Lilly, where executives have touted their devotion to internal work, that's become an increasingly obvious problem.

There's another big point Evans wants to make as well. Some big players like Amgen started out as a great idea in search of capital. And then once they got big, they became capital looking for great ideas. Some places, like Vertex and Genentech, have continued to be focused on great ideas, and those are the kinds of companies you want to work for. They're also the exception. Capital in search of great ideas doesn't work very well as a business model. And the steadily declining R&D fortunes of the big, increasingly bureaucratic players attest to that.

Here are Evans' rankings, as published by Forbes:

Drug companies ranked by R&D performance
Rank Company Economic returns to R&D spending
(rolling 5-year avg.)
Patents / $1M R&D spend (rolling 5-year avg.) Average relative quality of innovation
(rolling 5-year avg.)
Average rank (by share of innovation) in target research areas Internal bias index
1 Bristol-Myers Squibb 1.5% 0.22 1.2 1.9 23
2 Celgene 32.3% 0.23 1.5 8.4 98
3 Vertex -125.4% 0.81 2.4 4.2 53
4 Gilead 20.8% 0.16 1.1 6.4 185
5 Allergan 8.0% 0.46 1.4 8.1 96
5 Roche 7.7% 0.09 0.9 2.0 24
7 Amgen 9.4% 0.09 1.1 5.3 58
8 Johnson & Johnson 8.2% 0.07 1.0 4.8 34
9 Novo Nordisk 17.5% 0.11 1.7 10.8 439
9 AbbVie 11.1% 0.12 1.0 9.4 54
9 Pfizer -3.2% 0.11 0.9 2.5 24
12 AstraZeneca 3.9% 0.10 1.0 7.1 43
12 Biogen Idec 9.1% 0.13 1.1 13.1 155
12 Shire 18.6% 0.11 1.4 15.4 338
15 Sanofi 1.5% 0.09 0.9 4.2 28
16 Merck 3.0% 0.08 0.9 5.4 35
17 GlaxoSmithKline 1.0% 0.09 1.0 6.0 36
18 Novartis 8.4% 0.05 0.7 5.3 37
19 Regeneron 8.3% 0.16 0.7 13.7 638
20 Bayer -2.1% 0.07 0.9 10.3 82
21 Eli Lilly 4.5% 0.05 0.8 11.7 131
22 Alexion 12.8% 0.03 0.4 21.4 8,012
Sources: Forbes; Bloomberg; AcclaimIP; SSR Health Hidden Pipeline Analysis and assumptions.

Interestingly, there are a lot of similarities with Mattew Herper's earlier work on the topic for Forbes. Herper has made research productivity one of his key focuses over the years, and he's done his own rankings, often citing Bernard Munos at InnoThink. Herper also recently looked at the number of new chemical entities that have been approved at the major biopharmas, coming up with some rough tallies on what each has cost, by company.

The big, innovative biotech companies like Bristol-Myers Squibb ($BMY), Celgene ($CELG) and Gilead ($GILD) are clustered at the top of both Evans' and Herper's set of rankings. Roche ($RHHBY) comes in high, but most of the Big Pharma set is concentrated in the middle or well down the list; the weak Eli Lilly ($LLY) once again manages to come in at the tail end of a survey on productivity. Overall productivity in the top 22 is headed down, with ominous implications for the industry.

As Munos notes in his remarks on Evans' work, the top 10 pharma companies spend about $70 billion a year on R&D but don't get anything close to $70 billion in return. Break that down by company, and some giant spenders like Merck ($MRK) wind up looking particularly bad, especially if you stick with a backward-looking focus instead of treading on controversial ground in trying to divine the future. Merck, a woeful number 16 on Evans' list, has sky-high hopes for its immuno-oncology program for MK-3475.

"This is a very rigorous report," Elliott Sigal, the celebrated ex-R&D chief at Bristol-Myers, tells Herper. "Nobody would argue: the general trend is that by many measures R&D productivity of the group is going down. Those of us trying to compete and do well in this space see a lot of value for being in the upper quartile. You used to do well if you were in the average."

If the overall R&D productivity picture looks bad, though, average can be a disaster. That's something mid-listers like Pfizer ($PFE), AstraZeneca ($AZN) and Sanofi ($SNY) might be expected to ponder.

- here's the Forbes article

Related Articles:
AstraZeneca: Coming up from behind--fast--with top cancer programs
AstraZeneca, Bristol-Myers add immuno-oncology collaborations for pipeline stars
Don't look for industry insiders to back another Pfizer megamerger
Novartis, GSK deal puts the spotlight on a narrowing R&D focus

Filed Under