NVS: Share of Peer Group R&D Spending Exceeds Share of Peer Group Innovation Produced
NVS’ economic returns to R&D spending (yr10 operating income / yr1 R&D) are on par with peers, after recovering over the last decade. This appears to be more a consequence of cost cuts outside the R&D organization than of efficiency gains within R&D
Since 1993, NVS’ R&D spend per quality-adjusted patent has averaged $52M, v. $30.5M for the peer group. This ‘unit cost of R&D’ disadvantage for NVS has worsened in the last decade; NVS’ R&D spending has kept pace with peers but its share of innovation has not
80pct of the company’s pre-phase III (aka ‘hidden’) stock of innovation lies across 29 research areas, where NVS holds an average rank of 5th. NVS holds a top 3 rank in 14 of these 29 areas, and ranks first in 3 of these areas
NVS’ hidden pipeline contains 5.1pct of the quality-adjusted innovation held by the combined peer group; however the apparent market value of NVS’ hidden pipeline is equal to 11.8pct of the summed market value of all peer companies’ hidden pipelines, implying NVS’ hidden pipeline is roughly 2x overvalued. For NVS’ hidden pipeline to be valued on par with peers, all else held equal its share price would have to decline by roughly 20pct relative to its peers. **These figures were current as of our last hidden pipeline iteration in September of 2013, and will be updated in the iteration to be published this December**
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