Friday, December 11, 2009

Healthcare Reform To Drive Pharma R&D Spend Higher?

As senior Pharma executives consider steps to improve shareholder value stemming out of Healthcare Reform there is no doubt that one area under scrutiny will be R&D spend.  Two questions will be raised.  How to change their spending footprint (more on this later)? and how much to spend?  In contrast to what some have concluded, I believe that savvy execs may very well increase company R&D spend, at least as a percentage of their revenue dollar.

The fact is that pharma is already increasing their R&D spend irrespective of the tough sledding (e.g. increased pricing pressures) the industry has seen since the turn of the century.  Consider the graph below depicting R&D spend as a percentage of revenue
for the very end of the go go 90s and the double goose egg 00s decades.  There is a clear and distinct upward trend in R&D spending as a percentage of revenue by both major companies and the the PhRma composite.  Only the last data point, 2008, shows some softening of the increase. 

One explanation....?  Certainly industry execs know that the days of the old model are over.  Companies cannot simply invent a me-too drug and out shout the competition by adding 100s of reps (Curiously... the exception, to some extent, maybe in the south).  The path to shareholder value will be through more innovative R&D, albeit at a higher risk, and decreased but more efficient marketing and sales spend enabled, at least in part, by new eMarketing approaches.

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