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Sanofi Leads Second Tier of R&D Spenders

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GuruFocus.com
·7 min read
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In a June 11 article for GuruFocus, I looked at the R&D efforts underway at the top five spenders in the pharmaceutical industry last year. Now, let's take a look at the work being done by those in positions five through 10.

6. Sanofi

R&D budget: EUR6.02 billion ($6.52 billion)


Change from 2018: +2.2%

Total 2019 revenue: EUR36.13 billion ($39.15 billion)

R&D budget as percentage of revenue: 16.7%

Sanofi (NASDAQ:SNY), under the leadership of former Roche executive John Reed, is reorienting its R&D efforts to strengthen its position in oncology and other specialty care areas, according to FierceBiotech.

Reed has thinned the company's pipeline, cutting 38 projects in a little more than year. The casualties included Sanofi's programs in cardiovascular medicine and most of its diabetes R&D. The company also wants to do more of its R&D in house, with Reed looking to increase the molecules Sanofi develops on its own to 70% from the current 50%.

The importance of bringing new products to market is illustrated by the fact that drugs 10 years and older account for nearly 80% of company sales. To address the issue, CEO Paul Hudson's new strategy aims to bolster Sanofi's business development.

Earlier this year, Sanofi got approval for its first new cancer drug in a decade, Sarclisa. Analysts at Jefferies predict that sales could surpass $1 billion. Another promising drug that could top $11 billion at its peak is the immunology treatment Dupixent; sales in 2019 were nearly $3 billion, a nice cushion as Sanofi continues to revamp its business.

Sanofi jumped on the Covid-19 bandwagon, testing its rheumatoid arthritis drug Kevzara against complications of the virus. Results have been less than inspiring. The company is also working on two vaccine projects in collaboration with GlaxoSmithKline (GSK) and Translate Bio Inc. (TBIO), respectively.

7. AbbVie Inc.

R&D budget: $6.41 billion

Change from 2018: -38%

Total 2019 revenue: $33.27 billion

R&D budget as percentage of revenue: 19%

AbbVie (NYSE:ABBV) is pumping up its R&D as pressure increases to find successors to its blockbuster drug Humira, which goes off patent in 2023.

The company is likely to move up in the rankings next year with the close of its $63 billion buyout of Allergan, although the deal doesn't bring much help to the pipeline.

AbbVie has a large blood cancer franchise, which was strengthened by new approvals for Imbruvica and Venclexta, whose sales were $5.5 billion last year. The company is working to see if it can identify other indications for the drugs.

Two AbbVie immunology treatments that were approved last year--Skyrizi and Rinvoq--face tough competition, but they could add $1.7 billion to the top line.

The company expects several of its pipeline treatments to hit the market in 2022, the most promising being navitoclax for a type of bone cancer. AbbVie has thrown in the towel on the cancer drug Rova-T, which they thought might be a $5 billion product. The company inherited the drug when it acquired Stemcentrx.

AbbVie is working on a number of coronavirus projects, supporting clinical testing of its HIV drug Kaletra and starting a phase 2 study of Imbruvica. It has also started screening its compound libraries for possible drug candidates

8. Bristol Myers Squibb Co.

R&D budget: $6.15 billion

Change from 2018: -3%

Total 2019 revenue: $26.1 billion

R&D budget as percentage of revenue: 23.6%

The highlight of 2019 for Bristol-Myers (NYSE:BMY) was completion of its $74 billion purchase of Celgene, which added two cancer drugs to its portfolio. To get the deal approved, the company had to unload the Celgene $1.6 billion blockbuster Otezla, which Amgen (AMGN), purchased.

Of substantial concern to the company is patent and 2022 generic challenges to Revlimid, which generated nearly $10 billion in sales. The company also has to be jittery that sales of its key cancer drug Opvido declined in in the fourth quarter of 2019, the first drop since the drug was launched four years earlier.

The company thinks five Celgene pipeline drugs could each exceed $1 billion in annual sales. Another, the multiple sclerosis treatment Zeposia, is estimated to reach $1.6 billion in sales in 2024, according to EvaluatePharma.

Bristol was one of the first companies to acknowledge the impact of Covid-19 on its R&D back in March, saying the pandemic would disrupt some clinical trial sites and lead to the suspension of new patient enrollment in cell therapy trials.

9. AstraZeneca

R&D budget: $6.06bn

Change from 2018: +2.1%

Total 2019 revenue: $24.4 billion

R&D budget as percentage of revenue: 24.8%

AstraZeneca (NYSE:AZN) has turned things around after a revamp of the company in 2018, when Pfizer (NYSE:PFE) was rumored to have the UK-based firm in its sights. Its sales were up in 2019 for the first time in six years.

To assure the company keeps its forward momentum, it continues to invest heavily in its pipeline. In fact, among the top ten spenders, AstraZeneca was number one in terms of R&D budget as a percentage of sales. The company has afforded the spend increase because of robust sales of its three cancer drugs, Tagrisso, Lynparza and imfinzi. Analysts at Liberum have suggested these and other late-stage drugs could boost the company's annual sales by as much as $13 billion in the next five years.

AstraZeneca says 2020 will be another transition year, as it continues to invest in R&D and supports the rollout of new drugs and an expansion into new therapeutic categories, such as hematology and renal diseases. It also aims to prioritize the development of drugs for early-stage cancers under the leadership of oncology research chief Jose Baselga.

The company said in its first-quarter financials that the pandemic isn't likely to affect its late-stage trials.

10. GlaxoSmithKline

R&D budget: ?4.57 billion ($5.62 billion)

Change from 2018: +15%

Total 2019 revenue: ?33.8 billion ($41.55 billion)

R&D budget as percentage of revenue: 13.5%

Even though GlaxoSmithKline is a perennial bottom-feeder among the top 10 R&D spenders, the company appears to make the most with the least. The company is pumping more into R&D, as evidenced by its 15% boost in spending from 2018, with a substantial portion of its funds going into late-stage testing of its candidates.

Last year, the UK-based drugmaker scored three product approvals and eight regulatory filings for new medicines, reported six positive readouts from drugs in pivotal studies and advanced four new therapies into pivotal studies. It also doubled its cancer pipeline with the addition of Tesaro. Glaxo will be better equipped to concentrate on drug R&D when the consumer health joint venture with Pfizer is completed.

In 2019 the company's respiratory business suffered, with the chronic obstructive pulmonary disorder (COPD) and asthma drug Advair suffering the biggest sales decline. .

Glaxo has indicated the pandemic is unlikely to substantially delay studies of its drugs in the latter stages of testing. The company is entering the coronavirus fray mainly through partnerships with other companies developing vaccines, including Sanofi.

Disclosure: The author has a position in Bristol-Myers Squibb.

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This article first appeared on GuruFocus.