R&D Growth Stalls

STACY LAWRENCE

Investment in research and development for life sciences companies grew at a consistently blistering pace for 15 years, even as the industry matured. But last year, R&D spending growth actually fell into the single digits—7%. By contrast, the average rate of increase was 16% for the recent peak period from 1995 to 2001. The research budgets of most of the major pharmaceutical companies are following this trend, with single-digit growth between first quarter 2003 and the same period a year earlier. But don’t expect R&D spending to accelerate any time soon. Hampered by a weak economy, growth in prescription sales is also slowing and is expected to continue to decelerate to 10% this year from 17% in 2001. And, in this environment, companies are hesitant to expand R&D budgets very much. But that may not be all bad—especially considering that the number of new molecular entities and biologics approved by the U.S. Food and Drug Administration has fallen off significantly since 1996. The connection between increased funding and increased innovation is apparently a tenuous one. Since drugs take an average of 10 to 15 years to travel through the research pipeline, logically the industry should now be enjoying the benefits of a 15-year period that saw R&D spending explode from $4 billion to $26 billion a year. But so far, that hasn’t been the case.

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Additional charts accompanying text include:

R&D Spending, by Type of Company

R&D Spending, by Research Phase

Selected Companies with Increasing and Decreasing Research and Development Spending

Current Products in the Research Pipeline

Metrics

BioMetrics: Figuring Out Pharmacogenomics

» Pipeline: R&D Growth Stalls

Capital Markets: Investors Hesitate

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