R&d spend delivers poor return, says report

Despite continuing significant r&d expenditure, a large number of global pharmaceutical companies are struggling to deliver new products with significant revenue-generating potential, according to strategic consulting and research firm Wood Mackenzie.

In its annual analysis of the global pharmaceutical industry - The Executive's Guide to the World's Leading Pharmaceutical Companies 2005 - it says that growth from r&d investment by the top pharmaceutical companies is just one of the major strategic issues facing the industry.

The top three companies (Pfizer, GlaxoSmithKline and Merck & Co.), which collectively invested more than $8bn (or about 15% of sales) in r&d in 1999, delivered products which contributed only 10% of total revenues by 2004. 'The trend continues to worsen as we look at the next five years", commented Dr Keith Redpath, head of life sciences research.

'In seven out of the current top 10 pharmaceutical companies, less than 10% of our forecast total ethical drug revenues in 2009 will be attributable to investment in new products between 2005 and 2009. This can not be regarded as a good return on investment in research and development."

'Clearly the model of significant investment in the pursuit of blockbuster drugs is failing to deliver the products and growth that these major international companies need to support their cost base,' said Dr James Featherstone, global head of consulting. 'The industry needs to critically appraise how it acquires and develops new drug candidates if it is to return to the days of year-on-year double-digit growth.'

Wood Mackenzie forecasts only two of the Top 10 global companies - sanofi-aventis and Hoffmann-La Roche - to have a compound annual growth rate (CAGR) in sales greater than that of the global industry. Wood Mackenzie's forecasts for sales growth at two of the top three companies - Pfizer and Merck & Co. - are negative during the period 2004-09.