Why Pharmaceutical R&D Global Spending Could Exceed $200 Billion By 2024

Financialnewsmedia.com News Commentary

PALM BEACH, Florida, Dec. 11, 2019 /PRNewswire/ -- According to various industry and market publications, pharmaceutical companies spend, on average, 17% of revenues on R&D, making it one of the biggest spenders in this area. Outside of the semiconductor industry, no other industry spends more on R&D. A quick survey of other industries by Investopedia, clearly shows how much most of them are outspent in R&D by pharmaceutical companies. The overall average spending on R&D by industries engaged in developing new products is a mere 1.3% of sales revenues. The chemicals sector, one of the larger R&D sectors, spends an average of 2 to 3%. Aerospace and defense firms, although they do a great deal of research and development work, only dedicate about 4 to 5% of revenues to R&D spending.  Investopedia says that, in fact, the pharmaceutical industry's lifeblood is R&D. The success of major drug companies is almost wholly dependent upon the discovery and development of new medicines, and their allocation of capital expenditures reflects that fact. "Although the average spending is 17% of revenues, some companies spend substantially more." The report continued: "As of 2019, many of the largest pharmaceutical firms spend nearly 20% on R&D. Of the 20 largest R&D spending industries in the world, the pharmaceutical industry makes up nearly half the list… Many smaller pharma companies have lower revenue totals; so, they often spend significantly higher percentages of their budget on R&D – up to 50% for some firms.  Active biotech and pharma companies in the markets this week include CNS Pharmaceuticals, Inc. (NASDAQ: CNSP), Agios Pharmaceuticals, Inc. (NASDAQ: AGIO), Proteostasis Therapeutics, Inc. (NASDAQ: PTI), Eli Lilly and Company (NYSE: LLY), Sangamo Therapeutics, Inc. (NASDAQ: SGMO).

Another report says that: "The pharmaceutical industry's activities have significant socio-economic impacts on society in the form of investments in R&D and manufacturing. Of note, R&D is the "backbone" for success in any drug discovery program. Thus, the extent of pharma R&D spending serves as an important metric to show a company's commitment to finding new drugs. At present, the global pharmaceutical industry has the second highest R&D intensity (expenditure as a share of sales) measures of any sector…"   The report also indicates that overall R&D spending is expected to grow by 3% each year, reaching roughly $203.9 USD billion by 2024.