Research and development
R&D (research and development) is the most crucial part of a business for pharmaceutical companies in the innovative 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 compliances prior to launch.
The R&D expenses for Eli Lilly and Company (LLY), also referred to as “Lilly,” were ~24% of the revenue at $4.7 billion in 2014, ~23.8% of the revenue at $5.5 billion in 2013, and ~23.3% of the revenue at $5.3 billion in 2012. The R&D expenses have fallen primarily due to lower late-stage clinical development costs.
Lilly has R&D facilities located in six countries under LRL (Lilly Research Laboratories). There are more than 8,200 employees engaged in R&D. This is about 20% of Lilly’s total workforce. Also, Lilly conducts the clinical research for products under development in more than 55 countries.
There are two NDAs (New Drug Applications) filed with the FDA (US Food and Drug Administration) under regulatory review. These two NDAs are for:
- Ixekizumab – a biological entity being studied for the treatment of psoriasis
- Necitumumab – a biological entity being studied for the treatment of squamous non-small cell lung cancer
Apart from these, there are six molecules in Phase III clinical trials for at least one potential indication. Lilly also has 12 molecules that are being investigated to treat a different disease or for which a different formulation is being studied. From these 12 molecules, two are under regulatory review, while six are in phase III clinical trials and rest are in phase II clinical trials.
The large pharmaceutical companies like Teva Pharmaceutical Industries (TEVA), Merck and Company (MRK), and AstraZeneca (AZN) also spend heavily to develop patented drugs. The Health Care Select Sector SPDR ETF (XLV) has invested ~2.9% in Lilly.