Pharmaceutical industries dedicate a large percent of their budget for internal research and development processes. R&D financing in pharmaceutical markets is a complex mix of private and public funding. The pharmaceutical industry receives tax incentives from multiple countries. Drug development also benefits extensively from the widespread knowledge and innovation in various sectors including NGOs and academia.
Where R&D Spending Is Highest
Most of the pharmaceutical R&D activity occurs in the Organization for Economic Co-operation & Development (OECD) countries. As GDP share, the R&D spending in pharmaceuticals is highest in Switzerland (around 0.63%), Belgium and Slovenia (0.45%), Denmark (0.36%), USA (0.30%) and Japan (0.26%).
In the US, the pharma industry spends more than any other industry on research processes as compared to sales revenue. As per various estimates, spending has increased from 3 to 6 folds in the past 25 years, but still a very small change or innovation has been observed in the drugs approved each year.
For the past 5 years (2011-2015), the global spending trends in pharmaceutical research and development, as reported by the Evaluate Pharma World Preview 2016, have been around 136 billion USD to 150 billion USD. According to the report, this represents an increase of around 4.7% in R&D spending for the year 2015 as compared to the previous year.
The R&D expenditure in the industry in OECD countries has effectively doubled between 2000 and 2011, while during this time highest expenditure growth was recorded in the US (+85%) followed by Japan (+76%) and Europe (+38%). China also observed an increase in the pharmaceutical R&D spending of about 3.4 folds during 2000-2011.
The Evaluate Pharma 2016 Report
The Evaluate Pharma 2016 report forecasts an annual spending growth rate of about 2.8% as compared to the yearly growth rate of 1.7% recorded from 2008 to 2015. This progressively increasing spending trend indicates an uplift in R&D productivity, owing to better focused clinical development programs. It also signals an enhanced collaboration between the regulatory authorities and manufacturers to be on same lines for a clinical trial design.
The report also suggests that by the year 2022, Roche pharmaceuticals would probably have overtaken the pharmaceutical titan Novartis, with the highest R&D spending of about 9.9 billion USD. Novartis is expected to reduce its spending to 9.2 from 10.5 billion USD by 2020. Among the top twenty, Celgene and Regeneron have been predicted to grow their R&D expenditures at a faster pace, with about an 11% yearly increase until 2022. The overall R&D spending is expected to go up by 2.8% yearly, reaching around 182 billion USD by 2022.
Following the new trends in R&D processes, the concept of open innovation is certainly of prime importance for the pharmaceutical industry. The ability of using external capabilities to compliment a firm’s own competencies and traditional R&D helps in cost cutting and bringing in improvised products.
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