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Last night I was arguing with an aquaintance of mine about the cost of perscription drugs in the US. Her stance was that the high cost was due to the high cost of R&D (and actually she was arguing that drugs should be released onto the market without nearly so many trials, so as to bring the price down. Even if the high cost of drugs were attributable to R&D, I'd find this to be horribly short sighted, but that's beside the point). I was arguing that if you looked at drug companies' budgets, you'd see that the amount spent on R&D was miniscule compared to that spend on advertising and such. She countered that that might be true for any given drug, but that for every drug that made it to market there were a score that didn't, and the *total* R&D budget was larger than the advertising budget. I realized at that point in the conversation that the information that I possess about this stuff is second hand. I trust the people, like CT, who have given me the information, but I've never actually looked at the figures myself. I strongly suspect that the material CT and others have cited is correct, but that just makes my beliefs right opinion, not knowledge.
Anybody able to provide links that show conclusively what drug company budgets look like?
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This is actually not difficult to find - most companies have investor relations departments, and many even provide links to their quarterly or annual reports on their websites.
I did work for a pharmaceutical company before I came to stay home with the my kids. However, my knowledge is vastly skewed, since the company I worked for was in fact a sales and marketing organization, and we didn't do our own R&D, we licensed the right to market the drug from the manufacturer, so you could say in essence ALL of our budget was marketing, since that's what we did.
I can tell you our markup to the wholesaler was 16.5 percent. That is a very small markup when you compare it to, say, the furniture industry which has markups in the neighborhood of 100% or greater.
Smaller pharmaceutical companies like the one I worked for, don't have the resources to do their own R&D, so there are companies that do nothing but R&D.
Biocryst is one - they are a spin off from UAB, I used to work with the daughter of Biocryst's founder. Here is a page on their financials:
Now, of course, Biocryst is an R&D company. That's all they do. If you looked at a snapshot of the company I used to work for (which you can't, becuase it no longer exists - it was bought out by a larger company) you'd see virtually no R&D costs, because it wasn't an R&D company.
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Thanks Belle. I'll freely admit to being lazy and not looking around much before posting my question. I figured that there would be those here that would have the informatio at their fingertips.
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I guess that post didn't tell you anything - what I"m trying to say is not all the companies in the industry are the Johnson and Johnson's or the Eli Lily's. There are many smaller companies, who split up the costs of R&D.
And, I suspect Lily and J&J also are in the business of searching out smaller R&D companies and licensing their products. I guess I'm trying to say it isn't going to be as simple as pointing at one company, one statistic and saying "A-ha! See! I told you so!"
Plus, there are many, many other costs involved besides just sales and marketing and R&D. In the company I worked for, we included "administrative" costs in with our sales and marketing budget when we reported it. Well, administrative also included regulatory costs, and they were substantial.
Our regulatory staff was as big as our marketing staff. Now, that is a significant statement - since we were in essence a sales and marketing company, and we didn't do our own R&D - so what did we need for regulatory staff? Their job was to make sure we were always in compliance with FDA regulations. And they were very busy.
They were also very expensive - the people who worked for them had to, by nature, be more highly educated than the folks like me who worked in marketing. They were licensed pharmacists and people with master's degrees in the health sciences.
FDA involvement doesn't end when the drug is brought to market. Even a company like mine who didn't do any R&D had frequent dealings with the FDA. The FDA regulations controlled everything from what temperature our samples could be stored in to what types of transportation could be used to get the drugs to market to what the packages said. All our samples had to be meticulously documented in case there ever was a recall. All our sales and marketing materials had to be gone over with a fine tooth comb to make certain none of them made claims that the FDA wouldn't allow. Likewise all the things our salespeople said to physicians - we had to spend an enormous amount on training to ensure they were doing what they were supposed to because the costs of getting it wrong were high. The FDA could come in and shut us down at any moment.
They were the bane of our existence - the ogre that hovered over everything we did. And despite that - I must say I respect it and am glad for it - that type of oversight is why our drug supply is so safe.
Sales and marketing costs sometimes also include the costs of getting your product to market, and you can't just rent a warehouse and store your drugs and ship them via UPS. Your warehouse also has to be inspected regularly and overseen by the FDA, so most drug companies don't do their own warehousing, they must farm that out to companies that specialize in it. Companies that have the types of secure storage for scheduled drugs, and temperature control for the ones that need it. Those companies also have to make a profit.
This is not to say pharmaceutical companies are angels in disguise. It's not to say that all sales and marketing costs are legitimate. Yes, they have a lot of sales reps and they pay them well. Yes, they do things like hold sales meetings in exotic locations and spend way more than they probably should on things like perks.
However, it's a very hard job with long hours, being a pharmaceutical sales rep. Most are young, because it's not a job that people stay in forever. High stress, lots of travel, long hours. The people you hire are talking to health professionals all day long, they need college degrees and extensive training to make sure they say the right things (remember the regulatory requirements? A slip of the tongue by one rep can cost you plenty in fines.) To get the quality you need and to get them to do such a demanding job, you have to pay them. You need to offer incentives to keep them motivated. Competition is fierce, and once generics come into the market, you lose a lot of ability to make a profit, so there is a ton of pressure to make as much as you can as fast as you can. The pressure gets to a lot of people.
I don't know if any of this helps, but maybe it sheds some light. I'm not a complete pharmaceutical company apologist - I do know there were wastes in the way our company operated, but I've yet to work for any organization, government, educational, or for-profit that couldn't be said about.
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