Pharma's eternal dilemma: Marketing or R&D?

Here's more fodder for the good old marketing-versus-R&D debate. Derek Lowe at In the Pipeline picks up on a new Nature paper that analyzed the financial sense of each strategy: investing long-term in research and development, and ploughing cash into promotions in the short term. Using financial data and stock prices from pharma firms with $50 million-plus annual sales, the study authors found that R&D investments are a boost and promotions are a drag.

Basically, companies that spent more on R&D saw their stocks rise, while those that increased promotional expenses saw their stocks suffer. Lowe interprets this from the investor's point of view: If you're buying stocks, you tend to think that R&D investment will be a long-term lift to a company's shares, but spending money on sales and marketing will reduce long-term value even as it brings in short-term cash. But--and this is a big but--companies almost have to do both so that the big, risky bets on R&D are offset by the more-reliable-but-less-lucrative spending on sales.

The most interesting bit, though, is the fact that companies are in fact growing their R&D spending as a percentage of sales. It's still down there in the teens, at 17 percent, but that's a far sight more than the 5 percent invested in 1975. Meanwhile, spending on SG&A has ticked upward only slightly over the same period, coming in these days at around 40 percent. (And that's probably before all the mass sales layoffs [1] we've seen over the past 18 months or so.)

- see the article [2] in Nature Reviews Drug Discovery (registration)
- get more [3] at In the Pipeline

Related Articles:
Pharma ad spend falls; TV takes bigger share [4]
E&Y: Pharma neglects working capital [5]
Big Pharma's top 13 advertising budgets [6]
Rethinking Pharma's R&D model [7]
Drug R&D spending surges in sinking economy [8]