Biopharma Capital Allocation

In November 2025, Michael Mauboussin and Dan Callahan at Morgan Stanley's Counterpoint Global published an exhaustive study of how U.S. companies raise and spend money — tracing capital allocation patterns from 1970 through 2024 across M&A, R&D, CapEx, buybacks, dividends, and intangible investment.¹ Their central thesis: capital allocation is "the most important responsibility of the chief executive officer," and most CEOs aren't particularly good at it. Across their full dataset, less than 1% of companies reallocate capital at an optimal rate — the vast majority are stuck in a status quo bias, continuing to spend where they spent last year.

Their framework covers all U.S. public companies. But biopharma's capital allocation is shaped by forces that don't apply to most sectors: patent cliffs that erase billions in revenue overnight, R&D programs that take a decade to pay off (if they pay off at all), and an acquisition market where most deals bring years of incremental R&D expense — making the income statement, not the balance sheet, the binding constraint on how much pipeline a company can absorb. This analysis applies the Mauboussin framework to 14 major biopharma companies from 2010 through 2025 — roughly $5.5 trillion in cumulative spending across R&D, SG&A, CapEx, M&A, buybacks, and dividends.

The most striking feature of the aggregate view is what doesn't change. SG&A and R&D together absorb nearly 60% of total capital deployment, year after year, regardless of M&A cycles, patent cliffs, or macroeconomic conditions. SG&A is the single largest category at roughly 34% — the cost of maintaining a global commercial infrastructure — with R&D close behind at 24%.

M&A and share buybacks are more episodic in nature. Across all U.S. industries, M&A is the most volatile capital allocation category — its annual growth rate has a standard deviation roughly five times that of capital expenditures, and buybacks are nearly six times as volatile as dividends. In biopharma, the cyclicality of M&A is even more pronounced because it's driven by patent cliffs.

The peaks tell the story. M&A spending surged in 2019–2021 with three of the largest deals in industry history. M&A is cyclical across all industries, correlating with elevated stock prices and easy access to capital — and the 2019–2021 biopharma wave fit that pattern, with near-zero interest rates and high equity valuations providing the macro backdrop. The biopharma-specific motivations varied — patent cliff mitigation, portfolio diversification, entry into new therapeutic areas — but the macro environment made the deals possible. Toggle to "Total Deal Value" to see the full magnitude; the cash flow view understates these transactions because all three used significant stock consideration.

Biopharma's preference for cash is an outlier. Across all U.S. M&A, stock and combination deals have represented 40–60% of total volume for decades. In pharma, the ratio is inverted: cash has funded the vast majority of transactions over the past 15 years. The three mega-mergers that used material stock consideration — BMS/Celgene, AbbVie/Allergan, and AstraZeneca/Alexion — are the exceptions that prove the rule.

The explanation is structural. Large pharma acquirers have investment-grade credit ratings and deep access to debt markets, making cash the cheapest financing tool. Most targets are also small relative to the acquirer, making cash feasible — stock consideration only appears when the target is large enough to require it. Large deals tend to rely heavily on cost synergies from eliminating duplicate infrastructure to justify the premium. And as I argued in The Real Constraint on Biopharma M&A, the real bottleneck isn't balance sheet firepower — it's how much incremental R&D expense the income statement can absorb.

Mauboussin documents a secular decline in capital expenditures as a share of sales across U.S. companies — from a peak of 9.4% in 1973 to 5.5% in 2009 — reflecting the broader shift from tangible to intangible investment. Biopharma has historically been on the low end of this spectrum, spending just 3.5–5% of revenue on CapEx through most of the 2010s.

Consumer demand for GLP-1 agonists has broken the trend. Starting in 2022, Novo Nordisk and Eli Lilly began ramping manufacturing investment at a pace that moved the industry aggregate — their combined CapEx went from $2.3 billion in 2021 to over $16 billion in 2025, a 7x increase in four years. The broader lesson may extend beyond GLP-1s: when tens of millions of patients need a weekly injection indefinitely, manufacturing capacity becomes a constraint; the CapEx required breaks the historical trend.

The company-level view reveals different capital allocation strategies. Sort by any category and the dispersion is striking — R&D intensity ranges from roughly 14% to 25% of cumulative revenue, and buyback rates vary from near zero to nearly 18%. Sort the chart to see where each company sits.

These aren't random variations. Two factors explain much of the dispersion: geography and origin. European companies allocate nearly 29% of revenue to SG&A versus 24% for U.S. peers, favor dividends over buybacks, and spend more on CapEx. Companies that originated as biotechs look different still — leaner commercial operations at 22% SG&A, aggressive buybacks at nearly 12% of revenue, and higher M&A intensity, reflecting organizations that scaled from a single blockbuster franchise rather than building a diversified portfolio over decades. Sort by M&A to see which companies have tried to buy their way through the patent cliff — and which have relied on internal R&D.

The individual time series make the shocks visible — patent cliffs, post-COVID revenue collapses, mega-acquisitions followed by years of elevated R&D as acquired pipelines move through development. Click through the companies — each tells a different story about how management teams navigate the tension between investing for the future and returning cash today.

Across all U.S. industries, dividends are treated as sacrosanct while buybacks are discretionary — the standard deviation of buyback growth is six times that of dividends. Biopharma follows this pattern but with an interesting twist. European companies cluster above the diagonal: they've historically returned more through dividends. American companies with biotech origins tend to cluster below: they've leaned into buybacks.

The difference is structural and cultural. European shareholders expect dividend income. U.S. tax policy and investors favor buybacks. But in biopharma, the buyback/dividend split could also reveal something about the maturity of the business, namely how much capital it can productively redeploy into the pipeline. Buybacks aren't an either/or — these companies execute repurchase programs while simultaneously investing in R&D and doing M&A. But the scale of buybacks relative to other uses of capital varies widely, and that variation could provide a signal about perceived near-term reinvestment opportunities.

What This Means

Three patterns emerge from this data. First, regardless of the deal market or patent cliffs, SG&A and R&D are constants — together absorbing nearly 60% of revenue year after year. Second, M&A and buybacks are episodic. Patent cliffs drive acquisition surges as companies race to replace expiring revenue, while buybacks tend to expand when cash generation is strong. Third, consumer demand for GLP-1 therapies is shifting the constraint from the lab to the factory, pushing CapEx to levels the industry has never seen.

¹ Michael J. Mauboussin and Dan Callahan, "Capital Allocation: Results, Analysis, and Assessment," Counterpoint Global / Morgan Stanley, November 2025.