Jun 30, 2017

The ups and downs of drug company research costs

The pharmaceutical industry has long argued that U.S. drug prices are high to help pay for the risky business of inventing and developing new medicines. A glance at research and development expenses for eight of the largest drug companies shows their research budgets depend on the sales of drugs — and drug companies aren't afraid to take a hatchet to R&D if sales disappoint.

The takeaway: Developing drugs is an expensive process that costs billions of dollars and frequently ends in failure. But after drugs get federal approval, their prices often far exceed R&D costs, taking almost all of the risk out of the process.

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What we looked at: The research and development expenses for eight big pharmaceutical firms: Amgen, Eli Lilly, Gilead Sciences, GlaxoSmithKline, Merck, Novartis, Pfizer and Roche. A few trends popped out:

  • R&D expenses for most companies hovered at or below 20% of their revenue since 2010. That's consistent with the historical trend.
  • Pfizer and GlaxoSmithKline routinely had low R&D spending. Neither saw research costs tip above 17% of their revenue over the past seven years.
  • R&D expenses fell to 9.2% of Gilead's revenue in 2015, the same year the company's revenue exploded from its new hepatitis C drugs, Sovaldi and Harvoni.
  • It was common for net profits and marketing budgets to surpass drug company R&D spending.

R&D gray areas: How a company defines "research and development" also can be murky. For example, in 2012, Gilead counted more than $100 million of stock-based compensation toward its R&D expenses — not exactly the clinical trial or research lab work that comes to mind. That payout money was tied to its acquisition of Pharmasset, the company that actually developed the blockbuster hepatitis C drugs.

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U.S. coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios. This graphic includes "probable deaths" that New York City began reporting on April 14.

More than 62,300 U.S. health care workers have tested positive for the novel coronavirus and at least 291 have died from the virus, the Centers for Disease Control and Prevention reported on Tuesday. COVID-19 had infected about 9,300 health professionals when the CDC gave its last update on April 17.

By the numbers: More than 98,900 people have died from COVID-19 and over 1.6 million have tested positive in the U.S. Over 384,900 Americans have recovered and more than 14.9 million tests have been conducted.

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World coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

There are no COVID-19 patients in hospital in New Zealand, which reported just 21 active cases after days of zero new infections. A top NZ health official said Tuesday he's "confident we have broken the chain of domestic transmission."

By the numbers: Almost 5.5 million people have tested positive for the novel coronavirus as of Tuesday, and more than 2.2 million have recovered. The U.S. has reported the most cases in the world (over 1.6 million from 14.9 million tests).