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 we've seen over the past 18 months or so.)

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

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