According to the study, U.S. drug companies spent $57.5 billion on marketing versus $31.5 billion on R&D, in 2004.
The chart on the right details the researchers’ updated estimates on pharmaceutical companies’ promotion.
The authors, Marc-André Gagnon and Joel Lexchin, are Canadian academics who built a new estimation model for pharma marketing expenditures. They begin their paper by critiquing data from IMS, which is the primary pharma marketing information source used by the industry and policymakers.
Gagnon and Lexchin find that IMS data are flawed in several respects: 1) IMS may underestimate promotional costs based on pharma companies’ understating their marketing costs; 2) IMS doesn’t include the cost of meetings sponsored by pharma companies, which has traditionally been an important arena for marketing to physicians (estimated at $1.9 billion in 2000); 3) IMS excludes spending on phase IV trials that may be targeted more to promotion and pre-sales than to scientific discovery (known as “seeding trials”); and, 4) IMS data on R&D versus sales expenditures, compared with annual reports from the pharma companies, are often inconsistent.
In developing new estimates for pharma promotional spending, Gagnon and Lexchin identified a second source of pharma marketing data, CAM (now part of the Cegedim Group). The authors compared both sources of data, resulting in the above table.
The Wall Street Journal published this graph on December 7, 2007, in its column, “Big Pharma Faces Grim Prognosis.” This picture shows you that as the industry allocated more funds to research and development, the number of drug approvals by the FDA declined. In fact, as R&D roughly quadrupled in 10 years, new drug approvals declined.
Consider the new estimates on marketing in the context of the lack of productivity on pharma in getting new drugs to market, as illustrated by this chart.
Now add a third element to this mix: that pharmaceutical companies spend more money on lobbyists than any other industry except for financial services (note the sub-prime mortgage crisis). This is another form of promotional spending not even captured in the above table. According to the Center for Responsive Politics, except for finance, the pharmaceutical industry spent more on lobbying during 2007 than the defense, telecomms, and oil and gas industries.
Spending on lobbying could change based on new transparency rules mandating detailed disclosure of lobbying activities. The Philadelphia Inquirer recently covered this story.
Health Populi’s Hot Points: While pharmaceuticals make up only 10% of the U.S. national health bill, the industry continues to be under scrutiny. With the passage and implementation of Medicare Part D, some consumers’ (especially seniors) perception of the industry has improved (see the HarrisInteractive survey data here which demonstrates this perceptual improvement). With another year of patent expirations ahead, and an FDA not appearing to drastically change rules for direct-to-consumer advertising, Big Pharma could be expected to continue its unfettered spending on marketing. This would be the case except that the largest companies began to cut staff in the 4th quarter of 2007, and more layoffs are expected this year. The biggest chunk of spending, as shown in the Gagnon-Lexchin chart, is detailing to physicians — at $20.4 billion. That’s the space to watch: Big Pharma needs to radically change its sales model. And thus far, we haven’t seen any Big Changes.