Biopharma converts 24% of NMEs to drugs, with Celgene bringing up the rear: report

Here’s the good news. Big biopharma companies “appear to be” using their R&D dollars more effectively, SVB Leerink analysts wrote in a new report examining eight companies and their R&D portfolios. That said, over the last five years, those companies managed to convert just 24% of the new molecular entities (NMEs) in their pipelines to approved drugs, spending an average of just under $1 billion on R&D for each NME they had in development and $5.3 billion for each approval. 

R&D spending includes expenses for internal programs as well as investment in M&A. 

The report, which covered data from 2014 to 2018, looked at all eight large biopharmas SVB Leerink covers: AbbVie, Alexion, Amgen, Biogen, Celgene, Gilead, Regeneron and Vertex. It compared them by the size of their R&D portfolios (the number of disclosed NMEs), effectiveness of their R&D (the number of drug approvals and percentage of NMEs that got approved), R&D efficiency (portfolio turnover and dropout rate) and R&D cost (the amount spent on R&D for each NME and approval). 

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Vertex and Regeneron may have lagged behind on portfolio depth, but they ultimately came out on top, with the best scores in converting NMEs to approvals and “churn and burn” rate, that is, the pipeline turnover rate—“our assessment of the effectiveness of the company’s vetting procedures on internal and external NME candidates”—and the portfolio dropout rate. Vertex converted 40% of its NMEs to approvals, and Regeneron converted 33%. The pair also had the best scores on the amount spent to bring in externally developed programs per NME and per approval. 

They “performed more effectively than their rivals, reinforcing the greater effectiveness and efficiency of internally driven R&D strategies, the analysts wrote. 

SVB Leerink found a rising star of sorts in Amgen, which has boosted its NME pipeline 13% in the past two years and improved its NME-to-approval conversion rate from 7% to 21%. It also dumped fewer prospects—its dropout rate fell from 75% to 53%—and spent nearly half as much on R&D per NME. It went from spending $1.35 billion to $0.71 billion per NME, below the average spend per NME of about $0.9 billion. 

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Celgene brought up the rear, underperforming its peers on “nearly all effectiveness, efficiency and cost metrics.” The Big Biotech may have added the most NMEs between 2014 and 2018—41 in total—but most of those programs came from M&A or partnerships. Celegene added only eight internally discovered NMEs over the five-year period, trailing its peers and raising “some concern about their internal R&D capabilities.”  

Celgene converted a measly 6% of NMEs to approvals during that time, which is all the more damning when one considers that the average conversion rate was actually higher among externally acquired NMEs than for drugs the analysts "believe were developed internally”—32% versus 21%. 

All of this is probably the last thing Bristol-Myers Squibb wants to hear as it continues to defend its $74 billion acquisition of Celgene.