Trends and Finance of R&D in Pharmaceutical Industry

Market Overview

Research and Development spending is growing rapidly at a global level. According to Evaluate Pharma, the total global spending in Pharma R&D was $161 billion in 2016 and reached the total value of $306 billion in 2024. Global pharmaceutical R&D spending is expected to reach a value of ~$366 billion by 2030, growing at a Compound Annual Growth Rate (CAGR) of ~2.6%.

Main Drivers for Pharma R&D spending growth are:

1. Advancements in Biotechnology and Artificial Intelligence (AI): The integration of AI and machine learning into drug discovery and development processes has accelerated the identification of potential drug candidates and streamlined clinical trials. AI enables the analysis of vast datasets to predict molecular behaviors and optimize trial designs, reducing both time and costs associated with bringing new drugs to market. 

2. Increased Investment in Complex and Specialized Therapies: Pharmaceutical companies are allocating more resources toward the development of complex biologics, personalized medicines, and treatments for rare diseases. These specialized therapies often require substantial R&D investment due to their complexity and the necessity for tailored clinical trials. 

3. Regulatory Changes and Enhanced Trial Requirements: Evolving regulatory landscapes and the demand for more comprehensive clinical trial data have led to increased R&D expenditures. Companies must navigate complex approval processes and meet stringent safety and efficacy standards, necessitating larger investments in both time and resources. 

4. Adoption of Outsourcing and Collaborative Models: To manage costs and access specialized expertise, pharmaceutical firms are increasingly outsourcing R&D activities to contract research organizations (CROs) and engaging in public-private partnerships. This trend allows companies to leverage external innovation while focusing on core competencies. 

5. Economic and Policy Incentives: Tax policies and government incentives in key markets, such as the United States, have encouraged domestic investment in pharmaceutical R&D. For instance, favorable tax reforms have prompted companies like Eli Lilly to significantly increase their U.S.-based R&D spending. 

These drivers collectively contribute to the escalating investment in pharmaceutical R&D, reflecting the industry's commitment to innovation and addressing unmet medical needs.

Expansion of the Global Pharmaceutical R&D Pipeline

The global pharmaceutical Research & Development (R&D) pipeline has undergone remarkable expansion in the 21st century, both in absolute size and in the complexity of drug candidates entering the pipeline. Measured by the number of drugs in active development, the pipeline has grown exponentially, reflecting the industry's relentless push toward innovation and the rising investment in novel therapeutics.

In 2001, the pharmaceutical industry had 5,995 drugs in active development. By 2024, this number surged to 22,825, marking an extraordinary 280.7% increase over the period. This expansion corresponds to a Compound Annual Growth Rate (CAGR) of 6%, demonstrating a sustained upward trajectory in global drug development efforts. However, the headline growth figures do not capture the full picture.

Yearly Pipeline Growth and Turnover

In 2023 alone, the global R&D pipeline grew by 1,533 drugs, a larger increase than the 1,183 net gain recorded in 2022–23, but closely aligning with the 1,527 growth seen during 2021–22. However, this net growth does not fully reflect the sheer number of drugs entering and exiting the development pipeline.

This turnover suggests a consistently high level of R&D activity, with substantial churn among drug candidates. While the overall size of the pipeline is growing, the relatively stable dropout rate indicates that the industry continues to experience natural attrition due to failures, strategic discontinuations, and mergers and acquisitions.

Therapeutic Areas: Oncology Leads, but Diversification Emerges

A deeper look into the types of drugs entering the pipeline in 2023 highlights oncology as the dominant therapeutic area, accounting for 38.0% of all new candidates. However, this represents a slight decline from 2022’s 40.7%, signaling a potential broadening of focus across therapeutic areas.

Other notable trends:

• Neurology emerged as the second-largest category, comprising 12.7% of new drugs, down slightly from 13.5% in 2022.

• The data suggests a more balanced distribution of drug development efforts, with increased diversification beyond historically dominant categories like cancer and neurological disorders.

This trend could indicate a shift in pharmaceutical investment strategies, where companies are spreading R&D resources more evenly across therapeutic areas, potentially in response to market demand, scientific breakthroughs, or evolving healthcare needs.

The Global Race: U.S. Leads, China Closes the Gap

The geographic distribution of new drug development efforts provides further insight into global pharmaceutical trends. While the United States remains the dominant player, China is rapidly catching up.

• In 2023, the U.S. added 1,856 new drug candidates, up from 1,840 in 2022.

• China followed closely with 1,627 new drug candidates, a sharp increase from 1,457 in 2022.

This growing Eastern-Western dynamic reflects China's expanding role in pharmaceutical innovation, with its domestic industry producing an increasing share of new drug candidates. The competition between established Western pharmaceutical giants and emerging Chinese firms continues to reshape the global R&D landscape.

Industry Sustainability: A Bloated Pipeline or Innovation in Overdrive?

While the relentless expansion of the R&D pipeline underscores the industry’s commitment to innovation, it also raises critical sustainability questions. Despite the vast number of drug candidates in development, the reality is that the majority will never reach the market.

• Each candidate represents a significant financial investment, and the growing pipeline translates into increased costs and risks for pharmaceutical companies.

• Success rates remain low, meaning a large portion of these drugs will be discontinued at various stages of development.

However, one key metric of industry health is the number of New Active Substance (NAS) launches—essentially, how many drugs successfully transition from R&D to commercial availability.

• While 2023 is unlikely to match the record-breaking 97 NAS launches of 2021, early indications suggest it surpassed 2022’s total of 74, making it the second-best year ever for new drug approvals.

This suggests that, while the pipeline continues to expand, it is still producing a steady flow of marketable drugs, maintaining a critical balance between innovation and commercial viability.

Pharmaceutical R&D Pipeline Analysis: 2024 vs. 2023

Growth Across Development Stages

The global pharmaceutical R&D pipeline continues its expansion, with notable increases observed at the preclinical stage and early clinical phases. In 2024, the preclinical pipeline saw an increase of 650 drugs, reaching 12,485, representing a 5.5% year-over-year increase. This growth outpaces the overall pipeline expansion rate of the previous year, which stood at 4.3%.

The most significant percentage increase was recorded in Phase I, which grew by 13.5%, marking an acceleration from the 10.7% increase reported in the previous year. Phase II also saw positive momentum, increasing by 7.8%, compared to 7.2% in the prior period. These gains reflect a steady influx of new drug candidates progressing through early-stage clinical development.

Interestingly, the number of drugs in Phase I remains higher than in Phase II. While this may appear counterintuitive, it aligns with the nature of clinical development timelines—Phase II trials generally take longer, leading to an accumulation of candidates at this stage. This reinforces the observation that attrition between phases remains significant, but the pipeline continues to expand.

Stagnation in Late-Stage Development

A key area of concern is the lack of substantial growth in Phase III trials. The number of drugs in this critical late-stage development phase rose only marginally from 1,229 in 2023 to 1,248 in 2024, signaling potential bottlenecks or increased attrition. Historical data suggests that previous periods, particularly 2017–2021, struggled to keep pace with the growth seen in earlier-stage trials, raising concerns over worsening success rates and regulatory hurdles.

Recent years had shown a recovery trend in Phase III numbers, with increases in 2022 and 2023, but the latest data suggests a potential slowdown once again. If this trend continues, it may indicate challenges in advancing drugs to the final approval stages, despite the robust expansion in earlier phases.

Regulatory Approvals and Commercialization Trends

Further downstream, pre-registration and regulatory approvals have shown steady but moderate growth. The number of drugs in pre-registration increased from 254 in 2023 to 270 in 2024, while registered drugs rose from 135 to 174. However, these numbers still represent a relatively small fraction of the overall pipeline, emphasizing the high-risk nature of pharmaceutical R&D.

Encouragingly, the number of launched drugs grew from 1,297 in 2023 to 1,425 in 2024, indicating that successful candidates are making their way to market at an increasing rate. This suggests that while the overall attrition rate remains high, the industry is still managing to translate R&D efforts into commercially viable products.

Rising Suspensions Indicate Industry Volatility

One particularly notable trend is the sharp rise in suspended drug programs, which doubled from 63 in 2023 to 120 in 2024. This increase suggests growing financial pressures, strategic shifts, or regulatory challenges forcing companies to halt development efforts. The rise in suspensions, particularly in an era of increasing R&D expenditures, may signal a need for more targeted investment strategies and portfolio optimization.

Strategic Outlook

While the overall pipeline continues to expand, the disparity between early-stage growth and late-stage stagnation raises critical strategic questions.

• The industry must address bottlenecks in Phase III trials to ensure that innovation translates into viable market opportunities.

• The increasing number of suspensions suggests mounting pressures, necessitating better risk management and strategic decision-making in R&D investments.

• The rise in launched drugs indicates that companies are successfully commercializing new treatments, but whether this trend will sustain amid growing regulatory scrutiny and competition remains a key consideration.

As the global pharmaceutical R&D landscape evolves, companies must balance aggressive pipeline expansion with efficiency and sustainability to ensure long-term success.

Growth Across Development Therapeutic Areas

R&D pipelines continue to expand across all therapeutic areas, with oncology, biotechnology, neurology, and alimentary/metabolic diseases maintaining their dominant positions in terms of total pipeline size. 

Among the fastest-growing therapeutic areas, immunology led with an impressive 15.1% increase, followed by alimentary/metabolic disorders, which grew by 13.2%, and hormonal therapies, which saw an 11.3% rise. 

This sustained growth reflects the industry’s ongoing investment in high-impact therapeutic categories, driven by advancements in biotechnology, personalized medicine, and the increasing global burden of chronic diseases.

Top pharma companies worldwide 2024, by size of R&D pipeline

The global pharmaceutical industry remains highly competitive, with Roche leading the market in R&D pipeline size, boasting 218 active drug candidates. Pfizer follows closely with 205 drugs in development, reflecting its aggressive investment in innovation and post-pandemic expansion.

AstraZeneca (166), Eli Lilly (159), and Bristol-Myers Squibb (158) round out the top five, showcasing a strong commitment to expanding their therapeutic portfolios, particularly in oncology and immunology.

Notably, Jiangsu Hengrui (147) continues to solidify China’s growing influence in global drug development, surpassing well-established Western giants like Merck & Co. (145) and Sanofi (142). This underscores the increasing role of Chinese pharmaceutical firms in driving global innovation.

The rankings highlight the continued dominance of large multinational corporations in pharmaceutical R&D, with a mix of Western and emerging-market players investing heavily in expanding their pipelines to address unmet medical needs and sustain long-term growth.

Regional Focus: United States

Strong Growth in the U.S. Pharmaceutical R&D Pipeline

The U.S. pharmaceutical R&D pipeline has experienced substantial expansion over the past two decades, reflecting the industry's sustained investment in innovation and drug development. In 2005, the total U.S. pharma R&D pipeline consisted of 4,265 drugs. By 2024, this number had surged to 11,197, representing a Compound Annual Growth Rate (CAGR) of approximately 5%.

This steady growth highlights the U.S.'s continued leadership in global drug development, driven by advancements in biotechnology, artificial intelligence in drug discovery, and increasing investment in high-value therapeutic areas such as oncology, immunology, and neurology. The expansion of the pipeline also reflects the impact of regulatory incentives, venture capital funding, and a dynamic biotech ecosystem, all of which contribute to the accelerated pace of innovation.

Looking ahead, the U.S. pharmaceutical sector is expected to maintain its strong R&D momentum, with a focus on precision medicine, cell and gene therapies, and AI-driven drug development. However, challenges such as rising development costs, regulatory complexities, and market access pressures could influence the trajectory of future pipeline growth.

Top 10 US-headquartered companies by size of pipeline (2024)

The U.S. pharmaceutical industry continues to be a major driver of global drug development, with Pfizer leading the rankings in 2024 with an R&D pipeline of 204 drugs. Johnson & Johnson (149), Eli Lilly (144), and Merck & Co. (139) follow closely, reflecting their strong commitment to innovation across multiple therapeutic areas.

AbbVie (109) and Bristol-Myers Squibb (106) also maintain significant R&D pipelines, underscoring their focus on oncology, immunology, and other high-growth sectors. Meanwhile, Gilead Sciences (85), Amgen (76), Regeneron (74), and Moderna (69) round out the top ten, showcasing the prominence of biotech firms in the U.S. pharmaceutical landscape.

The rankings highlight the strong investment in drug discovery and development among U.S.-based companies, with a mix of traditional pharmaceutical giants and biotechnology innovators driving pipeline growth. This trend reinforces the U.S.’s position as a global leader in pharmaceutical R&D, fueled by advancements in biologics, gene therapy, and mRNA technology.

Pharma R&D Finance

IRR: The Financial gain of late-stage pipeline

According to Deloitte`s analysis the internal rate of return (IRR) on late-stage pharmaceutical R&D saw a notable recovery in 2023, rising to 4.1%, up from a record low of 1.2% in 2022. This improvement suggests a rebound in projected returns from innovation, reflecting both efficiency gains and higher-value assets entering the late-stage pipeline.

2022 marked the lowest IRR recorded since tracking began, largely due to the successful approval and commercialization of several high-value assets, which subsequently exited the late-stage development dataset. However, in 2023, an expanded dataset and the inclusion of line extensions contributed to a more balanced IRR distribution, with no extreme negative outliers observed for the first time since 2018.

Despite multiple high-value assets progressing into commercialization—such as GLP-1 receptor agonists for type 2 diabetes, novel plaque psoriasis treatments, and a single-dose RSV preventative option—the pipeline was replenished with several new late-stage blockbuster candidates. Among these are GLP-1 receptor agonists for chronic weight management, monoclonal antibodies targeting early Alzheimer’s disease, and next-generation mRNA-based vaccines for infectious diseases. The increasing presence of scientific breakthroughs targeting large patient populations has the potential to significantly impact both global health outcomes and the financial performance of leading pharmaceutical companies.

However, maintaining sustainable pipeline replenishment remains a complex challenge. The IRR is influenced by a combination of efficiency metrics (development cycle times and R&D costs) and value creation factors (risk-adjusted forecast sales). While advances in AI-driven drug discovery, streamlined clinical trial designs, and novel therapeutic modalities continue to improve efficiency, companies must also manage escalating costs and navigate evolving regulatory landscapes to sustain positive returns.

Looking ahead, the pharmaceutical industry’s ability to balance pipeline growth with commercial success will determine whether the IRR recovery seen in 2023 is the beginning of a long-term trend or a temporary fluctuation.

Stagnation in Average R&D Cost Per Asset

Despite the overall increase in total R&D expenditure, the average cost of bringing a drug from discovery to market remained unchanged at $2.28 billion in both 2022 and 2023. While this suggests stabilization in per-asset costs, the underlying reason for this plateau is the increased number of assets in late-stage pipelines, including line extensions and expanded therapeutic portfolios.

On a broader scale, the financial commitment to pharmaceutical R&D continues to escalate. The average company spend on late-stage R&D increased from $31.75 billion in 2022 to $48.54 billion in 2023, reflecting a greater investment in innovation and clinical development. Additionally, total R&D expenditure across the industry rose from $139.2 billion in 2021 to $145.5 billion in 2022, a 4.5% year-over-year increase. Notably, three major pharmaceutical companies increased their R&D investments by over 25%, demonstrating an aggressive approach to pipeline expansion and innovation.

Declining Forecast Peak Sales Per Asset

While companies are investing heavily in R&D, the expected commercial returns per asset are shrinking. The average forecast peak sales per pipeline asset declined from $389 million in 2022 to $362 million in 2023, continuing the downward trend from the $500 million peak in 2021, which was largely driven by high-value COVID-19-related assets.

Only one company in the analysis is projected to achieve forecast peak sales exceeding $1 billion per asset, highlighting the increasing challenge of securing blockbuster drugs. The distribution of forecast peak sales per asset across companies has also converged, suggesting that the market is normalizing following the volatility caused by pandemic-era high-value treatments.

Revenue Growth and Industry Outlook

Despite the decline in per-asset peak sales, total pharmaceutical industry revenue continues to grow. The top 20 pharma R&D sales increased by 9.6% in 2022, reaching $719.2 billion, up from $656.2 billion in 2021. This upward trend reflects the successful approval and commercialization of high-value assets, which, despite declining per-asset sales forecasts, continue to drive overall revenue growth.

Looking ahead, pharmaceutical companies must navigate rising R&D costs and diminishing per-asset returns while focusing on efficiency, pipeline sustainability, and innovation in high-value therapeutic areas to maintain long-term profitability.

Biopharma M&A Landscape

Mergers and acquisitions (M&A) remain a critical strategic tool for biopharma companies, particularly as the industry approaches a major patent cliff. The competition for high-value assets backed by strong clinical data has intensified, as companies seek to strengthen their presence in key therapeutic areas and secure long-term revenue streams.

Surge in M&A Deal Value and Focus on Late-Stage Assets

The total value of M&A deals executed by the top 20 biopharma companies more than doubled from 2022 to 2023, rising from $68.6 billion to $144.8 billion. This sharp increase reflects a shift toward acquiring later-stage R&D assets, particularly Phase II and Phase III candidates, which accounted for 45% of deal value in 2023, up from 17% in 2022.

Challenges in Building Long-Term M&A Strategy

For sustained success, biopharma companies must balance aggressive pipeline expansion with a dynamic sourcing strategy. However, talent retention and expertise development remain critical challenges. The industry is seeing a shift away from long-term specialized expertise, as career paths become more dynamic and professionals move between companies more frequently. This trend makes it increasingly difficult to build deep institutional knowledge in specific mechanisms and therapy areas, which could impact early-stage asset identification and valuation strategies.

Outlook: The Role of M&A in Future Growth

With increasing R&D costs and an impending wave of patent expirations, M&A activity is expected to remain a fundamental pillar of biopharma growth strategies. Companies must strike a balance between acquiring late-stage assets for near-term gains and investing in early-stage innovation to maintain long-term pipeline sustainability. The ability to identify, validate, and integrate high-value assets efficiently will determine which companies emerge as leaders in the next era of pharmaceutical innovation.

Sources & References

Citeline. (2024). Pharma R&D Annual Review 2024. https://www.citeline.com/-/media/citeline/resources/pdf/white-paper_annual-pharma-rd-review-2024.pdf 

Deloitte. (2024). Global pharma companies’ return on R&D investment increases after record low. https://www.deloitte.com/uk/en/about/press-room/global-pharma-companies-return-on-rd-investment-increases-after-record-low.html 

Financial Times. (2025). Eli Lilly unveils $27bn US investment as corporate America seeks to woo Trump. https://www.ft.com/content/8f4f36bc-dded-4c82-b0a9-0dd5d94f4e7c

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McKinsey. (2024). Accelerating clinical trials to improve biopharma R&D productivity. https://www.mckinsey.com/industries/life-sciences/our-insights/accelerating-clinical-trials-to-improve-biopharma-r-and-d-productivity 

McKinsey. (2025). Boosting biopharma R&D performance with a next-generation technology stack. https://www.mckinsey.com/industries/life-sciences/our-insights/boosting-biopharma-r-and-d-performance-with-a-next-generation-technology-stack 

McKinsey. (2025). Faster, smarter trials: Modernizing biopharma’s R&D IT applications. https://www.mckinsey.com/industries/life-sciences/our-insights/faster-smarter-trials-modernizing-biopharmas-r-and-d-it-applications?stcr=999E979B5DB0451CA3BC4424F5672996&cid=other-eml-alt-mip-mck&hlkid=8f318aa53cd544e69353e5dcef8075b1&hctky=15887929&hdpid=15e7464f-1784-477c-a6a5-30280030a1a7