Big Pharma Spends More On Advertising Than Research And Development, Study Finds
The researchers’ estimate is based on the systematic collection of data directly from the industry and doctors during 2004, which shows the U.S. pharmaceutical industry spent 24.4% of the sales dollar on promotion, versus 13.4% for research and development, as a percentage of US domestic sales of US$235.4 billion.
The research is co-authored by PhD candidate Marc-André Gagnon, who led the study with Joel Lexchin, a long-time researcher of pharmaceutical promotion, Toronto physician, and Associate Chair of York’s School of Health Policy & Management in the Faculty of Health.
“In our paper, we make the case for the need for a new estimate of promotional expenditures by the U.S. pharmaceutical industry,” says Gagnon. “We then explain how we used proprietary databases to construct a revised estimate and finally, we compare our results with those from other data sources to argue in favor of changing the priorities of the industry.”
The study is important because it provides the most accurate image yet of the promotional workings of the pharmaceutical industry, says Lexchin.
The authors examined the 2004 reports of IMS Health (IMS) and CAM Group (CAM), two international market research companies that provide the pharmaceutical industry with sales/marketing data and consulting services. IMS obtains its data by surveying pharmaceutical firms, while CAM surveys doctors, which explains important discrepancies in the data they provide.
The researchers used 2004 as the comparison year because it was the latest year in which information was available from both organizations.
CAM reported total promotion spending by the U.S. pharmaceutical industry as US$33.5 billion in their 2004 report, while IMS reported US$27.7 billion for the same year. The authors observed, however, important differences in figures according to each promotion category. By selectively using both sets of figures provided by IMS and CAM, in order to determine the most relevant data for each category, and adjusting for methodological differences between the ways IMS and CAM collect data, the authors arrived at US$57.5 billion for the total amount spent on pharmaceutical promotion in 2004. The industry spent approximately US$61,000 in promotion per physician during 2004, according to Gagnon.
“Even our revised promotion figure for 2004 is apt to be understated, as there are other promotion avenues that are not likely to be taken into consideration by IMS or CAM, such as ghost-writing and off-label promotion,” says Gagnon. “Also, seeding trials, which are designed to promote the prescription of new drugs, may be allocated to other budget categories.”
IMS and CAM data were used for comparison purposes because data from both are publicly available, both operate globally and are well regarded by the pharmaceutical industry, and both break down their information by different promotion categories. Most importantly, the two organizations use different methods for gathering their data, allowing the researchers to triangulate on a more accurate figure for each promotion category.
The authors focused their study on the United States because it is the only country in which information is available for all of the major promotion categories, and it is also the largest market for pharmaceuticals in the world, representing approximately 43% of global sales and global promotion expenditures.
Gagnon’s and Lexchin’s new estimate of total promotional costs is also consistent with estimates of promotional spending by the U.S. pharmaceutical industry from other sources they scrutinized, including reports by Consumers International, a non-governmental organization which represents consumer groups and agencies worldwide; Office of Technology Assessment, which extrapolated results from the cost structure of Eli Lilly, a global pharmaceutical company; Marcia Angell, former editor-in-chief of the New England Journal of Medicine, who extrapolated data from Novartis Inc., a company which distinguishes marketing from administration expenditures in its annual reports; and the United Nations Industrial Development Organization.
As well, note the authors, the number of meetings for promotional purposes has dramatically increased in the U.S. pharmaceutical industry, jumping from 120,000 in 1998 to 371,000 in 2004, further supporting their findings that the U.S. pharmaceutical industry is marketing-driven.
Thus, the study’s findings supports the position that the U.S. pharmaceutical industry is marketing-driven and challenges the perception of a research-driven, life-saving, pharmaceutical industry, while arguing in favour of a change in the industry’s priorities in the direction of less promotion, according to Gagnon and Lexchin.
PLoS Med 5(1): e1 doi:10.1371/journal.pmed.0050001
Published: January 3, 2008
Gagnon MA, Lexchin J (2008)
The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States.
Copyright: © 2008 Gagnon and Lexchin. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
Abbreviations: AWP, average wholesale price; PhRMA, Pharmaceutical Research and Manufacturers of America; R&D, research and development
Marc-André Gagnon is with the Département de Sociologie,Université du Québec à Montréal, Montreal, Quebec, Canada. Joel Lexchin is with the School of Health Policy and Management, York University, Toronto, Ontario, Canada
* To whom correspondence should be addressed. E-mail: email@example.com
In the late 1950s, the late Democratic Senator Estes Kefauver, Chairman of the United States Senate’s Anti-Trust and Monopoly Subcommittee, put together the first extensive indictment against the business workings of the pharmaceutical industry. He laid three charges at the door of the industry: (1) Patents sustained predatory prices and excessive margins; (2) Costs and prices were extravagantly increased by large expenditures in marketing; and (3) Most of the industry’s new products were no more effective than established drugs on the market . Kefauver’s indictment against a marketing-driven industry created a representation of the pharmaceutical industry far different than the one offered by the industry itself. As Froud and colleagues put it, the image of life-saving “researchers in white coats” was now contested by the one of greedy “reps in cars” . The outcome of the struggle over the image of the industry is crucial because of its potential to influence the regulatory environment in which the industry operates.
Fifty years later, the debate still continues between these two depictions of the industry. The absence of reliable data on the industry’s cost structures allows partisans on both sides of the debate to cite figures favorable to their own positions. The amount of money spent by pharmaceutical companies on promotion compared to the amount spent on research and development is at the heart of the debate, especially in the United States. A reliable estimate of the former is needed to bridge the divide between the industry’s vision of research-driven, innovative, and life-saving pharmaceutical companies and the critics’ portrayal of an industry based on marketing-driven profiteering.
IMS, a firm specializing in pharmaceutical market intelligence, is usually considered to be the authority for assessing pharmaceutical promotion expenditures. The US General Accounting Office, for example, refers to IMS numbers in concluding that “pharmaceutical companies spend more on research and development initiatives than on all drug promotional activities” . Based on the data provided by IMS , the Pharmaceutical Research and Manufacturers of America (PhRMA), an American industrial lobby group for research-based pharmaceutical companies, also contends that pharmaceutical firms spend more on research and development (R&D) than on marketing: US$29.6 billion on R&D in 2004 in the US  as compared to US$27.7 billion for all promotional activities.
In this paper, we make the case for the need for a new estimate of promotional expenditures. We then explain how we used proprietary databases to construct a revised estimate and finally, we compare our results with those from other data sources to argue in favor of changing the priorities of the industry…