How Much Does Roche Spend On R&D: $5 Bil, $10 Bil, Or $20 Bil?

Roche Holding (NASDAQ:RHHBY) spent over $12 billion on R&D in 2018, making it the highest spender on R&D (in dollar terms) among large pharmaceutical companies globally. Roche has been investing heavily in R&D as it was looking for new drugs that could compensate the expected loss of revenue from its blockbuster drugs, which were about to lose market exclusivity.  In fact, we estimate that Roche could lose over $3 billion in sales from its existing blockbuster drugs.  It appears that Roche’s spending on R&D has also turned out to be good so far for the company, and its new drugs could add $5 billion in sales over the next few years.  Roche’s R&D spending has remained stable, when looked as a percentage of revenues.  Its contribution to the company’s total expenses has also remained stable over the recent years.  Roche’s R&D spending as a percentage of revenues is higher than that of Johnson & Johnson and Pfizer but lower than that of Merck. You can look at our interactive dashboard analysis ~ How Has Roche’s High R&D Spending Impacted Its Sales? ~ for more details.

Roche’s R&D Expenses Have Grown From $10 Billion In 2012 To Over $12 Billion In 2018

• Roche’s money spent on research and development has grown from $10.2 billion in 2012 to about $12.3 billion in 2018, as the company has been looking for new drugs that could compensate the expected loss of revenue from its blockbuster drugs, that were about to lose market exclusivity primarily in 2018-2019.

Roche’s R&D Expenses As % of Revenue Has Largely Hovered Around The 20% Mark.

• Roche’s R&D expenses as % of revenue have largely remained around the 20% mark over the last few years, except for 2016, when it rose to 22%, due to new oncology and immunology drugs in its pipeline. In fact, in 2016, the company had over 50 trials ongoing in oncology alone.
• While R&D spending has grown at 3.7% CAGR between 2012 and 2018, revenues have grown at 3.2% during the same period.
• Looking forward, we estimate the R&D expenses as % of revenue to continue to hover around the 20% mark.

Roche’s Total Expenses Have Also Increased Over The Recent Years. However, The Contribution of R&D Spending To Roche’s Total Expenses Has Largely Remained Between 24% And 25%.

• Roche’s total expenses grew at a CAGR of 3.7% from $40.2 billion in 2012 to $49.6 billion in 2018.
• However, the contribution of R&D spending to Roche’s total expenses has largely remained between 24% and 25%, except for 2016, when it grew to 27%, given the increased investments on new drugs.

Roche Is The Highest Spender On R&D Among Global Pharmaceutical Giants, But Merck’s R&D Spending Tops The List In Terms of Percentage of Revenue

• Merck’s jump in R&D spending in 2016 can be attributed to a $3 billion impairment charge associated with its drug Uprifosbuvir.
• Merck saw growth in 2017 as well due to a charge related to collaboration with Astrazeneca. Even after a decline in 2018, Merck’s R&D Spending as % of Revenue was well ahead of Roche’s.
• Looking forward, Merck’s R&D Spending as % of Revenue will likely fall in line with that of Roche as it reduces promotional spending for its established drugs.

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