As companies swap cancer drugs for flu vaccines, or endeavor into the realm of animal health, we are reminded of just how impactful these investments in R&D (and other intangibles) can be when looking at the overall health of an industry over time. Biotech companies spend more than 30% of sales on research and development efforts, while their Pharmaceutical cousins spend nearly 15%:
Compare these R&D investments as a percent of sales to a Health Care sector average of ~10% and the MSCI World average of 2.4% and it highlights just how much importance companies like Novartis, Glaxo, and Lilly place on the value of intangibles.
These investments can be linked to attributes such as higher than average margins and strong cash flow positions-- all achieved with very low leverage:
And, while the Health Care sector as a whole may have reached higher than desirable valuations, a group like Pharmaceuticals appears to be more moderately valued at this point:
