Marketing Outstrips R&D Spending 2-1: Study
21 CommentsBy Ed Silverman // January 4th, 2008 // 2:41 pm
That’s hardly a new contention, but a pair of researchers have attempted to inject a new analysis into the debate. And so they contend their findings indicate drugmakers spend almost twice as much on marketing and promoting their meds than on R&D, according to their study, which is published in PLoS Medicine.
They analyzed data from IMS and CAM and found that drugmakers spent $57.5 billion on promotional activities in 2004. By comparison, spending on industrial pharmaceutical research and development in the US was $31.5 billion in the same year, according to a report by the National Science Foundation, which included public funding for industrial research.
The types of marketing included free samples, direct-to-consumer drug advertising, meetings between company representatives and doctors to promote products, e-mail promotions and direct mail. The results confirm “the public image of a marketing-driven industry,” wrote the authors, Marc-Andre Gagnon and Joel Lexchin of Toronto’s York University.
“It is common knowledge that drug companies spend a lot on promotion,” Lexchin tells The Canadian Press. “But even I didn’t realize that the figure was as high as we estimate it is.”
In their analysis, called The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States, Gagnon and Lexchin suggest that governments should force the industry “in the direction of more research and less promotion.”
“Health Canada and (the FDA) could promote research if they change the criteria for how they approve drugs,” says Lexchin. “Then the drug companies would be forced to put their money into more innovative research, and the drugs that would come out of that would not be the ones you need to promote so much.”
One wag offered this reaction: “The reality is that firms behave in ways that we provide them incentives to behave,” Steve Morgan, an expert on the economics of the pharmaceutical industry at the University of British Columbia, tells the Press. “It’s not really their responsibility to change practice as much as it’s the responsibility of people who pay for drugs, and in particular doctors who prescribe them and patients who request them.
“It’s those persons’ responsibilities to change the incentives - to change the way we reward manufacturers and start putting more emphasis on rewarding truly innovative products rather than rewarding products that are just promoted intensively.”
Dan
Interesting data in this post. The industry’s priorities are reversed. This is especially true when one considers the fact that big pharma companies are anticipated to lose tens of billions of dollars due to thier blockbusters going generic in the next few years. Thier goals should perhaps be geared towards long term growth vs. short term growth, which may explain this funding issue.
MDMD
Very interesting! All along Big Pharma has been telling patients, physicians, insurers and the governement that the reason that their medications cost so much is because it costs so much to develop them! If they would jsut stop spending hundreds of millions of dalloars on their DTC campaigns, perhaps they could cut everyone a break so that they can afford their medications.
Jack2
I challenge the authors to compare the percent of revenue spent on R&D by the pharm industry to any other industry - including other high tech industries like technology/electronics industries. The pharm industry spends the highest percentage of ANY industry on R&D.
Maybe these Canadians should put their results into some context?
Nathan
Good point Jack2. I would love for pharma to invest more in R&D. But market forces dictate that money must be spent where it can “return” the most money. I would love for companies to double thier R&D expenditures. But given the current regulatory environment, they wouldn’t see a return on that investment for many, many years — if ever. The return on investment for marketing $ is almost immediate.
Chris
I work in big PhRMA and have for over 15 years at two very large companies. And I find this data embarassing but helpful. The transparency is important. We need to address it. I am not particularly concerned about the ratio. The issue is the pure excess in marketing and promotional spending. I have worked with some big brands and they cannot even keep up with the money they spend. Ten’s upon ten’s of million dollars (or way more) on DTC ads, more marketing and ad agencies than they can even keep track of, hundreds of marketing materials that their own reps cannot digest or use, multiple reps calling on the same office. I had one situation where we identified 16 different people within the company who were calling the same doctor’s office. I have seen products with over 1,000 doctors on speaker’s bureaus each of whom who can make way way too much money speaking for industry. At its core, there are strong arguments for a reasonable amount of promotion both to physicians and I think to consumers. The issue is just one of excess. It is very disheartening because the industry does so much good and it just continually shoots itself in the foot. Only more transparency will force a change in practices and I welcome it. All of the enforcement, settlements and CIA’s have done little to bring about genuine change. But there are transparency initiatives at the state and federal level and those would rock the house. It’s one thing to see the big numbers in aggregate, it’s overwhleming. But if we reach the day when companies need to disclose how much they pay to individual speakers etc etc, then things will change VERY quickly. And that day is overdue. I’d like to see more pieces focused on transparency.
Atlex
As Nathan implies, how much more should Big Pharma spend–$1, $1 billion, $50 billion? What makes anyone believe that an extra few billion dollars will make a signficant difference in output? Is there a magic ratio between marketing expenses and R&D expenses?
As for MDMD, do you have any idea how foolish your statement is when one looks at reality. Pharma spends $4B in DTC, while total Rx revenue for the entire industry in the US is ~$300B. If all DTC disappeared tomorrow and that money went to lowering drug prices, the change would be
Idris
Marketing meetings always feature amazing amounts of upscale food even the most supposedly cost cutting of times. R&D meetings in contrast have no food at all below a certain rank of attendee. So why not cut Marketing’s catering budget for starters? Or send the leftover exquisite brie and prosciutto and melon over to the cheaply carpeted building housing the two-footed lab rats, who, who knows, might experience brilliant insights if their brains were so aesthetically nourished as the mouths of Marketing?
The hourly charges of agencies and other vendors so freely engaged by Marketing in Big Pharma companies are exorbitant and outrageous. I should know, I’ve been on both ends of the invoice. Agencies rake in the big bucks Because They Can, with no regard to a reasonable cost of actual services performed.
Atlex
My statement above seemed ot get cut off. The last sentence should read: If all DTC disappeared tomorrow and that money went to lowering drug prices, the change would be less than 1.5%!
TOdd
What, a company that sells things spends money on marketing?!?!? Next you are going to tell me that physicians advertise on the TV, radio, newspaper, internet, etc….
Then you are going to tell me non profit hospitals pay huge dollars to non medical marketing people and administrators. And hospitals might actually buy millions of dollars of unneeded equipment to keep high ego doctors at their facilities. Then you will tell me that the CEO’s secretary makes more than an overworked nurse. And I will see their commercials on TV as well. oh wait, nevermind.
Yes, “me-too” drugs aren’t ideal. But the innovator of that idea is community hospitals. How many of our communities have millions and millions of dollars of unnecessary and duplicated services because 1 hospital wants to compete with others? You think a town of 50,000 needs 2 hospitals? But instead of taking a societal view, combining assets for the good of community and then passing along the savings to patients….. they advertise.
WELCOME TO AMERICA. Where a guy can go to college for 11 years, make millions and have patients think he is a god. Kind of works both ways, eh? I will take the good with the bad, but you docs go ahead and feel like you deserve it and no one else.
Justice in Michigan
I think Chris makes the relevant points here - it’s not grand total, or how that compares with another industry, the the forms marketing takes. In this case, particularly the promoting to docs, which is the lion’s share.
“Excess” may be hard to operationalize, but you kind of know it when you see it. And, yes, there are enough docs who are ready to come to the trough - indeed, who look for (indeed, ask for) the trough when they first get to the pharm. This is not a legal or even ethical point - but I think the word “grotesque” is not entirely off line.
And the more we learn about it, the more disgust folks feel toward the industry in general. I don’t think anyone is served by that (except perhaps the ones at the trough).
George Laszlo
I also agree that comparing R&D to Marketing spend is more of an attention getter than a valid comparison. So, let’s just assume that the comparison will continue to be used as a vehicle for generating media coverage. However, I would suggest that the methodology used is also questionable. Using a particular year to compare marketing spend vs. R&D spend does not make sense. First, bringing a product to market takes about 10-12 years (perhaps 8 if you are lucky.) So, you need to look at the total R&D investment in a particular compound and then compare that to the annual marketing spend. Then, within the specific year, you need to compare marketing spend vs. total revenue. We can then have a more meaningful discussion whether there is too much being spent on marketing.
henry
marketing dollars fund fake research the results of which are promoted through a network of corrupt doctors, ivy league universities/teaching hospitals, medical journals, and the FDA officials/ politicians who allow it to go on. Example: anti-depressants which as a result of such marketing tactics, adults & children were literally force fed these powerful drugs, while all of those mentioned above wined and dined while their egos inflated with the money and power bestowed upon them by the drug companies.
William Hill
DTC (direct-to-consumer) Advertising is one of the most controversial practices the drug industry uses to market its various products.
Supporters of this form of advertising, which is banned in nearly almost all countries (excluding the United States and New Zealand) say it provides a real service to consumers, informing them of new drugs and alerting them to health problems they may be unaware of.
Critics feel this form of advertising promotes only the most expensive new blockbuster drugs, when older and cheaper versions of drugs might be just as effective, thus driving up overall health care costs, with much emphasis placed on the high costs of prescription drugs.
Aggressive promotion can pay off big time. Merck, maker of Vioxx, the most promoted drug, spent $161 million advertising it in 2000, and sales of Vioxx quadrupled to $1.5 billion.
In fact, Merck spent more advertising Vioxx, according to NIHCM (National Institute for Health Care Management Foundation), than the $125 million spent promoting Pepsi or the $146 million spent on Budweiser beer ads. It even came close to the $169 million spent promoting GM’s Saturn, the nation’s most advertised car.
The drug industry says its ads not only educate consumers but also prompt people who might otherwise go undiagnosed to see their doctors. Many doctors agree.
Total spending on pharmaceutical promotion grew from $11.4 billion in 1996 to $29.9 billion in 2005. Although during that time spending on direct-to-consumer advertising increased by 330%, it made up only 14% of total promotional expenditures in 2005. Direct-to-consumer campaigns generally begin within a year after the approval of a product by the FDA.
Justice in Michigan
Question for William Hill - I am surprised that DTC usually “begin within a year after approval” - I would have expected sooner.
As you probably know, much was made about banning DTC for two years after approval in FDAAA - a regulation that was deleted from the final bill.
Is the lag time the result of FDA’s having to approve the ads after having approved the drug?
Atlex
Justice in Michigan,
I wouldn’t pay too much attention to William Hill. All he is trying to do is get you to go to his company’s website which is the front end for a mail order pharmacy in the West Indes.
As for now, all of the large pharma companies are abiding by a self imposed delay of DTC for 6 months. Often they delay longer since it doesn’t do any good to start DTC before ensuring that physicians are familiar with the new product.
Ed, do you want to take down postings that are clearly designed as advertisement?
Atlex
Lisa Van S
Justice in Michigan,
Atlex is correct on the self imposed delay of DTC for 6 mos. One can say that Industry struck a deal with Congress. I also believe that Media had a larger role in getting the 2 year deal killed. They would have lost BIG $$$$$$
William Hill
Atlex,
I’m sorry you feel my post above was made in an effort to get people to visit my website. Furthermore, my website is NOT “the front end for a mail order pharmacy in the West Indes”, as you put it.
I am among Google, Yahoo! and MSN’s largest pharmaceutical advertisers. I just thought I’d set the story straight - my post was not intended as a form of advertisement. Believe it or not, I’m quite familiar with the term and its intended use.
Now if we can get back to the real topic at large:
Big Pharmacy R&D Spending
Matthew Holford
I’ve made comment on this elsewhere (ie, R&D vs. S&M). The issue, for me, is not about the disparity in spend, not directly, anyway, but about the culture that promotes that disparity.
In financial compliance, we are taught that a firm that is marketing-driven, as opposed to compliance-driven, is an accident waiting to happen. It works like this: somebody sees an odd-looking transaction (ie, outside the usual pattern for a particular client). That person, usually quite low down in the food chain, files a Suspicious Transaction Report. This is taken up by the Compliance Department, which would investigate further. The first person that it’s likely to speak to is the client’s contact within the firm. The client is a valuable client, within the portfolio of the S&M guy. He doesn’t want the thing investigated, just on the offchance that it’s dodgy. So, not only does he make light of it with Compliance, but he goes to his own boss, in order to suggest that Compliance is fucking around with his clients. Sooner or later, in a S&M-based culture, pressure will be brought to bear on Compliance to back down. If it doesn’t, then it’s only a matter of time before a campaign begins to discredit.
Compliance, as a unit, realizes that it is going to receive no back-up, at the highest level, whereupon it stops doing its job, because it has no incentive to do so. S&M has “won,” because the pattern is now set: any disputes, and Compliance will back down. Compliance will now become completely demotivated, because it understands that, not only is it not being permitted to do its job, but that it is simultaneously required to make it look as if it is doing its job and if the shit hits the fan, it will carry the can, too.
Such is the nature of a marketing-led business. The alternative expression is “culture of blind eye.”
Matt
dmwr
Good point Jack2. I would love for pharma to invest more in R&D. But market forces dictate that money must be spent where it can “return†the most money. I would love for companies to double thier R&D expenditures. But given the current regulatory environment, they wouldn’t see a return on that investment for many, many years — if ever. The return on investment for marketing $ is almost immediate.
Isn’t the issue really that most of the “obvious” drugs have been found and the R&D is a lot harder, and the medications that come from the research much more focused on a smaller patient set? I don’t think it is the regulatory environment that is creating that issue.
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[...] 2008 in Blog roundup by Liz Borkowski Big Pharma is under scrutiny in the blogosphere this week. Ed Silverman at Pharmalot reports on a study (published in PLoS Medicine) that finds drugmakers spend almost twice as much on [...]
Drug companies spend more on advertising than research. « Health And Survival Blog
[...] They analyzed data from IMS and CAM and found that drugmakers spent $57.5 billion on promotional activities in 2004. By comparison, spending on industrial pharmaceutical research and development in the US was $31.5 billion in the same year, according to a report by the National Science Foundation, which included public funding for industrial research…Read the whole article here at Pharmalot Blog [...]