Does pharma spend more on marketing than R&D? A numbers check
So, do drug companies really spend more money on marketing than on R&D? In the Pipeline takes a look at that contention, and the cold hard facts are these: Probably not. But it's hard to tell for sure.
Derek Lowe's blog dug up the numbers and calculated spending as a percentage of revenue. In the case of R&D, that's pretty easy to determine; companies break that number out as its own line item. As for marketing, sales expenses are lumped into a category dubbed SG&A, or sales, general and administrative expenses. And as Lowe notes, that category includes lots more than sales spending. Executive salaries, for instance.
If you look at the R&D percentages versus those for SG&A, it's apparent that drugmakers allocate more of their budgets to SG&A than to R&D. For instance, Lowe found that Merck ($MRK) spends 27% of its revenue on SG&A and 17.3% on research and development. Pfizer's ($PFE) ratio is even more lopsided, with 33% on SG&A and 14.2% on R&D. Smaller, more biotech-focused companies have better numbers; Biogen Idec, for one, spends 23% of its revenue on SG&A and 24% on R&D. That's partly because--we suspect--specialty drugs don't require the armies of sales reps sent out to support primary-care meds.
Lowe then compares these figures with those in another innovation-powered business: technology. We'll let you peruse that analysis at In the Pipeline. We'd like to elaborate on the SG&A line item a bit.
SG&A is a sort of catch-all category that does include sales and marketing expenses, including sales salaries, support and so on. But it also includes legal and accounting fees, rent and utilities. In an annual industry audit, Pharmaceutical Executive notes that sales and marketing is a "relatively low portion of SG&A."
To get a vague idea of the size of that "low portion," let's look at a recent FiercePharma report on pharma advertising budgets. Pfizer topped that list with $622.3 million in ad spending last year. Pfizer came in fourth on FierceBiotech's list of R&D budgets, with $7.9 billion. That means DTC ads were less than one-tenth the size of its R&D budget.
DTC spending is only part of the overall sales-and-marketing budget, of course. Detailing to doctors costs a pretty penny, and that's where drugmakers spend much of their sales budget. Consumer advertising spending dropped by 11.5% in 2012 to $3.47 billion. Marketing to physicians, according to a Johns Hopkins Bloomberg School of Public Health study, amounted to $27.7 billion in 2010; that same year, DTC spending was just over $4 billion.
That's a total for 2010 of more than $31 billion, the best guess-timate we can come up with on short notice. According to FierceBiotech's 2010 R&D spending report, the industry shelled out $67 billion on research that year--more than twice our quick-and-dirty marketing estimate.
But as Lowe notes, quoting numbers at people isn't likely to change their "pharma spends more on marketing than R&D" chant. As one of In the Pipeline's readers pointed out, the whole debate seems to suggest that people are uncomfortable with the very idea of drugmaking as a for-profit business. But then there are the big headlines about marketing violations, guilty pleas, manufacturing shortfalls and liability lawsuits. If people are predisposed to mistrust the industry, then it will take a lot of figures to change their minds--and it might not work even then.
- read the In the Pipeline post
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