Research and development is the justification most commonly rattled off by Big Pharma when asked about rising drug prices. It takes money to investigate and develop these vitally needed drugs, they say. And while that part may be true, a recently released study found that drugmakers haven’t been entirely truthful with how they’re spending their money.
The Campaign for Sustainable Rx Pricing, also known as CSRxP, announced the results of an extensive study that uncovered precisely where those dollars are going—and to no one’s surprise, it isn’t all going to research and development. Conducted in partnership with GlobalData, the CSRxP study found that Big Pharma spent more than double on advertising, corporate overhead, and profits than they did on R&D.
So, that whole party line about drugmakers’ investment in research being the reason for the price hikes is just that—a line.
The study took a hard look at six different categories for the 10 largest pharmaceutical and biotech companies in the United States. Categories covered include profits; marketing, advertising, and promotions; corporate overhead and administration; research and development; operations and production; and taxes. The breakdown of which categories absorbed what percentage of spending was as follows:
- Research and development – 22%
- Operations and production – 22%
- Marketing, advertising, and promotions – 19%
- Profits – 18%
- Taxes – 10%
- Corporate overhead and administration – 9%
Though research and development did tie for the single-largest expense, it’s concerning that it became dwarfed by the combination of advertising, overhead, and profits.
Earlier this year, results of a study published in the Journal of the American Medical Association (JAMA) Network Open concluded that there was a direct correlation between marketing efforts that promoted opioids and fatal opioid-related overdoses.
Of the companies CSRxP analyzed, Pfizer had the most egregious habits, with spending on R&D coming in at a paltry 14% of total expenses. That number is about 8% less than it spent on advertising alone. And while Americans continue to ask for cheaper drugs and have resorted to skipping doses because of the cost, three of the companies in the study made more in profits than they invested in research. In what is bound to shock no one, Pfizer was one of those companies.
If you thought spending just 14% on R&D was bad, how do you feel knowing they pocketed nearly three times as much in profits? The other companies to make more in profits than they spent on research were Biogen and Gilead.
We wish we could say we were surprised, but we’re not. Remember our post from earlier this month about earnings announcements for some of the country’s largest drugmakers? Revenue for Merck in this year’s first quarter was almost $11 billion, while Pfizer’s revenue was more than $13 billion. Reports say both Merck and Pfizer outperformed what Wall Street was expecting for the quarter.
Not that it was in dispute before, but it’s more apparent than ever that these companies are driving substantial revenues and pocketing that money instead of holding down prices for consumers.
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