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Ultimately, branded drugs have a finite time period where they can be sold exclusively without generic competition of 20 years. However, the clock on patented drugs starts ticking when the Food and Drug Administration grants a biopharmaceutical company the right to investigate a new drug in clinical trials. Therefore, you can knock off an average of eight to 10 years from of a drugs' patented lifespan before it even makes it to market. This should give you a better indication of why innovation and R&D spending is so vital to big pharmaceutical companies.
Innovation is everything when it comes to the pharmaceutical sector. Behind those glorious 75%-plus gross margins associated with branded and patented drugs is billions of dollars worth of research and development money that keeps the sector running.
Ultimately, branded drugs have a finite time period where they can be sold exclusively without generic competition of 20 years. However, the clock on patented drugs starts ticking when the Food and Drug Administration grants a biopharmaceutical company the right to investigate a new drug in clinical trials. Therefore, you can knock off an average of eight to 10 years from of a drugs' patented lifespan before it even makes it to market. This should give you a better indication of why innovation and R&D spending is so vital to big pharmaceutical companies.
According to research firm Kalorama Information, global R&D spending in the pharmaceutical sector increased from just $35.3 billion in 1996 to more than $95 billion in 2009, so we know the investable money is there. Let's have a look at the 10 biggest pharmaceuticals R&D budgets in fiscal 2012 and see how they compare to corporate R&D spending in 2009.
| Company | 2012 R&D Spending | % Change From 2009 |
|---|---|---|
| Roche (NASDAQOTH: RHHBY ) | $9.3 billion | 7% |
| Pfizer | $9.1 billion | 23% |
| Merck (NYSE: MRK ) | $8.5 billion | 52% |
| Johnson & Johnson | $7.7 billion | 16% |
| Novartis (NYSE: NVS ) | $6.7 billion | (5%) |
| Sanofi | $6.7 billion | 7% |
| GlaxoSmithKline | $5.6 billion | 0% |
| Eli Lilly (NYSE: LLY ) | $5.3 billion | 28% |
| AstraZeneca | $4.5 billion | 6% |
| Bristol-Myers Squibb (NYSE: BMY ) | $3.9 billion | 12% |
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