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Pharma spends more on marketing than development

Monday, February 25th, 2008

Why are pharmaceuticals so expensive? This question has been asked for many years. In fact this was the question asked by Senator Estes Kefauver (D) in the late 1950s. Senator Kefauver was the first to put together an indictment against the business practices of the pharmaceutical industry. In fact he lobbed three charges at the pharmaceutical industry at the time.

They were the following:

1) Patents sustained predatory prices and excessive margins

2) Costs and prices were extravagantly increased by large expenditures in marketing

3) Most of the industry’s new products were no more effective than established drugs on the market(1).

If you look at these charges they are much the same accusations that many people blame the pharmaceutical industry of practicing right now, fifty years later. Has anything changed in the past fifty years?

The core of this debate, especially in the U.S. where direct-to-consumer marketing is legal, is the amount pharmaceutical companies spend on marketing vs. the amount spent on research and development (R&D). Aren’t we all lead to believe that the high cost of research and development is the reason that pharmaceuticals are so incredibly expensive? The Pharmaceutical Research and Manufacturers of America (PhRMA) uses data from IMS, a firm specializing in pharmaceutical market intelligence, to conclude that pharmaceutical companies spend U.S. $29.6 billion on R&D and U.S. $27.7 billion for all promotional activities (data from 2004). Even if these numbers can be trusted, and the pharmaceutical industry is altruistic, why are these expenses so close? An investigative article in the Public Library of Science (PLoS), who used proprietary databases to construct a new, and quite possibly more accurate estimate, states the money goes to marketing twice as often than R&D.

Show me the money.

It is important to note that the PLoS is an open source publication. In fact the publication states that you may use its articles and “download, copy, distribute, and use (with attribution) any way you wish.” This means that the PLoS is not taking money from anyone and so are free to publish articles that go against the mainstream. Most importantly, they are not taking money from pharmaceutical companies and can publish content like this without fear of reprisal. What was published in “The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States” does go against the mainstream – by clearly stating that the pharmaceutical industry is spending more on marketing, much more than most people would expect.

As the U.S. represents 43% of global sales and global promotion expenditures, knowing the amount of money put into marketing is essential. It is also important to note that according to CAM, which is a global company that audits the promotional activities of the pharmaceutical industry, about 30% of promotional spending is not accounted for in their figures. The breakdown is not accurately known of unmonitored promotion, but CAM believes that approximately 10% is due to incomplete disclosure by surveyed physicians and 20% comes from promotion geared towards physicians not surveyed or unmonitored journals. Combining the information gathered from CAM, as well as IMS, the total amount of money spent on marketing by pharmaceuticals was U.S. $57.5 billion for 2004. The total spent on domestic industrial pharmaceutical R&D was U.S. $31.5 billion.

There is quite a bit of difference between the money spent on R&D and marketing. If we exclude direct-to-consumer marketing, of the U.S. $57.5 billion, CAM estimates that 80% of this money is spent on physicians. This means that, with 700,000 practicing physicians in the U.S., the pharmaceutical industry spent nearly U.S. $61,000 in promotion per physician! It is interesting to note that according to the U.S. census the real median household income (2003) was $43,318.

Is Kefauver right?

While knowing that the pharmaceutical industry spends nearly U.S. $57.5 billion on marketing and U.S. $31.5 billion on R&D, those that believe the industry is promotion based, and not entirely altruistic as the industry claims, have some proof to this claim. How can we continue to pump money into, and grant legislation to, an industry that would rather hide the truth than be honest? How far are we from formally proving Kefauver’s other claims to be true? Whether or not we can all agree on the pharmaceutical industry’s place in our society – no industry should go fifty years without ethical restrictions, while claiming they are the champions of society.

References:

1) The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States

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