General Industry Trends

Descriptive statistics uncovered overall trends in the pharmaceutical industry over the last 5 years (2019–2023), looking at the performance of top 24 pharmaceutical companies (financial, regulatory and pipeline data) according to IDEA Pharma’s Invention and Innovation Index ranking. These financial, pipeline and regulatory data metrics that were used in the analysis are considered essential by IDEA Pharma. IDEA Pharma has gathered the data consulting with industry experts to identify the most important metrics, which also align closely with ones reported by pharma companies annually. The Pharmaceutical Innovation and Invention Index’s data is reliable and used as a significant benchmark in the industry [23] [24].

However, it should be noted that the last five years represented an atypical time period for the pharmaceutical industry, largely shaped by the effects of the COVID-19 pandemic. Consequently, there is a level of uncertainty regarding how these findings can be applied to overall industry trends.

Overall Revenues

Figure 1 illustrates a continued upward trend in total revenues for top 24 pharmaceutical companies in a 5-year period (2019–2023), reaching its’ peak of 861,388.53 million USD in 2022 due to COVID-19 pandemic impact on the pharmaceutical industry. In 2023 there is a slight decrease in total revenue compared to previous years.

Fig. 1

Total annual revenues (million USD) of top 24 pharmaceutical companies in 2019 to 2023

The surge in revenue, attributed to the impact of the COVID-19 pandemic, is due to the high demand increased for COVID-19 vaccines and treatments globally. This is in line with the analysis by Fortune Business Insights, which states that the global pharmaceutical market rose by 8.4% in 2020 compared to 2019 [25]. The slight drop in revenue is due to a diminished demand for COVID-19 products and a shift in global health priorities [26].

The overall upward trend in revenues highlights that it is a profitable, robust and dynamic sector, characterised by innovation and global demand, and an essential component of global economy.

Net Income

Figure 2 shows fluctuations in net income values during the last 5-year period. In 2020, there was a drop in income followed by a substantial recovery and peak in 2021, reaching 203,461.24 million USD. However, in 2022–2023 total net income decreased steadily. The initial drop can be attributed to the impact of the COVID-19 pandemic on the industry, which led to disruptions in operations and a reduced demand for non-COVID related medicines, as the pharmaceutical industry focused on developing vaccines and COVID-19 treatment [27]. Consequently, this could have increased costs without an immediate revenue return, leading to a drop in net income. In 2021, large-scale demand for COVID-19 treatment caused an increase in vaccine sales, which led to the net income peak [28]. The steady decrease in the following two years resulted from market saturation, and the healthcare systems returning to pre-COVID patterns of activity [26].

Fig. 2

Total net income (million USD) of top 24 pharmaceutical companies in 2019 to 2023

Compound Annual Growth Rate

Figure 3 highlights the Compound Annual Growth Rate for average net income values for a 5-year period. The CAGR value drops to −3.99% in 2019–2020, before a major rebound by c.200% in 2020–2021, reaching a peak of 211.69% CAGR. This value then decreased steadily in the following two years. As the CAGR trend is calculated for average net income values, it is in line with the net income trend seen before (Fig. 2). The CAGR trend mirrors the overall trend in net income and reflects the same underlying reasons that influence profitability.

Fig. 3

Average CAGR of top 24 pharmaceutical companies per year during a 5-year growth period (2019–2023)

R&D spend

The graph (Fig. 4) illustrates a steady increase in average R&D spend for the top 24 pharmaceutical companies in the last 5-year period, peaking in 2023 at 7487.47 million USD, an increase of almost 40%. The steady increase in R&D spend is linked to the complexity in modern drug development, advancements in the technology used, expansion of research areas and renewed focus on more complex and rare conditions [7].

Fig. 4

Average R&D spend of top 24 pharmaceutical companies in 2019–2023

R&D spend as a Proportion of Revenue

Figure 5 shows that the average R&D spend as a percentage of revenue remained stable in the last 5-year, ranging from 19% to 21.5%. Other studies have highlighted that the share of R&D spend by revenue has seen a decline in recent years, which is caused by increased R&D investment by smaller, emerging drug companies. The companies, with a relatively lower revenue base, dedicate a much larger share of their revenue to R&D spend [7]. Therefore, even though overall industry R&D spend increases, the proportion relative to revenue appears to decrease slightly. This descriptive statistical analysis focuses on the top 24 pharmaceutical companies according to IDEA Pharma’s Pharmaceutical Innovation and Invention Index, so further analysis could be done looking at smaller companies.

Fig. 5

Average R&D spend as a percentage of revenue of top 24 pharmaceutical companies in 2019–2023

New Molecular Entity Approvals in Relation to R&D Spend

Figure 6 illustrates that over the last 5 years (2019–2023) the number of new molecular entity (NME) approvals fluctuates, peaking at 26 approvals in 2023. This corresponds with the highest R&D spend 5 years earlier in 2019. The relationship between R&D spend and drug approvals is complex, as drug approvals lag behind R&D spend [7], due to the time for the drug to pass the clinical trial stages, obtain regulatory approval and launch into different markets. That is why this graph groups the number of new drug approvals with R&D spend 5 years prior. Furthermore, it is worth pointing out that an increase in R&D spending could not necessarily cause an increase in the number of new drugs, but it also corresponds to rising labour costs and capital [7]. Moreover, complex treatment areas (such as oncology) can have very high R&D spending but very low clinical trial success rates [17].

Fig. 6

Trends in the number of NME approvals in 2019–2023 and annual R&D spend in 2015–2019

Drugs in Development as a Proportion to Marketed Drugs

There has been an overall increase in the proportion of pipeline to marketed drugs between 2019 and 2022, peaking in 2022 at a proportion value of 2.66 (development/marketed products), before slightly decreasing in 2023 (Fig. 7). A high proportion of drugs in development relative to marketed drugs represents a robust innovation pipeline. The increase in proportion in 2019–2022 can be explained due to an overall pharma industry commitment on bringing an innovative COVID-19 vaccine and treatments to the market [29]. This further highlights the industry’s strategic focus on R&D.

Fig. 7

Drugs in development as a proportion of marketed drugs from 2019–2023

Clinical Trials for Pipeline Drugs

Figure 8 shows that there has been an overall steady increase in all three clinical trial phases during the 5-year period. The biggest increase in average number of clinical trials is seen in Phase I (from 35 to 45), whereas the average number of Phase III trials increased slightly (from 7 to 10). The overall trend indicates that pharmaceutical companies are continually advancing their drug candidates through the pipeline, which corresponds to a robust R&D environment. A significant increase in Phase I trials reflects a bigger emphasis on new drug discoveries. Furthermore, this could also be attributed to a response to global health challenges such as COVID-19: companies have rushed to develop COVID-19 vaccines and treatments, resulting in more drugs entering Phase I clinical trials.

Fig. 8

Average number of drugs in Phase I, II and III clinical trials in 2019–2023 for top 24 companies

Split Between Nmes and Biologics

Figure 9 represents the division between new molecular entities and biologics that have been approved in 2019–2023. A fluctuation is seen in both the total numbers of NMEs and Biologics License Applications (BLAs). A significant increase in NMEs and BLAs approved was in 2021. In the last 3 years there has been an overall increase in approved biologics. 2023 has also seen the largest number of new approved drugs in the past 5 years. The fluctuation can be attributed to global health events (the increase in 2021 due to COVID effects) or recent changes in drug legislation.

Fig. 9

Numbers of approved new molecular entities (NMEs) versus biologics (BLAs) by FDA in 2019–2023 for top 24 companies

The results of this descriptive analysis highlight several key trends within the pharmaceutical industry over the last 5 years and may point to important revenue-determining factors. Overall, revenue saw an upward trend, particularly for companies that developed new medications and vaccines in response to the COVID-19 pandemic (e.g., AstraZeneca, Pfizer, Johnson and Johnson) [30, 31]. R&D spend has also increased steadily over the last 5 years, with most companies opting to devote a considerable proportion of their annual revenue to further research and development activities [32]. It is possible, that a higher R&D spend could be a significant driving factor for the companies’ future revenues, particularly if the investment in R&D results in new drugs being added to a company’s pipeline or new clinical trials being initiated [30, 33]. Additionally, the last 5 years have been characterised by a steady increase in the number of drugs investigated across all phases of clinical development (Phase 1 – Pre-registration), indicating that this could be another significant contributor to future revenues, particularly if pivotal clinical trials that could support the regulatory approval of new drugs are successful [34]. Lastly, although there have been fluctuations in the number of BLA and NME approvals, 2023 saw the largest number of FDA-approvals over the last 5 years. Successful approvals that result in the commercialisation and entry of new medications in the market are likely to be instrumental in ensuring that a company continues to have a positive revenue profile [35, 36].

Revenue Predictors

From the descriptive statistics parts we concluded that that R&D spend plays a key role in a positive company performance and is a key driver of future earnings. Clinical trials also have a significant impact as a pipeline factor. These conclusions were further tested in this part. A statistical model was developed using stepwise regression to do a predictive analysis of revenue determinants (looking at financial, regulatory and pipeline data), and predict the future revenue of pharmaceutical companies.

The statistical analysis was separated in two different models. The first one looked at 5 key metrics: company revenue, R&D spend, marketed products, clinical trials and designations. In the second model, clinical trials and designations were separated into more detailed metrics.

Model 1: Looking at 5 key metrics: company revenue, company R&D spend, marketed products, clinical trials, designations

The IDEA Pharma, a pharmaceutical strategy consultancy, metrics were used to conduct an analysis of predictors of revenue, focusing on the robustness of R&D spend, R&D spend as a proportion of revenue, marketed products, clinical trials, and designations as potential predictors of revenue was explored using a stepwise regression analysis. 2023 data for the predictor variables was used to predict 2027 revenues for the pharmaceutical companies.

Given the data fulfilled all the assumptions required for stepwise regression, we proceeded with the analysis. It was found that two out of the five independent variables investigated were significant predictors of 2023 Revenue. Specifically, in the first step of the model, the ‘2019 R&D spend’ variable was found to be a significant predictor of ‘2023 Revenue’, F(1,22) = 48.26, p < 0.001. In the second step of the model, the ‘2019 R&D spend as a proportion of revenues’ variable was added, and the predictive power of the model improved significantly, F(2,21) = 31.56, p < 0.001. None of the other independent variables were found to significantly enhance the model. The detailed results of the regression analysis for Model 1 can be found in the Appendix (Table C). The final model, which included ‘2019 R&D spend’ and the ‘2019 R&D spend as a proportion of revenues’, demonstrated a strong fit, and accounted for a substantial proportion of the variance in 2023 Revenues (R2 = 0.750 and adjusted R2 = 0.727). The regression equation was:

$$2023\; Revenue=\text+4.89\left(2019\; R\&D\; spend\right)-538.26(2019\; R\&D\; spend\; as\; a\; proportion\; of\; revenue)$$

The ‘2019 R&D spend’ variable had a positive standardized coefficient (t = 7.81, p < 0.001, β = 0.857), suggesting that a higher R&D spend is associated with a higher future revenues, while the ‘2019 R&D spend as a proportion of revenues’ variable had a negative standardized coefficient (t = −2.31, p = 0.031, β = −0.254), suggesting that a higher R&D spend as a proportion of revenue is associated with lower future revenues.

In order to test the model’s robustness, the independent variables were also tested using a backward stepwise regression; the variables identified as significant in the forward regression analysis were the same variables identified as significant in the backwards regression. Specifically, the ‘2019 R&D spend’ variable had a positive standardized coefficient (t = 7.54, p < 0.001, β = 0.806) and the ‘2019 R&D spend as a proportion of revenues’ variable had a negative standardized coefficient (t = −2.59, p = 0.018, β = −0.268), while all other factors were non-significant predictors of ‘2023 Revenue’. The detailed results of the backward stepwise regression analysis for Model 1 can be found in the Appendix (Table D).

Using the regression equation derived from the forward regression model,

$$2023\; Revenue=\text+4.89\left(2019\; R\&D\; spend\right)-538.26(2019\; R\&D\; spend\; as\; a\; proportion\; of\; revenue)$$

the projected future earnings of the pharmaceutical companies can be calculated. The ‘2023 R&D spend’ and ‘2023 R&D spend as a proportion of revenue’ variables will be fitted as predictors into the model in order to calculate projected earnings in 2027 (2027 Revenues). Thus, the equation used to calculate 2027 Revenues (Table E in Appendix) is:

$$2027\; Revenue=\text+4.89\left(2023\; R\&D\; spend\right)-538.26(2023\; R\&D\; spend\; as\; a\; proportion\; of\; revenue)$$

Model 2: Breaking Down Clinical Trials and Regulatory Designations

Given the data fulfilled all the assumptions required for stepwise regression, we proceeded with the analysis. It was found that three of the fourteen independent variables investigated were significant predictors of 2023 Revenue. Specifically, as in the previous model that did not include the broken-down variables, the ‘2019 R&D spend’ and the ‘2019 R&D spend as a proportion of revenues’ were found to be a significant predictors of ‘2023 Revenue’, as was the newly added ‘2019 Phase III clinical trials’ variable, F(3,20) = 33.94, p < 0.001. None of the other independent variables were found to significantly enhance the model. The detailed results of the regression analysis for Model 2 can be found in the Appendix (Table F). The final model demonstrated a strong fit that was marginally better than that seen in the previously tested model, and accounted for a substantial proportion of the variance in 2023 Revenues (R2 =0.764 and adjusted R2 = 0.741). The regression equation was:

$$2023\; Revenue=\text+4.07\left(2019\; R\&D\; spend\right)-526.25 \left(2019\; R\&D\; spend\; as\; a\; proportion\; of\; revenue\right)+\text(2019\; Phase\; III\; trials)$$

The ‘2019 R&D spend’ variable had a positive standardized coefficient (t = 6.95, p < 0.001, β = 0.829), suggesting that a higher R&D spend is associated with a higher future revenues, while the ‘2019 R&D spend as a proportion of revenues’ variable had a negative standardized coefficient (t = −2.04, p = 0.044, β = −0.207), suggesting that a higher R&D spend as a proportion of revenue is associated with lower future revenues. The ‘2019 Phase III clinical trials’ variable had a positive standardized coefficient (t = 2.61, p = 0.016, β = 0.300), suggesting that a higher number of Phase III clinical trials is associated with higher future revenues.

In order to test the model’s robustness, the independent variables were also tested using a backward stepwise regression; the variables identified as significant in the forward regression analysis were the same variables identified as significant in the backwards regression. Specifically, the ‘2019 R&D spend’ variable had a positive standardized coefficient (t = 6.63, p < 0.001, β = 0.667), the ‘2019 R&D spend as a proportion of revenues’ variable had a negative standardized coefficient (t = −2.86, p = 0.010, β = −0.250), and the ‘2019 Phase III clinical trials’ variable had a positive standardized coefficient (t = 2.75, p = 0.013, β = 0.270). All other factors were non-significant predictors of ‘2023 Revenue’. The detailed results of the backward stepwise regression analysis for Model 1 can be found in the Appendix (Table G).

The ‘2023 R&D spend’, ‘2023 R&D spend as a proportion of revenue’ and ‘2023 Phase III clinical trials’ variables were fitted as predictors into the model in order to calculated projected earnings in 2027 (2027 Revenues). Thus, the equation used to calculate 2027 Revenues (Table H in Appendix) is:

$$2027\; Revenue=\text+4.07\left(2023\; RD\; spend\right)-497.74\left(2023\; RD\; spend\; as\; a\; proportion\; of\; revenue\right)+\text(2023\; Phase\; III\; trials)$$