Strategic grouping by Percent of Revenue spent on R&D:

R&D is key area for a pharmaceutical industry. The companys valuation is done not
only based on the product it has out in the market but also the products it has in its
pipeline. Statista report on R&D spending shows that from 2006 to 2014, there has
been continuous increase in R&D spending in the global pharmaceuticals industry.
In 2015 R&D in global pharmaceuticals industry dropped by 1%, statistical
forecasted on pharmaceutical industry on R&D spending by 2020 is expected to
reach 160bn in US$.
R&D spend growth flattens
During the 2008-2015 period, the compound annual growth rate of global R&D spending was
1.7%; during the 2016-2022 period, the rate will grow at 2.8%. The year-over-year increase,
however, will remain around 3%, versus some dramatic jumps seen in 2013, 2014 and 2015.
Overall spending will reach $182 billion in 2022. Top spenders in 2015 were Roche and Novartis
($8.5 billion each in 2015), Pfizer ($7.7 billion), J&J ($6.8 billion), Merck ($6.6 billion), and
Sanofi and AstraZeneca ($5.6 billion each). However, in 2022, J&J will overtake Pfizer, and
Sanofi will overtake Merck.
Market research firm Evaluate Pharma, in its annual World Preview report, projects a global
growth rate for the pharma industry of 6.3% CAGR through 2022, up from the 5% CAGR it
predicted last year for the 2014-2020 period. Nevertheless, for investors, the spectacular fouryear bull run of pharma and biotech valuations during 2011-2015 might be coming to an end,
with uncertainties over Brexit and the US presidential election, in an atmosphere of rising
skepticism over the worth of pharma products at ever-escalating prices.

Brexit and USA election impact:

As per the market research of Evaluate Pharma in its world preview annual report,
forecasts that the growth rate for pharmaceutical industries of 6.3% CAGR through
in the 2022, which is up 5% from last year predication (2014-2020).
The valuations of pharma and biotech during 2011 to 2015 which was considered as
the BULL RUN for investors could come to an end due to uncertainties over USA
election and Brexit, in these circumstances the rising concerns over the value of
pharmaceutical products at ever escalating prices

Research and Development plays a crucial role in any pharmaceutical industry, the
growth of R&D flattens between 2008 and 2015 and its Spending on R&D growth
was recorded as 1.7%.
The forecasted spending figure from 2016 to 2022 would be 2.8%
Top ten spenders on current and future are as follows

From the above chart, in the year 2015 we can see the Roche and Novartis spent
$8.5 billion respectively taking the top position, Pfizer, J&J, and Merck spent $7.7
billion, $6.8 billion, and $6.6 billion respectively. Sanofi and AstraZeneca spent $5.6
billion each.
As per the market projection, in the year 2022, J&J would overtake Pfizer and the
Sanofi would overtake Merck.
Our Strategic grouping analysis indicates that Novartis and Roche are close
competitors in the pharmaceuticals while Merck and AstraZeneca are also close
competitors. Johnson & Johnson is high in revenue but in terms of spending in R&D,
they have spent lesser than other companies in the industry. From the chart Roche
and Novartis are close strategic grouping they invest heavily on research and
development. There is a gap between Merck and AstraZeneca.

As per the strategic group analysis it can be drawn that in pharmaceuticals,

Roche, Novartis, Merck, and AstraZeneca are the close competitors and
when it comes to revenue, J&J is high but not in R&D.
Overall investing heavily in R&D is the close strategic group: Roche and
Novartis. Merck and AstraZeneca have a gap.

Although the global pharmaceutical industry is an extremely competitive, strict

regulations, with continuous change of government policies, lengthier time to
market products, high attrition rate and a limited period of right to intellectual
property, huge capitals investment, large market spending and constant
involvement on research and development makes it a high stake market, from the
strategic group analysis firms can still identify gaps within their environment to
adopt. P a g e 11 | 40

Global pharmaceutical industries have the strict rules and regulations, tough
competitive, amendment in government policies, right of intellectual properties,
capital, continuous in R&D, from the strategic group analysis companies can still
identify the gaps within their atmosphere to adopt.