Monday, March 13, 2017

Good news for science and math majors: Corporate America is spending more to keep you busy.

Calcbench looked at reported research & development spending among the S&P 500 the other day for the years 2013 through 2016. By just about every definition, the numbers look good. R&D spending is up among the group in absolute dollars, and as a percentage of revenue. Average spending per filer is also up, both in dollar terms and as a percentage of revenue. And more companies are disclosing R&D spending within our sample of 428 companies that had filed their 2016 reports as of March 13.

In other words: yay science!

First let’s look at the bigger picture. Below is a chart of R&D spending for the whole population fo 428 filers for the last four years.

Next, let’s remember that only 170 companies in our sample reported any R&D expenditures at all in 2016; the rest didn’t. And while the number of filers reporting R&D costs has risen in the last few years, that rise actually is quite small: up from 167 filers in 2013.

In other words, all those companies reporting no R&D spending pull down the average numbers quite a lot. So let’s cut those science no-shows loose, and look at the sub-group of purists keeping it real since 11th grade chemistry class. Their numbers below. The total R&D numbers are the same (because we only stripped out the zero-dollar filers), but the averages are now much higher.

Lastly, we decided to rank 2016 filers by R&D spending as a percentage of revenue, and then R&D spending in absolute dollars—with (perhaps to little surprise) wildly different results. Here are the top 10 spenders as a percent of revenue:

Almost all are pharmacuetical companies. That’s expected; most pharmaceutical companies spend boatloads on research before they even get a drug to market and see their first dime of revenue. Once a drug does reach market, the odds of it becoming a blockbuster are still slim.

Now let’s look at the top 10 in terms of absolute dollars:

This time only three pharmaceutical companies crack the top 10 (Merck, Pfizer, and Johnson & Johnson), and naturally Google leads the whole bunch—Google being Google and all.

As more filers submit their 2016 reports in coming weeks and months, we’ll do a more in-depth analysis of R&D. For now, however, if investing in research dollars is an omen of future growth and a brighter society, the omens are pointing in the right direction.


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