Who’s spending and who’s cutting from Big Pharma’s $127B R&D budget? Here are the top 15 players

A couple of the Big 15 biopharma companies in R&D hit the gas on research spending last year. Merck and Sanofi still have lots to prove in the pipeline, and they’re willing to gamble large sums to make a better future for themselves.

Doing nothing would be infinitely worse.

But collectively, the top players rang up a modest 2.4% increase in spending in 2022, which didn’t cover inflationary pressures. And that set the tone for an extraordinarily cautious year for the industry — even as it laid out about $127 billion to advance new drugs or up the ante on approved therapies.

The cautious theme has been on display in all the most important research categories. Big Pharma is shying away from early-stage risk and moving more of its focus to clearly pivotal data or simply commercial products that have been almost completely de-risked. They can depend on their bread-and-butter core expertise in marketing to keep the money flowing from these products, while several are retooling priorities in the wake of the IRA — the first serious pricing policy to hit in their careers.

Q1 2023 has highlighted all those trends with a vengeance. The shift to value is clear at every end of the R&D process, and for experimental drugs, the only value consideration that means much of anything is Phase II or III data. Risk and long development timelines are anathema, though plenty are still willing to take on discovery projects with relatively small upfronts and big back ends.

Bold, expensive discovery bets are out of favor; winkling out cost savings in R&D is in.

On the discount lane, you’ll find all the talk — even from proven performers who have great track records. You can imagine how all the rest are treated.

Curiously, all these top spenders have solid reason to try something dramatic as gaps appear in their 2025 and 2026 approval timelines. But M&A isn’t pointed toward big plays about emerging drug targets — even though the science arguably is better and more ambitious than ever.

1. Roche: The late-stage R&D theme sours at Roche. Can they still do something big?

The big picture: Over the past year, quite a few investors have pinned their hopes for Roche on two drugs: gantenerumab, in the latest burst of enthusiasm for Alzheimer’s, and oversized expectations for TIGIT in I/O.

That, um, didn’t work out so well.

Gantenerumab is now a three-time loser in its category and Roche helped dim the bulb considerably with back-to-back disappointments on TIGIT.

Now there’s a reassessment underway, with some growing skepticism over what’s next in the pipeline to get things revved up again.

It didn’t help that Roche recently wrote down $3 billion on acquired assets and executed a Q4 cull that took down the AKT inhibitor ipatasertib after multiple disappointments — among other things. To be sure, there’s been plenty of portfolio drug advances over the past year, but it hasn’t changed the overall sour theme.

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2. Merck: Enormous success with King Keytruda keeps the critics — and company execs — looking for the next big thing

The big picture: At Merck, there’s Keytruda and then there’s everything else, which tends to pale in comparison. And its enormous success is creating a bit of a dilemma, as analysts ask — and keep asking — what the company will profit from in the future.

Last year, the PD-1 king registered close to $21 billion in annual sales — 35% of Merck’s total — continuing its years-long romp over Bristol Myers Squibb. But the franchise has been showing some wear and tear recently, as its most recent round of I/O combo trials has turned up repeated instances of clinical failures. Most recently, a TIGIT tie-up turned out poor data, which didn’t do anything for Merck or that field.

R&D chief Dean Li has put a circle around cardio, though, hoping for a near-term approval for sotatercept as execs talk up the potential of a new R&D segment outside the oncology legacy left by Ken Frazier and Roger Perlmutter. The $11.5 billion buyout for Acceleron by the new management team helped underscore Merck’s promise to go big in M&A, but they missed the Seagen buyout, leaving the focus on smaller bolt-ons more concentrated on individual therapies than fast market growth.

Will that cut it? Merck will have to do something impressive, and the theme this year is paying a big premium for near or now revenue growth.

Their Covid treatment Lagevrio (molnupiravir), helped boost revenue to a 22% growth rate last year. But that was ephemeral. The durable franchises remain Lynparza, partnered with AstraZeneca, along with Lenvima as well as Gardasil for HPV. But the analysts are proving a tough crowd, with plenty of concern about patent protection and too few eggs in too few baskets.

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3. Pfizer: It was good to be the Covid king, now a big buyout will help keep them on top in 2023 and beyond

The big picture: After years as the ponderous giant, making often silly and slow moves in R&D and tempting fate with patent expirations, Pfizer has shown some stylish moves in recent years. Its alliance with BioNTech put them on the cutting edge of mRNA and gave Pfizer an overnight fortune, while the receding tide of the pandemic has exposed some underlying weaknesses.

That set the stage for Pfizer’s $43 billion acquisition of Seagen, where they can buy an existing set of products and pipeline projects from the resurgent biotech. It’s a good use of the Covid windfall, but nobody thinks they got a bargain. These days, you pay a premium for cash flow, and Pfizer has the marketing chops to make sure they can keep these products performing at a high level.

Pfizer’s classic internal issues with R&D have hamstrung the major league player for years, but now it’s right in the thick of things with a new RSV vaccine, as a foot race to the first FDA approvals takes shape. That’s a switch. And they can continue to do deals, beefing up both their pipeline as well as their commercial portfolio.

Was it luck or skill? Probably quite a bit of both. And with a worldwide manufacturing reach combined with impressive commercial capabilities, Pfizer is positioned to capitalize on its progress.

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4. J&J: The C-suite is operational, but where are its next big contenders?

The big picture: We always break out pharma R&D spend for J&J to keep this an apples-to-apples comparison and will continue to do so until J&J goes the way of all Big Pharma and jumps out of consumer health in the near future. J&J has been a huge conglomerate, and its top-five ranking highlights its promises to investors for a landmark slate of big approvals in the coming years.

That’s not going to be easy to pull off, especially after research chief Mathai Mammen slipped out the door to throw his hat into the ring for other posts while John Reed eventually stepped in following five-year stints at Roche and Sanofi.

Despite the changes at the top, including Joaquin Duato’s move into the CEO post, J&J’s R&D group is like a cruise ship — massive, busy and always threatened by shifting and unreliable currents and events. Taking that and instilling confidence in top prospects and deals is a necessary part of filling the cabins and keeping the support of Wall Street, but they have to make more bets if they reasonably expect to stay on course.

On deck are some major franchises like Darzalex and Tremfya, with Carvykti and Tecvayli moving up as Stelara sales hit the skids. Big efforts like Remicade are sliding south and pharma sales are eroding, putting the focus back on R&D and doing some strategic deals — and you can bet they will look for some big players that can provide late-stage promise of blockbuster sales.

How long can they wait on that front?

Always ready to strike a pose, J&J has been reluctant to specify the cuts being made to their global R&D ops. Like Bristol Myers Squibb and others, J&J’s media strategy is to boast about growth — real and projected — and downplay the layoffs and any discussion about failure.

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5. AstraZeneca: Pascal Soriot has delivered on his promise on performance. So maybe it’s a good time for a few pleasant surprises

The big picture: It may have taken a while, with a large number of setbacks in the beginning. But a steadfast approach to R&D and a deal to buy Alexion has vaulted AstraZeneca into the top five, where it promises to remain in the back of some durable — and growing — drug franchises.

Even the company’s long-promised and way-over-budget HQ building is wrapping up, demonstrating a tenacity that is rarely seen in Big Pharma.

Much of AstraZeneca’s success stays focused around Soriot’s aggressive approach to pushing drugs like Lynparza and Tagrisso and, more recently, Enhertu — a legacy of the short but brilliant run by the late Jose Baselga. Through it all, Mene Pangalos has kept up his end of the deal, laying out a clearly focused R&D strategy that has delivered more consistent successes in the pipeline. And Susan Galbraith’s step up from the discovery end into the senior research post in oncology has paid off with her seemingly inexhaustible enthusiasm for the next wave in cancer drugs.

Ironically, changes in the Chinese market have benefited and hurt AstraZeneca. The Chinese government got more aggressive on pricing, biting into the revenue the global player had received, while the FDA’s new stance on China-only data has pushed back competition from EQRx, which also dropped its deep-discount approach to fielding new drugs.

Steady performance, good prospects, delivering real value and promising data for franchise ops, it’s frankly a bit boring. There will be setbacks (such as the rollout of its Covid vaccine), but the long years of failure and underperformance that made AstraZeneca into a basket case are a closed chapter.

AstraZeneca can afford to take some chances now without hurting its rep. And that could offer a few surprises yet.

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6. Bristol Myers Squibb: The uneasy giant looks to break out of a slump

The big picture: The one question no one wants to answer at Bristol Myers right now revolves around the rumblings inside the R&D group. Rupert Vessey, the square-jawed commander brought in from Celgene, had kept a host of partnerships alive and kicking. But with the IRA biting and revenue flat, Vessey recently exited while buzz about cutbacks was only hazily acknowledged.

The big events at Bristol Myers in recent years included hitting big on PD-1, only to hand the crown of reigning heavyweight player to Merck, followed by the Celgene buyout. The Celgene deal gave Bristol Myers an aging Revlimid, which has gone on to become a problem as generics carve up the franchise. Meanwhile, they’re putting their hopes in growing Opdualag (the Opdivo combo with the LAG-3 relatlimab) and Abecma (the old BCMA CAR-T ide-cel, partnered with bluebird and facing stiff competition) into much, much bigger drugs. But it’s going to be a race.

Bristol Myers’ late-stage pipeline, though, has proven to be a disappointment to many, leaving the company scrambling to position itself against the IRA while sorting through a reorg. That sets the stage for a lot of talk about deals without a whole lot of follow through to this stage. The recent undoing of their IL-12 deal with Dragonfly, which featured their reluctance to follow through on their initial $650 million investment, also highlighted internal turmoil as the company finds itself at another crossroads.

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7. Novartis: As its big clearance event continues, where’s the upside?

The big picture: The big story at Novartis hasn’t been about building the pipeline or portfolio. It’s been more about stripping them down. There was the recent decision to bow out of its Sangamo alliance, drop a set of ophthalmology assets, offload its big generics arm Sandoz and dispose of other assets as well.

The backdrop has been a $1 billion restructuring that has cut staffers — including R&D chief John Tsai — brought in Ronny Gal as new strategist and cut CEO Vas Narasimhan’s pay by a hefty 25%.

Novartis has a late-stage pipeline to talk about, but it’s dogged by Narasimhan’s history of touting drugs that never really panned out. And most of the pipeline news isn’t expected to arrive this year anyway.

The malaise has only heightened expectations that a major player like Novartis has to be planning something — perhaps something big. If it’s clearing the decks for something that can spark some interest in its future, we’ll wait and see. But a new set of small bolt-ons will likely fall flat on Wall Street.

Narasimhan is angling to get into the top set of drug makers in the US. We still don’t know just how he plans to do that.

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8. Eli Lilly: Sure, they’ve made lots of mistakes. But the big successes keep shining through

The big picture: Historically, Eli Lilly has been one of the slowest movers in Big Pharma R&D. But even in the doldrums of its worst days, the company has consistently managed to come up with big, blockbuster meds that go a long way to dispel the frets about its performance.

Solidly in the middle of the Top 15 pack, Eli Lilly’s latest, greatest drug is Mounjaro (tirzepatide), the diabetes treatment that promises to have a big future in obesity, rivaling Novo Nordisk. All signs point to a major success. In the meantime, Lilly had a setback on its Alzheimer’s drug donanemab, which the FDA rejected for an accelerated approval after an OK for Leqembi from Eisai and Biogen.

That hasn’t done much to dampen enthusiasts’ rah-rah over Eli Lilly’s prospects in Alzheimer’s. Even a later arrival in a market like this could move the bottom-line needle. But after Aduhelm, the old rose-colored assumptions have been under review.

Lilly, of course, isn’t about to step aside. They just completed their last, ultimate failure for solanezumab, a drug that’s been as dead as a fossil for years. But this is Alzheimer’s, where blockbuster hopes spring eternal even as patients, doctors and critics heap on the abuse.

So we’ll see.

Once upon a time, Eli Lilly’s management promised two new drug approvals a year. That didn’t happen, of course, but when your sole approval in 2022 is Mounjaro, who cares? Total drug approvals per year is not the number that counts.

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9. Sanofi: Paul Hudson is hunkered down on a turnaround for Sanofi, but it’s never easy

The big picture: Sanofi’s recent deal to acquire Provention and its approved diabetes drug says a lot about the mindset in Big Pharma today. CEO Paul Hudson has made plenty of bolt-on bets on R&D to try and spark some excitement about its future, but only a sure thing like a marketed drug can be convincing in this economy. And Sanofi got beat out in a $28 billion bidding war with Amgen for Horizon, indicating both their interest in bigger deals and a reluctance to go overboard.

Meanwhile, Sanofi’s R&D group has had a well-earned rep for the blahs over the years, with leaders cheering on a few prospects and doing deals to help swell expectations. It hasn’t completely failed, but it hasn’t really worked, either. And making plays in fields like mRNA hasn’t done much to give the global player a rep for cutting-edge work.

What has worked, with enormous success, is Dupixent, which continues to wrack up growing sales and fresh positives in new studies. Just days ago, we saw that play out again as analysts assessed the increased potential of COPD. And it underscores a central theme at Big Pharma: One megablockbuster success can atone for multiple R&D sins.

But they partnered on that drug with the unruly crew at Regeneron, which didn’t do much for Sanofi’s rep in drug development. On the marketing side, they have every reason to give themselves a pat on the back.

There’s also still the Zantac litigation, which lingers with setbacks for GSK in California. Sanofi, like others, decided to settle the lead case in the litigant-friendly state and still has to consider what can come on the state side. A federal judge went a long way to shoring up defenses nationally after kicking out thousands of cases.

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10. GSK: Two steps forward, one step back. ‘New’ GSK is still getting its act together

The big picture: GSK is one of those pharmas where you start with a pro/con list. And you still can’t quite decide where it comes out in a few years.

Shingrix is an indisputable success, with commercial legs that should carry it quite a distance. They’ve orchestrated a chorus of hallelujahs around RSV data, but given the competition here, you have to wonder if it’s all a little overdone. That one is ripe for disappointment if it fails to live up to its ambitious billing. And then there’s the Zantac litigation, where New GSK faces a very old problem over claims that it spurs cancer. That battle is now centered on a lead case in California after GSK scored a win on the federal side.

One of the problems with GSK is that CEO Emma Walmsley and former R&D chief Hal Barron rested their argument for an early transformation around the acquisition of Zejula, but the business case was always too thin and just recently got thinner. Tony Wood’s recent elevation to R&D chief was also followed by some quick deal terminations, which was likely necessary but hasn’t helped.

That all left them doing a string of bolt-ons that may yet deliver, but nothing is whipping up tremendous enthusiasm on Wall Street, where the company has been a consistent laggard.

GSK certainly isn’t in a terrible position. But after five years under new management, there’s a lot of chafing around their potential to do better.

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11. AbbVie: A reliable performer, but how do you prepare for a problem like Humira?

The big picture: Now that generic competition is finally beginning to eat into its cash cow Humira, AbbVie’s long game in developing Rinvoq and Skyrizi to fill the growth category stands out in sharp relief. The management at team AbbVie under Rick Gonzalez has consistently performed to promise, and that has encouraged considerable loyalty among the analyst crew.

There was the Allergan buyout, which was mostly about the Botox franchise — again, predictable.

So what else is new?

Not much, which is a problem for CEO Rick Gonzalez. The loss of the Humira franchise can be managed, as his crew has proven, but it’s still going to be painful to watch. And it’s likely to put more pressure on the deals team to come up with some M&A that has some upside attraction built in. But in this market, experimental drugs with clear market potential will fetch a big price.

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12. Gilead: If at first you don’t succeed….

The big picture: Gilead’s numbers have been a bit of a yawner for years. The company has reliably kept an iron grip on the HIV market, running out new therapies that offer patients easier disease maintenance and batting back ViiV’s persistent efforts to catch up and surpass them in the field.

The Gilead team has been helped by their competence with Yescarta, the leading CAR-T that has steadily worked at being more reliably produced by the manufacturing arm. The team at Kite, where both its president — Christi Shaw — and R&D chief have announced departures, has shown the kind of steadfast competence that improves franchises. And as always, the promise of off-the-shelf rivals threatens to upset the apple cart, though rivals are making slow progress.

As long as Gilead maintains a commanding lead in the science of the HIV field, though, it has a solid foundation to build on. And therein lies the problem. In the four years since Dan O’Day took the helm, he’s struck a string of deals to get ahold of the next generation of breakthrough drugs. And with one eye on immunotherapies, the effort has regularly been bedeviled by setbacks.

The biggest of these failures was its unfortunate gamble on filgotinib; there were mixed expectations on Trodelvy, now complicated further by AstraZeneca’s Enhertu success; plus some recent questions about the Arcus TIGIT data didn’t help.

O’Day, though, shows every sign of sticking it out to achieve the turnaround he’s promised. But it won’t be easy.

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13. Takeda: Five years post-Shire buyout, the R&D team stays focused on the next big thing

The big picture: Takeda is unique in the top 15 in counting revenue through the four quarters ending at the end of Q1. But they offered their 2022 R&D spend broken down by quarters so we could rank them in the majors.

Takeda set out to engineer a major makeover for itself when Christophe Webber took the top post and Andy Plump stepped into the R&D lead role — based in the Boston area — as the aging Japanese player remade itself as a global player. The $64 billion Shire takeover figured prominently in that.

Plump and I talked about that recently as we discussed the Phase IIb data that rolled in for their TYK2 drug, acquired from Nimbus for $4 billion in cash plus $2 billion in sales milestones. In this league, human data is essential to completing major deals. The R&D 15 are looking for approved or relatively near-term shots on the FDA goal line. De-risking is worth billions if you can reasonably point to a major market opportunity.

And the data on TYK2 are good, so far.

But Takeda has executed repeatedly on pipeline growth, including its build-to-buy play for GammaDelta on the cell therapy side. While still not in the top 10, the top execs remain delighted by the deals and potential of what they build. And they give the impression that more lies ahead.

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14. Amgen: A two-prong strategy combines some discovery magic with a hardcore focus on the portfolio

The big picture: Amgen’s executive crew, led by Bob Bradway, has an amazing ability to whip up excitement about a key program, which tends to shut out any criticism of a pipeline that doesn’t do all that much.

Recently the big deal was KRAS, where Amgen justifiably garnered lots of breakthrough excitement on one of the toughest targets in biopharma R&D, only to see the balloon deflate as their drug failed to live up to what had become a bit overblown.

Now the spotlight has turned to AMG133, an oral obesity drug only now going into mid-stage studies. Amgen has caught some of the enthusiasm sparked by Novo Nordisk’s semaglutide and Eli Lilly’s tirzepatide. Both are going to wrack up enormous sales after gaining their entry into the diabetes market.

Whether it all pans out or not, Amgen can be credited with a very effective marketing campaign giving themselves a big boost on the share price.

The discovery angle, though, is just one side of a two-prong strategy at Amgen. Its recent acquisition of Horizon for $28 billion underscores a big appetite for sure things, which it also demonstrated with the $13.4 billion deal to acquire Otezla, factoring in higher prices while a key rival grew in the clinic.

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15. Regeneron: The founders’ first hits went platinum, and now the critics are demanding another

The big picture: Legendary company founders Len Schleifer and George Yancopoulos proved that they could move markets and build a major player on the basis of two key franchises: Eylea and Dupixent, which they developed in a 50/50 deal with Sanofi. They’re the hottest shooters in the field, and they kept the fast draw on display during Covid, raking in an overnight fortune that is now slipping away.

But what have they done for you lately?

No one gets to rest on their laurels in biopharma, and the big challenge for Regeneron now is to prove that they can keep on making R&D magic. Yancopoulos, who has proven to be outspoken on every subject handed to him, has enjoyed talking up the historic potential of their “homegrown” PSMAxCD28 costimulatory bispecific antibody REGN5678, in combination with their PD-1 checkpoint Libtayo. And company execs have made the rounds to discuss new standards for follicular lymphoma.

But when you’re talking I/O, bodacious claims tend to run a little thin among analysts. Regeneron has actual innovation built into its DNA — they walk the walk on R&D — but the mood now is definitely more on the “show me” side with hard data that can make its own clear case.

Regeneron has the kind of foundational commercial portfolio that has made them a sterling performer in biopharma. But reaching for new upside in 2023 is going to be an uphill battle — even for two players like Schleifer and Yancopoulos.

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