Which Big Biotechs are hitting the gas pedal on R&D spending?

The R&D numbers for the top 10 biotechs may only amount to a fraction of what you'll find in Big Pharma. But unlike the giants, which are trying to keep a lid on multibillion-dollar budgets, you'll find a much faster crowd when you turn your gaze to the biotechs. All 10 reported increases in their research spending for last year. And a few of them slammed their foot on the gas pedal.

Altogether the top 10 biotechs spent $11.8 billion on R&D in 2012, according to our research, a hefty 15% average increase over their 2011 performance. Compare that to the stable year-over-year record in Big Pharma, where doing more with the same amount of cash has become an industry mantra.

At Gilead ($GILD), the HIV powerhouse pushed R&D spending up by 43% as it pursued one of the most ambitious late-stage programs in the industry for hepatitis C. The increased spending also pushed them to the number-two spot on the list and left them in the clear lead with one of the most promising experimental therapies in the field. Further, it helped position the company as an emerging player in hep C, ready to blow past the likes of Vertex ($VRTX) and Merck ($MRK) while maintaining its lead over AbbVie ($ABBV), Bristol-Myers Squibb ($BMY) and others.

Even Amgen ($AMGN), the original Big Biotech, upped spending in 2012, despite a decision to trim research costs toward the end of 2011 as its CEO and research chief were being led to the exits.

Overall, the numbers paint a clear picture of a better focused, more nimble and relatively more successful development record for Big Biotech when compared to the average Big Pharma company.

Biogen's record spending, for example, left the company with the hottest new drug for multiple sclerosis, Tecfidera. Celgene ($CELG) has become a partner of choice in the industry with the welcome sight of its checkbook opening doors around the world. Shire ($SHPG) has become a case study in successful growth, with a new CEO putting his own structure and teams in place. Vertex may be about to bid farewell to its hep C franchise, but the company has managed to fill the void with a top-rate combo for cystic fibrosis. And there's another, next-gen hep C effort in the clinic. Regeneron ($REGN) has had perhaps the most successful year in the industry, with one new drug now entering blockbuster territory and some more research programs grabbing analysts' attention. Actelion persevered with a new pulmonary arterial hypertension (PAH) program that emerged a winner in Phase III, while Onyx ($ONXX) has had a winning streak in cancer drug development and BioMarin ($BMRN) expanded with some carefully tailored acquisitions.

New research has also indicated that it's the Big Biotechs which are seeing the most dynamic growth in product revenue as Big Pharma endures a bitter era of generic competition for some traditional blockbusters.

So while the numbers may be smaller, these companies proved to be better focused than most Big Pharmas on key assets. It's the kind of record that can make a biotech a top takeover prospect. It also makes them prime candidates for new deals of their own. -- John Carroll, Editor-in-Chief. Follow me on Twitter and LinkedIn.

2012: $3.38 billion
2011: $3.16 billion

Change: Up 7%
As a % of product sales: 20%
Market cap: $79.8 billion ($AMGN)
Research chief: Sean Harper

Sean Harper

Before R&D chief Roger Perlmutter was pushed into a short retirement (he's at Merck now), he had completed a billion-dollar buyout of BioVex, snagging the rights to a melanoma drug now dubbed talimogene laherparepvec. Recently, the world's biggest biotech delivered some promising top-line data from a late-stage clinical trial, indicating that Perlmutter appears to have been on a promising trail when he engineered the deal. Some analysts, though, are rightly holding out for solid overall survival data before they call this one a success. And they're also looking to R&D chief Sean Harper to deliver Phase III data this year on the ovarian cancer drug trebananib (AMG 386).

Elbowing out both of those programs for the spotlight is Amgen's PCSK9 candidate, AMG 145. Like its rivals Sanofi ($SNY) and its partner Regeneron ($REGN), Amgen believes that this one could be a megablockbuster if four Phase III studies show it can safely lower bad cholesterol, though not all analysts are equally bullish.

Altogether, Amgen has its hands full with 8 late-stage drug programs. The biotech giant restructured R&D back in the fall of 2011 after investors fretted about the big bite R&D was taking out of annual revenues. But that didn't stop Amgen from going ahead with a deal to buy the genomics company deCODE for $415 million, anxious to follow Genentech's successful pursuit of new drugs with a clear understanding of the genetics involved. And last year Amgen's research arm still gobbled up 20% of its revenue from product sales, with expenses edging up 7% over 2011, despite the restructuring.

Like every other major developer, Amgen is completely focused on new assets. They're calling it a "pick-the-winners" strategy. And if they come up with some winners, they'll have Perlmutter to thank for his dealmaking skills. 

2012: $1.75 billion
2011: $1.22 billion

Change: Up 43%
As a % of product revenue: 18%
Market cap: $84.7 billion ($GILD)
Research chief: Norbert Bischofberger

Norbert Bischofberger

A little bit of the luster was lost at Gilead when the biotech managed to underperform on sales expectations in Q1, despite driving a whopping 63% surge in profits. But the company has long tended to inspire heady revenue forecasts with its success in HIV.

The big focus for Gilead R&D now is sofosbuvir, the experimental hep C drug Gilead gained in the $11 billion acquisition of Pharmasset. The deal came at the height of the hep C frenzy, as developers angled for the lead in developing an all-oral, interferon-free therapy. And Gilead emerged at the end of 2012 in the clear lead, with its research team driving a range of clinical studies designed to push sofosbuvir--now under review at the FDA--to the top of a $20 billion market.

The cost of everything went up at Gilead R&D, particularly clinical studies ($828,278 from $570,302) and personnel (up to $686,000 from $412,000).

But while R&D costs may have spiked 43% last year, the extra half-billion dollars delivered a rich harvest of positive data on the hep C front. In one of the fastest late-stage programs in the industry, Gilead has also laid claim to stellar Phase III results for an in-house combo of sofosbuvir with ledipasvir. There's likely a better combo available if you combine sofosbuvir with Bristol-Myers Squibb's ($BMY) daclatasvir, but Gilead shrugged off the BMS challenge months ago and shows no signs of changing its mind at this point.

Gilead remains impervious to criticism of any kind, whether it comes from patient groups angered at the cost of its HIV drugs or rivals insisting on partnerships. Analysts, though, love the numbers, despite any hiccups the company encounters along the way.

2012: $1.72 billion
2011: $1.60 billion

Change: Up 7.7%
As a % of product revenue: 32%
Market cap: $50.8 billion ($CELG)
Research chief: Thomas O. Daniel

Thomas O. Daniel

Celgene may have the third-largest budget in biotech for research, but it's got one of the busiest business development teams in the industry. In just the last few weeks the company partnered with Forma on new cancer drugs, did a deal with bluebird bio on gene therapy and invested in Presage's drug-comparison technology. 

Last year Celgene's expenses on collaborations surged $32 million as it added more money to follow up on the work inherited in its deal to buy Avila in early 2012. The wheeling and dealing has been so intense, Celgene has far surpassed a long lineup of pharma companies to become one of the most preferred partners in the industry--a sure sign that a fat checkbook will open every door and light up every face.

Celgene has three core therapeutic focuses: hematology, oncology and inflammation and immunology. And it's doing deals for all of them.

Celgene CEO Bob Hugin has inspired big hopes of fast growth, but its late-stage programs haven't excited as much blockbuster thinking as the company had hoped for. One of the top drugs in the late-stage pipeline is apremalist, a psoriasis drug that delivered solid but uninspiring Phase III results. The data is likely good enough for an approval, provided it holds up under review, but Celgene is looking to compete against established biologics, and the biotech could be facing some tough rivals.

Celgene recently scored an approval for Pomalyst for hard-to-treat cases of multiple myeloma, another field that has seen rival drugs push in. And its CEO sees it as an excellent example of the kind of growth that will double sales by 2017. Revlimid, meanwhile, continues to be a top performer, while Abraxane--with a new application on pancreatic cancer now being readied, despite a less-than-stellar Phase III--has also contributed to the top line.

2012: $1.33 billion
2011: $1.21 billion

Change: Up 10%
As a % of product sales: 32%
Market cap: $52.1 billion ($BIIB)
Research chief: Doug Williams

Doug Williams

Biogen Idec will have no problem defending its big R&D budget this year. CEO George Scangos hired Doug Williams to run R&D after he took over, and if nothing else Williams did not screw up the work on Tecfidera. Over the last two years the drug emerged as the industry's top prospect for multiple sclerosis. And the FDA's approval was followed quickly by big sales that indicate a very bright future for this earner. According to EvaluatePharma, the average peak sales estimate for this drug is $3.8 billion.

Biogen Idec also wrapped up the rights for Tysabri recently. The company, though, isn't nearly done with its work in MS: Plegridy, or peginterferon beta-1a, has also been impressive in Phase III.

Halfway through their two-year program, the injectable Plegridy reduced the annual relapse rate of patients by 36% compared to a placebo, according to researchers. And while a single injection every four weeks met the goal in the study, patients getting an injection every two weeks performed better. The treatment also "reduced the number of new or newly enlarging T2-hyperintense lesions on brain MRI scans by 67 percent compared to placebo … and also demonstrated significant positive effects on disability progression by reducing the risk of 12-week confirmed disability progression ... by 38 percent compared to placebo."

Just days ago Biogen also reported that a Phase IIb study of the multiple sclerosis drug daclizumab produced a 54% reduction in the annualized relapse rate, demonstrating that Biogen may have a second or even third act in the follow-up to Tecfidera.

2012: $965.5 million
2011: $770 million

Change: Up 25%
As a % of product revenue: 22% 
Market cap: $15.6 billion ($SHPG)
CEO: Flemming Ornskov

Flemming Ornskov

The new CEO at Shire, Flemming Ornskov, moved quickly to put himself on top of a centralized R&D operation. With units scattered around the world, Ornskov decided to have a single group call the shots for R&D and the business development team. And he's chairing the group.

Ornskov didn't wait until he had formally taken the job to put his stamp on research. During his brief apprenticeship, he added a pair of ophthalmology companies: SARcode Bioscience for $160 million upfront and an unspecified slate of milestones and Sweden's Premacure. Those deals fit neatly with Ornskov's own background in eye diseases. And the acquisitions follow the buyout of Lotus Tissue Repair. Last year, Shire bought out the virtual company FerroKin Biosciences, adding to its pipeline of experimental drugs for rare diseases.

2012: $806 million
2011: $707 million

Change: Up 14%
As a % of product revenue: 62%
Market cap: $16.4 billion ($VRTX)
Research chief: Peter Mueller

Peter Mueller

Earlier this year Vertex became the first of the big biotechs to win "breakthrough" status at the FDA for its promising combo approach to cystic fibrosis. What kind of benefit that designation will be has yet to be determined, but for a fast-paced R&D group like Vertex's, it's a sure-fire approach to speed up regulatory talks as it speeds development of this key program.

Vertex's initial claim to fame was for Incivek, the breakthrough drug for hepatitis C that quickly became the new standard of care. Unfortunately for Vertex, though, there's a new standard of care moving fast in the clinic, and it will completely finish the job of eradicating the company's hep C sales. No matter, investors have been attracted to the future of cystic fibrosis now.

The company didn't wait for stellar Phase II data before launching a pair of late-stage tests of its approved CF drug Kalydeco in combination with VX-661. Vertex is moving fast and is positioned very well to capitalize on its work. And there's also a midstage hep C drug that just might keep Vertex a player in a brand-new market full of all-oral cocktail therapies.

2012: $625 million
2011: $529 million

Change: Up 18%
As a % of product revenue: 72%
Market cap: $25.6 billion ($REGN)
Chief scientific officer: George Yancopoulos

George Yancopoulos

This is Regeneron's big transition year, when it will earn blockbuster earnings from Eylea, a relatively new drug for age-related macular degeneration that goes from strength to strength. After avoiding the cautionary fates that befell so many other biotechs in launching a big drug, Regeneron is racking up a great track record in the commercial market. And it's even lucky. Just days ago Allergan ($AGN) was forced to delay a late-stage trial for a possible competitor, adding to the time Regeneron has to cash in.

By the time new competitors do arrive, Regeneron is aiming at a couple of late-stage coups that could help complete the transition to a fully fledged biopharma company, balancing commercial operations with pipeline work. The top prospect is Alirocumab (REGN727), a PCSK9 drug allied with Sanofi ($SNY) and designed to lower bad cholesterol.

This is no simple task. Developing any new drug for heart disease takes years and thousands of patients. Sanofi and Regeneron's late-stage ODYSSEY program, for example, will include 10 clinical trials, one of which is an 18,000-patient study that will look at the impact of the treatment on cardiovascular outcomes. The pair aim to hit the market with their PCSK9 contender in 2015, potentially making their treatment the first of its kind to be approved.

Another Phase III program for sarilumab/REGN88 is also partnered with Sanofi.

2012: $487 million  (current exchange rate)
2011: $483 million 

Change: Up 0.08%
As a % of product sales: 28%
Market cap: $7.6 billion ($ATLN)
Research chief: Guy Braunstein

Guy Braunstein

Last year Actelion's future was on the line as the Swiss biotech braced itself for a final readout on Phase III data for macitentan, its successor for the PAH drug Tracleer. PAH may be a somewhat crowded field, but with no new drug to replace Tracleer, the company would have no future. The drug accounts for 90% of its revenue.

Those doubts, though, were eased by the company's declaration that the late-stage numbers were positive, besting Tracleer. The upbeat results opened the door to a restructuring of R&D last summer, when the company laid off 135 staffers and focused on new programs for rare diseases and specialty pharma.

But the good news for Actelion didn't stop there. In December the biotech announced that it had reaped positive data from a midstage study of ponesimod, an oral drug, for plaque psoriasis. Ponesimod has also done well for multiple sclerosis patients. Once again Actelion finds itself working in packed fields, but the Swiss biotech clearly believes it can compete.

There may also be a third act for PAH as well. Just today the company announced that its late-stage trial for selexipag would go on to read out next year, with no modifications in the trial design.

The winning season for Actelion didn't leave shareholders in a giving mood, though. The company's executive compensation plan was rejected by 60% of shareholders a few weeks ago in a nonbinding vote.

2012: $325 million
2011: $268 million

Change: Up 21%
As a % of product revenue: 450%
Market cap: $6.5 billion ($ONXX)
Research chief: Ted Love

Ted Love

You can count Onyx as another Top 10 biotech coming off a big year. Kyprolis was approved last summer, triggering a steady rise in the share price. There's more research work ahead aimed at expanding use of Kyprolis and Nexavar, partnered with Bayer. And now there's also a big royalty stream from Stivarga to help swell company coffers.

Onyx got to this position following a savvy buyout of Proteolix, getting a drug that a number of analysts expect will snag $2 billion or $3 billion a year. And now Onyx is scouting for new buyouts, even as a number of observers expect a bigger fish to come along and acquire the biotech.

Onyx's approval record has left the cupboard bare of late-stage new chemical entities. Another proteasome inhibitor, oprozomib (or ONX0912), is in Ib/II tests. And another midstage asset obtained in a collaboration with Pfizer ($PFE) is in the pipeline. Onyx hasn't yet landed a really exciting new product to push into the spotlight, though with a streak like this, the market will give it some time. But some sort of deal almost has to be in the works.

2012: $302 million
2011: $214 million

Change: Up 41%
As a % of product revenue: 60%
Market cap: $9.3 billion ($BMRN)
Research chief: Henry Fuchs

Henry Fuchs

BioMarin edged out Cubist ($CBST) for the number 10 spot on this year's list, thanks to a big spike in research expenses. And in its annual report, the Novato, CA-based BioMarin says it plans to continue to beef up its R&D budget, with an eye to further research on Vimizim along with BMN 701 (a Pompe disease drug acquired in the ZyStor buyout), 190 and 673.

To keep up with the momentum, BioMarin has acquired a few small companies, including Zacharon Pharmaceuticals with an upfront payment of $10 million. The biotech has been working on Tay-Sachs disease for the past 9 years.

Last fall BioMarin was buoyed by the news that its experimental therapy GALNS hit the primary endpoint in a pivotal study for a rare enzyme deficiency, setting up plans to seek regulatory approval in early 2013. Patients on a weekly dose of 2 mg/kg of GALNS improved their walking distance by 22.5 meters compared to a placebo, with benefits showing up in week 12 and continuing through week 24. And results from an extension study indicate that the results continue to get better as dosing continues.

Rare-disease drug developers like BioMarin have seen their market caps swell as investors respond warmly to the huge 6-figure prices they can command for new drugs. At some point, those prices may generate a big kickback among payers, but for now BioMarin is emerging as one of the most ambitious players in biotech.

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