Pharma research versus ‘admin/marketing’ costs

A review of costs in the Pharmaceutical industry for comparison between research and ‘marketing and administration’ budgets was done for 2004. Posts on the issue have argued the point. A quick review of this source looked reasonable, but needs a more careful study. There are better minds to do this than I, but offer the study for review. (Hat tip to Scent of Violets). I haven’t the time, but appreciate a look.

In the late 1950s, the late Democratic Senator Estes Kefauver, Chairman of the United States Senate’s Anti-Trust and Monopoly Subcommittee, put together the first extensive indictment against the business workings of the pharmaceutical industry. He laid three charges at the door of the industry: (1) Patents sustained predatory prices and excessive margins; (2) Costs and prices were extravagantly increased by large expenditures in marketing; and (3) Most of the industry’s new products were no more effective than established drugs on the market [1]. Kefauver’s indictment against a marketing-driven industry created a representation of the pharmaceutical industry far different than the one offered by the industry itself. As Froud and colleagues put it, the image of life-saving “researchers in white coats” was now contested by the one of greedy “reps in cars” [2]. The outcome of the struggle over the image of the industry is crucial because of its potential to influence the regulatory environment in which the industry operates.

Fifty years later, the debate still continues between these two depictions of the industry. The absence of reliable data on the industry’s cost structures allows partisans on both sides of the debate to cite figures favorable to their own positions. The amount of money spent by pharmaceutical companies on promotion compared to the amount spent on research and development is at the heart of the debate, especially in the United States. A reliable estimate of the former is needed to bridge the divide between the industry’s vision of research-driven, innovative, and life-saving pharmaceutical companies and the critics’ portrayal of an industry based on marketing-driven profiteering.

IMS, a firm specializing in pharmaceutical market intelligence, is usually considered to be the authority for assessing pharmaceutical promotion expenditures. The US General Accounting Office, for example, refers to IMS numbers in concluding that “pharmaceutical companies spend more on research and development initiatives than on all drug promotional activities” [3]. Based on the data provided by IMS [4], the Pharmaceutical Research and Manufacturers of America (PhRMA), an American industrial lobby group for research-based pharmaceutical companies, also contends that pharmaceutical firms spend more on research and development (R&D) than on marketing: US$29.6 billion on R&D in 2004 in the US [5] as compared to US$27.7 billion for all promotional activities.[4]

In this paper, we make the case for the need for a new estimate of promotional expenditures.

From this new estimate, it appears that pharmaceutical companies spend almost twice as much on promotion as they do on R&D. These numbers clearly show how promotion predominates over R&D in the pharmaceutical industry, contrary to the industry’s claim. While the amount spent on promotion is not in itself a confirmation of Kefauver’s depiction of the pharmaceutical industry, it confirms the public image of a marketing-driven industry and provides an important argument to petition in favor of transforming the workings of the industry in the direction of more research and less promotion.