Drug Companies’ Ad Spending Doubled R&D in 2000
The nation's leading drug companies last year spent nearly twice as much on advertising alone than on research and development, and nearly three times more on advertising, administration and executive compensation, according to a study released yesterday by Families USA. The AP/Arizona Republic reports that the consumer group said the study's findings disputed the industry's "contentions" that the high cost of research and development has led to the recent rise in prescription drug costs (AP/Arizona Republic, 7/11). The group analyzed annual reports for the fiscal year 2000 submitted by nine drug makers to the Securities and Exchange Commission. The companies -- Merck, Pfizer, Bristol-Myers Squibb, Pharmacia, Abbott Laboratories, American Home Products, Eli Lilly, Schering-Plough, and Allergan -- were selected because they produced the 50 most frequently prescribed drugs for seniors. A Families USA report last month concluded that the prices for these medications rose at twice the rate of inflation last year.
The new study found that each of the nine companies except Eli Lilly spent more than double the amount on marketing, administration and advertising compared to research and development (Lilly spent 1.5 times the amount), while six of the nine "made more money in net profits than they spent on research and development last year." Merck, for example, produced $40.4 billion in revenue last year -- net profits represented 17% of this figure, 15% was spent on marketing, advertising or administration and 6% was allocated on research and development, the latter percentage being the lowest of the nine companies. In percentage terms, Lilly spent the most of any company on research and development, 19%, while also seeing the largest net income at 28%. The report also found "profligate spending on compensation packages" for pharmaceutical executives. For instance, excluding "unexercised stock options," Pfizer Chair William Steere received a compensation package of $40.2 million last year. "Pharmaceutical companies charging skyrocketing drug prices like to sugar coat the pain by saying those prices are needed for research and development," Ron Pollack, Families USA's executive director, said, adding, "The truth is high prices are much more associated with record-breaking profits and enormous compensation for top drug company executives (Families USA release, 7/10).
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The Pharmaceutical Research and Manufacturers of America criticized the study, sayings its "condemn[ation]" of drug makers was "unfair," the AP/Republic reports. PhRMA spokesperson Jackie Cottrell said, "When the pharmaceutical industry does well, patients do even better." She also cited industry figures showing that about $8 billion of the $15.7 billion that drug makers spent on marketing in 2000 was attributable to companies giving away free drug samples. "The system works -- for patients. Because the pharmaceutical industry is profitable, Americans have the best chance in the world of getting the cure for Alzheimer's, cancer, diabetes or AIDS," Cottrell added (AP/Arizona Republic, 7/11). The complete Families USA report, titled, "Off the Charts: Pay, Profits and Spending by Drug Companies," is available at http://www.familiesusa.org/media/pdf/drugceos.pdf. Note: You will need Adobe Acrobat Reader to view the report.