Research and development (R&D) sits at the heart of the pharmaceutical industry. It’s the process that turns bold scientific ideas into treatments that can change, or even save, lives. Unlike tech or consumer products, where new releases can hit the market in months, pharma innovation is a long game. Developing a single new drug can take more than a decade, with billions spent before it ever reaches a patient.
That scale of commitment raises an important question: how much do pharma companies really spend on R&D, and what lessons can smaller innovators take from their approach?
Why R&D Investment Is the Industry’s Lifeline
In pharmaceuticals, R&D isn’t optional, it’s survival. Every blockbuster drug eventually loses patent protection, and when that happens, competitors are quick to move in with generics. The only way to stay ahead is by investing in R&D to build the next generation of therapies.
Of course, that’s easier said than done. Drug development is one of the riskiest bets in business. Out of thousands of compounds explored in labs, only a handful ever make it into clinical trials, and just one might make it all the way to approval. Without this relentless push, there would be no new cancer therapies, no next-generation vaccines, and no treatments for rare diseases.
The good news is the industry is getting more efficient. Recent reports show trial timelines stabilising and more new active substances launched in 2024 than in almost any other year in the past two decades. For patients, that means faster access to innovation. For businesses, it shows that consistent R&D investment really does pay off in the long run.
Who Tops the Spending Charts?
Pharma’s R&D funding dwarfs that in most other industries. According to 2024 figures, the biggest spenders include:
- Merck & Co. (MSD): Around US$17.9 billion. Merck is known for its oncology focus, particularly the blockbuster immunotherapy Keytruda, and this heavy spend reflects its determination to maintain leadership after patent expiry.
- Johnson & Johnson: Around US$17.2 billion. With operations spanning pharmaceuticals, medical devices, and consumer health, J&J’s research budget underpins its diverse innovation pipeline.
- Pfizer: Around US$10.8 billion. Post-pandemic, Pfizer continues to back vaccines and immunology, while also betting on new mRNA applications.
- Roche, Novartis, AbbVie, AstraZeneca, Bristol Myers Squibb, Sanofi, and GSK also consistently rank among the top ten global R&D spenders.
To put those numbers in perspective, Merck and Roche both commit more than 20% of their annual revenue to research. Compare that to global tech leaders like Apple or Microsoft, who typically spend less than 10%, and the scale of pharma’s commitment becomes clear.
When you step back, it’s striking that just ten companies account for well over half of all global R&D funding. This concentration highlights how critical these players are in driving worldwide medical innovation.
What’s Driving Today’s R&D Priorities?
The sheer size of pharma’s budgets is impressive, but the real story is what that money is being spent on. A few clear themes are shaping today’s research priorities, and they reveal where the industry sees the next big breakthroughs coming from.
Oncology remains in the spotlight. Cancer continues to attract the biggest share of global R&D funding. Immuno-oncology drugs like Merck’s Keytruda have already transformed treatment, and companies are doubling down on combination approaches, new immune targets, and earlier use in treatment pathways.
The obesity and metabolic race is heating up. GLP-1 therapies for obesity and diabetes are one of the fastest-growing areas of R&D investment. Novo Nordisk and Eli Lilly currently lead the charge, but rivals from Pfizer to AstraZeneca are racing to claim a share of what could become a US$100+ billion market by 2030.
Advanced modalities are reshaping pipelines. Traditional small-molecule drugs are no longer the main focus. Instead, biologics, gene therapies, RNA-based drugs, and cell therapies are capturing more and more of the spend. These approaches are complex and costly to develop, but they promise more precise and durable results for patients.
Geography is playing a bigger role. Pharma giants are expanding facilities in the US and Europe to strengthen supply chains and boost capacity. And closer to home, Australia is stepping up too. Business R&D expenditure here climbed to A$24.4 billion in 2023–24, reflecting not only strong local R&D investment but also the impact of government incentives in keeping innovation flowing.
How Big Pharma Is Betting on the Future
The world’s largest pharma companies don’t just spend big on R&D, they spend strategically. Each has its own priorities, pipelines, and risks to manage, and their budgets reveal where they believe the future lies.
Merck (MSD) is a clear example. With its cancer blockbuster Keytruda due to lose patent protection later this decade, Merck is funnelling almost US$18 billion a year into next-generation immunotherapies and oncology combinations. The goal is obvious: build a pipeline strong enough to carry growth well beyond its current flagship.
Pfizer, after the windfall of its COVID-19 vaccine, has shifted focus. Much of its R&D funding now goes toward vaccines, anti-infectives, and immunology, with a strong emphasis on mRNA technology. For Pfizer, the bet is that mRNA will prove valuable far beyond COVID, and become a long-term platform for new therapies.
Roche is known for consistency. The Swiss company has one of the highest R&D intensities in the industry, regularly reinvesting around 20% of annual revenue back into research. Its ongoing focus spans biologics, diagnostics, and digital health, and it is strengthening facilities in the US to accelerate biologics and AI-driven discovery. For Roche, deep and steady R&D investment is what underpins long-term pipeline sustainability.
AstraZeneca is doubling down on cardiometabolic disease, including the fast-growing obesity segment, while continuing to expand in oncology. It has also committed billions to expand its US research and manufacturing footprint, showing how geographic strategy ties directly to R&D priorities.
Together, these examples highlight a common truth: R&D investment isn’t about spending more, it’s about placing the right bets. For big pharma, those bets shape not only their pipelines but the future of medicine itself.
Lessons for Smaller Innovators
Not every business has billions to deploy. But smaller innovators can still apply the same principles to their own R&D planning.
Milestone-driven planning matters. For startups, it rarely makes sense to spread limited R&D funding across too many projects. Linking spend to clear milestones, such as completing a preclinical package or preparing for a Phase I trial, helps keep efforts focused and increases investor confidence.
Scenario modelling builds resilience. R&D timelines rarely run smoothly. Trials get delayed, costs shift, and results can change the course of a program overnight. Building scenarios into your financial model, best case, worst case, and most likely, helps ensure your team can adapt without derailing the entire business.
Strategic partnerships reduce risk. Universities, contract research organisations, and even larger pharma partners can provide not only expertise but also co-funding opportunities. By sharing risk, smaller businesses can stretch their R&D investment further while accessing capabilities they couldn’t afford to build in-house.
Strong documentation supports growth. Careful record-keeping may not sound glamorous, but it’s essential. It demonstrates to investors and partners that you’re running a disciplined operation and ensures you’re well-placed to maximise rebates through the R&D Tax Incentive (R&DTI).
How to Fund an Ambitious R&D Plan
Even the best-designed R&D program will stall without the right capital behind it. For startups and scale-ups, there are several ways to fund innovation, but each comes with its own trade-offs.
Equity dilution
Equity funding is often the first option founders think of. It can provide large injections of capital, but it comes at the cost of dilution. Handing over equity means giving up a piece of ownership, and for some, that also means giving up a measure of control. For early-stage businesses especially, striking the right balance between growth and ownership can be a constant challenge.
Partnership funding
Partnerships and licensing deals can be another path forward. Larger companies may provide upfront payments or milestone-based funding in exchange for rights to commercialise your innovation. These arrangements can deliver both cash and expertise, but they can also require smaller businesses to give up independence over how their science is developed or marketed.
Grant funding
Government grants and programs are a valuable non-dilutive option, especially in sectors the government is eager to grow. But competition is tough, timelines can be long, and winning a grant often requires significant resources just to apply.
R&DTI rebate
The R&D Tax Incentive (R&DTI) is one of the most powerful levers available to Australian innovators. It provides rebates or tax offsets on eligible R&D spend, effectively returning part of the investment back to the business. The drawback? Those funds typically only arrive after the financial year has closed, which can leave businesses waiting months for money they need now.
R&D finance
This is where R&D finance comes in. Increasingly, companies are using it to bridge the gap between when R&D expenses are incurred and when the rebate is received. By advancing cash against R&D funding that has already been spent in the current financial year, businesses can keep trials moving, hire staff on schedule, and avoid the cash crunch that so often slows down innovation. In practice, this means access to a steady cash flow without giving up equity or putting plans on hold.
Where Rocking Horse Fits In
For Australian innovators, the challenge isn’t just deciding how much to spend on R&D, it’s making sure that spend is sustainable. Research costs build up month after month, but the rebate through the R&DTI often doesn’t arrive until well after the financial year ends. That lag can create pressure on cash flow at exactly the time businesses need to be pushing hardest.
Rocking Horse helps bridge that gap. We provide non-dilutive R&D funding that works alongside the R&DTI. Instead of waiting for the rebate, businesses can unlock finance against their current-year R&D costs. In practice, that means turning money already spent into working capital, right when it’s needed most.
Here’s how that support plays out in real terms:
- Keeping teams funded and focused. Payroll and contractor costs don’t pause just because rebate funds are months away. By smoothing cash flow, Rocking Horse enables innovators to keep their people working on the science instead of worrying about covering salaries.
- Building trust with research partners. Clinical research organisations (CROs) and specialist suppliers rely on timely payments. Having the ability to pay invoices on schedule keeps trials on track and strengthens credibility with global collaborators, an asset that’s hard to measure but critical to growth.
- Securing resources ahead of the pack. Whether it’s a manufacturing slot, lab time, or trial site, opportunities often go to those who can commit earliest. Accessing R&D finance gives businesses the confidence to move quickly, rather than losing out because cash is tied up.
- Protecting ownership while extending runway. Unlike equity funding, R&D finance doesn’t dilute the founder’s stake. That means businesses can extend their cash runway to hit the next milestone while keeping control of their future direction.
For many companies, that combination, speed, flexibility, and non-dilutive capital, creates a decisive advantage. It allows innovation to continue without compromise, even in the face of unpredictable trial schedules and the long timelines of drug development.
You can learn more about the types of innovative enterprises we support, estimate your potential facility with our R&D finance calculator, or explore the details of R&D finance in Australia.
Final Word
Pharma companies may measure their R&D budgets in the billions, but the core principles hold true for businesses of every size: consistent R&D investment, milestone-based planning, and making smart use of available R&D funding.
Australian innovators are in an especially strong position. With the support of the R&DTI, and the option to unlock capital through R&D finance, you don’t have to wait until tax time to access the cash you need to keep projects moving. That means ideas can progress faster, teams can stay focused, and opportunities don’t have to be put on hold.
Innovation has always been a long game. But with the right strategy, the right funding approach, and the right partner by your side, your business can not only keep pace but stay ahead, turning today’s research into tomorrow’s breakthroughs.