Balancing Investments in the Dynamic Pharmaceutical Industry

In 2019, Amgen acquired Celgene's global rights to the psoriasis drug Otezla for a staggering $13.4 billion, raising doubts about whether such a massive investment could generate commensurate or even superior returns. However, high spending does not guarantee the highest returns, a trend reflected in the investment models of the pharmaceutical industry.

Pfizer has invested a cumulative $169.2 billion between 2014 and 2023, ranking it among the top 15 pharmaceutical companies. Its investments are primarily divided between acquisitions (around 50%), in-house research (around 45%), and product licensing deals. Pfizer's success with its COVID-19 vaccine Comirnaty and antiviral drug Paxlovid has driven its revenue to over $100 billion at one point. In 2023, Pfizer further acquired Seagen, a leading antibody-drug conjugate (ADC) company, for $43 billion, making it one of the largest deals in the pharmaceutical industry in recent years.

Despite the massive investments, Pfizer's return on investment (ROI) remains at the industry average level. In contrast, Merck's cumulative investment of $169.1 billion, slightly less than Pfizer's, has generated a higher net present value (NPV), primarily due to the contribution of its blockbuster drug Keytruda (pembrolizumab, or "K-drug"). Keytruda's sales reached $25 billion in 2023, making it the "king of drugs." Merck's in-house research investments account for over 60% of its total, higher than other companies.

In terms of investment efficiency, Novo Nordisk stands out as the biggest winner. Over the past decade, Novo Nordisk's total investment was $36.6 billion, only one-fifth of Pfizer's, but its projected investment return rate is as high as 7.36 times, far exceeding other pharmaceutical companies. Novo Nordisk has focused on metabolic and chronic disease areas like diabetes and obesity, with over 70% of its R&D spending allocated to internal drug development.

Novo Nordisk's semaglutide has become a market star, and its long-acting combination obesity drug cagrisema under development is also highly anticipated, with analysts estimating its net present value at $45 billion. According to the analysis, for every $1 Novo Nordisk invests, its drugs can generate $7.36 in returns.

Eli Lilly, ranking second in investment return rate, is a fierce competitor to Novo Nordisk. Eli Lilly has achieved success in developing drugs for diabetes and obesity, and it also has numerous potential blockbuster products. Analysts estimate that for every $1 Eli Lilly invests, it will generate $3.58 in returns.

However, the investments of Bristol-Myers Squibb (BMS) and Takeda have not yielded corresponding returns. BMS acquired Celgene for $74 billion in 2019 to gain access to Revlimid, but the drug's core patents have expired, leading to a significant decline in sales. Takeda's $62 billion acquisition of Shire in 2018 also failed to deliver the expected returns. These large-scale acquisitions by BMS and Takeda have not achieved the anticipated returns, dampening the industry's enthusiasm for such massive transactions.

The pharmaceutical industry's investment strategy needs to find a balance in the complex and dynamic market and technological environment. Evaluate's analysis suggests that even for industry giants, high investments may not guarantee commensurate returns, and companies need to continuously adjust their strategies to adapt to changing conditions.