Innovation comes with hefty price tag as biopharma R&D spend climbs

To keep biopharmaceutical innovation churning requires mountains of cash. Companies will need to invest as much as $2.5 billion over a 10- to 15-year period in order to bring a new therapy to the marketplace, according to a 2014 study conducted by the Tufts Center for the Study of Drug Development. (See BioWorld Today, Nov. 19, 2014.)

That not insignificant investment factors in the high attrition rate biopharma companies face for their research and development (R&D) endeavors, where it has been estimated about 88 percent of all candidate compounds entering phase I development fail at that point or at some later stage during the clinical trials process.

While the pressure is on companies to try to ameliorate those costs through increased efficiencies, the amount of money invested in R&D continues to rise. An in-depth analysis by BioWorld Insight of the latest annual financial reports of 120 of the leading public biopharmaceutical companies by market cap working on developing new therapies found that they invested approximately 10 percent more in R&D during 2016 than they did in 2015; the companies collectively spent a whopping total of $7.2 billion compared to $6.6 billion.

The top 20 R&D spenders during 2016, as a group, increased their annual investments in R&D by an average of 19 percent. (See Top 20 biopharmaceutical companies by R&D spending, below.)

Big spenders

Foster City, Calif.-based Gilead Sciences Inc., in its annual filing, reported that R&D expenses grew 69 percent to $5.1 billion during 2016, compared to 2015 R&D spending. The company attributed the significant increase primarily to the overall progression of its clinical studies, including ongoing milestone payments. Also included in the total expenses was a $125 million purchase of an FDA priority review voucher from Duchenne muscular dystrophy developer Sarepta Therapeutics Inc.; and its $400 million up-front payment to acquire Nimbus Therapeutics Inc., in which it gained access to a lead acetyl-coA carboxylase (ACC) inhibitor program at Nimbus, including phase II-ready and preclinical allosteric ACC inhibitors aimed at treating nonalcoholic steatohepatitis (NASH), hepatocellular carcinoma and other metabolic and liver diseases. (See BioWorld Today, April 5, 2016.)

The company also recorded in-process R&D impairment charges of $432 million related to two products in clinical development – momelotinib and simtuzumab. In a pair of phase III trials JAK inhibitor momelotinib (formerly GS-0387) in myelofibrosis missed key endpoints. SIMPLIFY 1 and 2 were designed to compare momelotinib to Jakafi (ruxolitinib, Incyte Corp.) or best alternative therapy in patients with primary myelofibrosis, post-polycythemia vera myelofibrosis or post-essential thrombocythemia myelofibrosis. (See BioWorld Today, Nov. 16, 2016.)

The company also terminated its phase II and IIb studies of simtuzumab for the treatment of idiopathic pulmonary fibrosis, NASH and primary sclerosing cholangitis. The monoclonal antibody, targeting the human lysyl oxidase-like 2 protein, was acquired in its $225 million buyout of privately held Arresto Biosciences Inc., an early stage biotech based in Palo Alto, Calif. (See BioWorld Today, Dec. 21, 2010.)

Celgene Corp., the second largest biopharmaceutical company by market cap, reported in its 10-K filing that as of Dec. 31, 2016, 36 percent of its 7,132 full-time employees were engaged primarily in research and development activities. Its R&D expenses increased by $772.8 million in 2016 to $4.47 billion, a 21 percent jump over 2015 spending. Boosting the total was $892.9 million of research and development asset acquisition expense, including a $625 million purchase of Swiss-based Engmab AG, a private company focused on T-cell bispecific antibodies. Engmab's lead molecule, EM-901 is a preclinical T-cell bispecific antibody targeting B-cell maturation antigen.

In December, Celgene acquired all of the remaining outstanding equity interests it did not already own (approximately 86 percent) in Acetylon Pharmaceuticals Inc., which is focused on developing next-generation selective small-molecule histone deacetylase (HDAC) inhibitors Acetylon's lead molecule, ACY-241 is a HDAC6 inhibitor in phase I trials for relapsed and/or refractory multiple myeloma.

A month earlier, Celgene picked up Triphase Accelerator Corp.'s ocean-sourced proteasome inhibitor, marizomib, currently in development for the I.V. treatment of glioblastoma and relapsed/refractory multiple myeloma. (See BioWorld Today, Nov. 16, 2016.)

Among the 120 companies in the study, Ardelyx Inc. was one the leading companies in terms of boosting year-over-year spending. The company increased its R&D investments by 136 percent to $94.2 million. The increase, the company reported, was primarily due to the progression of late-stage clinical candidates, including an increase in personnel, facility and other costs, primarily related to increased research and development headcount. The Fremont, Calif.-based company, focused on cardiorenal and gastrointestinal diseases, revealed positive results from its phase III trial evaluating tenapanor for the treatment of hyperphosphatemia in patients with end-stage renal disease who are on dialysis. The trial met its primary endpoint, demonstrating a statistically significant difference in change in serum phosphorus between the pooled tenapanor-treated patients and placebo-treated patients. Also in December, the company initiated a phase III trial with RDX-7675 for the treatment of patients with hyperkalemia.

Although Amgen Inc. spent $3.8 billion on R&D in 2016 the amount represented a decrease of 6 percent on the 2015 expenses, which the Thousand Oaks, Calif.-based company said was "driven primarily by lower spending required to support certain later-stage clinical programs and transformation and process improvement efforts, offset partially by external business development activities."

Plenty of cash

With the costs of R&D continually rising, companies need significant cash resources to help keep their innovation engines ticking. The 120 public biopharma companies appear to have no problem in that regard, with their reported cash, cash equivalents and short-term investments at the end of 2016 collectively totaling $46 billion – an almost 14 percent increase over the $40.9 billion collectively held at the end of 2015.

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"The Year’s New Drugs & Biologics" is an annual two-part feature in Drugs of Today, a journal published by Clarivate Analytics. Part I provides a comprehensive look at the previous year’s new approvals and launches, while Part II offers insight into important news and issues affecting the pharmaceutical industry. Click here to download a free copy of Part I and Part II of "The Year's New Drugs & Biologics" for 2016 now.