Research and development
Research and development (or R&D) is one of the most crucial parts of the business for pharmaceutical companies in the prescription drug segment. These expenses relate to the process of discovering, testing, and developing new products, and improving the existing range of products. These expenses also ensure product efficacy and regulatory compliance prior to launch.
The R&D expenses for AstraZeneca (AZN) were $5.6 billion in 2014, $4.8 billion in 2013, and $5.2 billion in 2012. The increase in R&D spending in 2014 reflects an increase in spending on the company’s late-stage pipeline.
AstraZeneca’s R&D comprises two biotech units for discovery research and early-stage development, and late-stage development. The two biotech units conduct innovative discovery research and early-stage development from initial target selection to completion of phase two trials. MedImmune focuses on biologics research, while IMED focuses on scientific advances in small molecules. Both MedImmune and IMED delivered five biologic programs and two small molecule programs from early-stage development to the Global Medicines Development unit.
The Global Medicines Development (or GMD) unit is the science unit that drives the late-stage portfolio across all therapy areas a company deals with. It involves phase two clinical trial programs to support approval, launch, and reimbursement of new medicines, and advanced studies for improvement for approved products.
Key developments during 2014 are as follows:
- redeployment of R&D spending towards late-stage developments
- obtaining 12 regulatory approvals for new molecule entity and lifecycle management projects across all therapy areas the company is involved in
- expansion of its immune-mediated cancer therapy research activities
- participation in multiple new collaborations to access novel science and technologies
Other large pharmaceutical companies like Teva Pharmaceutical Industries (TEVA), Merck and Co. (MRK), and Eli Lily and Co. (LLY) also spend heavily to develop patented drugs. MRK forms about 6.4% of the total assets of the SPDR Health Care Select Sector SPDR ETF (XLV).