Perks, profits and promotions
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Soaring drug costs unrelated to R&D, study says
By Vicky Lankarge, insure.com
Last Update: 12:57 PM ET July 13, 2001
<<WEST HARTFORD, Conn. (insure.com) -- Hefty profits and enormous executive compensation packages are to blame for soaring drug prices -- not the costs associated with research and development of new drugs, according to a study by Families USA.
Pharmaceutical companies spend more than twice as much on marketing, advertising, and administration than they do on R&D, says the study, "Off the Charts: Pay, Profits and Spending in Drug Companies." Profits also exceed R&D expenditures, the report said.
"The pharmaceutical industry's repetitious cry that research and development would be curtailed if drug prices are moderated is extraordinarily misleading," says Ron Pollack, executive director of Families USA, a nonprofit consumer health group in Washington.
"Companies charging skyrocketing drug prices like to sugarcoat the pain by saying those prices are needed for research and development," Pollack said. "The truth is high prices are much more associated with record-breaking profits and enormous compensation for top drug company executives."
The Pharmaceutical Research and Manufacturers of America (PhRMA) calls the study "inaccurate" because it compares spending on drug research vs. marketing.
"Pharmaceutical companies spend more on research than on promotion, and half of promotion spending is dedicated to free drug samples for patients," says Jackie Cottrell, PhRMA spokesperson. "The Families USA study condemns the pharmaceutical industry for being a success at developing medicines upon which millions of patients depend. . . . Pray the companies always will be successful."
Key findings
According to Families USA, the study is based on annual reports of nine drugmakers submitted to the Securities and Exchange Commission (SEC) in 2000. The nine companies are: Abbott Laboratories, Allergan, American Home Products, Bristol-Myers Squibb, Eli Lilly, Merck, Pfizer, Pharmacia and Schering-Plough.
Among the nine, all but one -- Eli Lilly -- spent more than twice as much on marketing, advertising, and administration as they did on research and development, the study said. Heading that list was Allergan, which spent 41 percent of its revenue on marketing, advertising, and administration, while setting aside only 13 percent for R&D.
When the percentage of revenue set aside for profits was added to the amount allocated to marketing, Schering-Plough dominated the pack. It set aside 61 percent of revenue for profit and marketing versus 14 percent for R&D. Eli Lilly was next with 58 percent vs. 19 percent, followed by Bristol-Myers Squibb with 56 percent vs. 11 percent.
The study also documented what it calls "profligate" spending on compensation packages for top executives in 2000. Pfizer Chairman William C. Steere Jr. pulled down the highest compensation package at $40 million, exclusive of unexercised stock options. His unexercised options were valued at $131 million.
The report comes on the heels of another Families USA study that found that prices rose more than twice the rate of inflation last year for the 50 most-prescribed drugs to seniors. All this attention has the drugmakers fighting back and vigorously opposing any legislative efforts to put price controls into effect.
"If meaningful steps are taken to ameliorate fast-growing drug prices, it is corporate profits, expenditures on marketing, and high executive compensation that are more likely to be affected, not research and development," Pollack says.>> |
