Total biopharma R&D spend came in at $289bn, with the increase over the last year’s figure ($284bn) coming in lower than inflation. So our estimate for R&D budgets, which teases out non-pharma related activities by healthcare conglomerates such as J&J’s medtech arm, is essentially flat or negative. It should also be said that the 2023 number contains some one-time outliers such as Merck’s accounting for its acquisition of Prometheus. Regardless, there is now clear evidence of a slowing of spend towards the end of the 2016–24 period, during which the total R&D budget increased at a very healthy 7.7% CAGR. Cost containment measures put in place across the biopharma industry, from industry giants facing patent cliffs through to biotechs with dwindling cash runways, are coming home to roost. Big pharma’s belt tightening has the largest effect, with the top 10 companies accounting for around 40% of the total.
Evaluate’s consensus suggests that R&D budget growth will remain slow, even as prescription revenues take off at a 7.4% CAGR. $289bn in 2024 is predicted to increase to $343bn by 2030, corresponding to a modest 2.9% CAGR. The net result is a declining R&D margin from a peak of 28.8% in 2023 down to 20.7% by the end of the decade (note these percentages exclude generics activity). R&D remains essential to replenish pipelines – perhaps more than ever considering compression in drug lifecycles and fierce competition – but the wider environment, which includes high cost of capital and productivity challenges, is tough. In the shorter term, while research spending is under scrutiny, we may see a corresponding increase in deal-making to ensure the flow of innovation. And should the macroeconomic picture improve then reinvestment into R&D is likely to pick up. History tells us that R&D margins in the mid-20%s can be sustained.
