Pharma R&D Intensity by Company

R&D Intensity Measures Reinvestment, Not Output

R&D intensity is research and development expense divided by revenue. It shows how much of each sales dollar a drugmaker puts back into finding its next products. Two companies at 20% can be in very different positions: one may earn half its revenue from a single drug and the other spread it across dozens, or one may spend on late-stage trials and the other on early research.

Because it is a ratio, currency drops out: Novo Nordisk’s figure, computed in Danish kroner, compares directly with the dollar filers. Accounting does not drop out. Three choices about what goes into the R&D line can move the ratio by more than eight points, close to the whole spread between the six companies below. The biggest is acquired in-process R&D (IPR&D): the upfront a company pays to license or buy a drug candidate, which some filers show on its own line.

FY2025 R&D Intensity, Six Filers

Each company’s own figures, from its FY2025 Form 10-K (Novo Nordisk: Form 20-F and Annual Report 2025). Johnson & Johnson’s figures cover the whole group, including MedTech.

Five of the six sit inside the 15% to 25% range often quoted for large innovator drugmakers, and AbbVie’s 14.9% sits just below it. The order changes once the same costs are counted for everyone.

Three Accounting Choices Move the Ratio

Where acquired R&D lands. A drugmaker that licenses a candidate, or buys a company that is little more than one candidate, expenses the upfront payment under US GAAP as acquired in-process R&D. Eli Lilly, Pfizer and AbbVie report it on a separate line below R&D. Merck and Johnson & Johnson book the same kind of payment inside R&D; Merck’s FY2025 R&D includes licence upfronts and asset-acquisition charges on top of $10.8bn of direct research costs. Counting both lines for everyone:

AbbVie moves from last to third with no change in what it spent; the $5,016M simply sat on a different line. Novo Nordisk is a separate case. Under IFRS it capitalises acquired R&D projects as intangible assets, so a licence deal never passes through its R&D expense; only a later write-down of a failed asset would.

Impairments inside R&D. When an acquired candidate fails, some filers book the write-down in R&D; others, such as Johnson & Johnson, show it on a line of its own. AbbVie’s FY2024 R&D of $12,791M included a $4.5bn write-down of an acquired schizophrenia candidate whose Phase 2 trials missed their primary endpoint. That year its ratio was 22.7%; a year later, without the charge, it was 14.9%. Novo Nordisk’s FY2025 R&D includes DKK 2,742M of intangible-asset impairments and DKK 1,588M on property and equipment, together 1.4 points of sales. A single year’s ratio can carry a one-off of this size, so compare several years.

What the denominator covers. Johnson & Johnson’s 15.6% is for the group. Its Innovative Medicine segment spent $11,827M, 19.6% of its $60,401M of sales, while MedTech spent 8.4%. Merck’s R&D includes its animal health research. Before comparing a diversified group with a pure drugmaker, find the pharmaceutical segment figure if the filer gives one.

The 20.9% Industry Average

The industry figure comes from the Annual Membership Survey of PhRMA, the US trade body for research drugmakers. Its 2025 edition reports that member companies spent $104,344M on R&D in 2024 against $500,423M of sales, 20.9%. Two limits come with it. It counts company-financed R&D only. And its sales figure leaves out sales made abroad by the foreign divisions of foreign-owned members, so it is not a straight sum of the members’ reported revenue.

The figure also moves: the same survey gives 19.1% for 2022 and 21.4% for 2023. Treat 20.9% as a reference line for one year.

Biotech companies are left out of this comparison on purpose. With one or two products and a smaller revenue base, their ratio measures something different; the phase success rates guide covers the biotech side.

From Spend to Output: What an Approval Costs

A productivity measure needs approvals in the numerator and dollars in the denominator, and R&D intensity has neither. The cost-per-approval studies try to supply both, with answers that depend heavily on method.

They measure different things, do not reconcile, and neither should be applied to a named company. What they share is the reason the number is large: most candidates fail. Of drugs entering Phase I, 7.9% reach approval on the BIO 2011-2020 rates, so every approval carries the cost of about a dozen that did not make it. The probability of success guide shows how those rates chain.

What R&D Intensity Means for a Valuation

R&D is expensed as it is spent, so heavy spending lowers reported margins now for revenue that arrives years later. In a DCF that makes R&D part of the cost of keeping the business going. The operating margin that carries into the terminal value has to be struck after the R&D needed to replace products as their patents expire. A margin lifted by cutting R&D looks better for a few years and leaves less behind the next exclusivity date.

Acquired IPR&D belongs in the same bucket. It comes in lumps, which tempts analysts to strip it out as one-off. For a company that refills its pipeline by buying candidates, though, those payments recur, so an average over several years belongs in the forecast.

Inside a risk-adjusted valuation of a single drug, R&D enters differently from revenue. Revenue is multiplied by the probability of approval. The trial spend committed to reach that approval is not, because it is paid whether the trial succeeds or not. The rNPV guide sets out the method this sits inside.