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WASHINGTON — A coalition of the drug industry’s fiercest foes is accusing the world’s top drug makers of hiding behind research and development “as an excuse for price-gouging American patients.” And they’re pointing to a new study that finds drug makers spent about 22% of their revenues on research and development in 2017 to prove their point.

The new study, first shared with STAT, was commissioned by the Campaign for Sustainable Rx Pricing, a coalition that includes pharmacy middlemen, hospitals, and insurers and that advocates for drug pricing reforms. It was based largely on analysis of 2017 Security and Exchange Commission filings for the 10 largest U.S.-based pharmaceutical companies that generate more than half their revenue from prescription drugs. And while the industry average was 22%, Celgene (CELGZ) spent the largest percentage of its revenues on research (45.49%) and Gilead spent the lowest (14.3%).


To hear the coalition tell it, the study is proof that the pharmaceutical industry isn’t spending nearly enough of its profits on new cures — despite companies’ repeated insistence that that’s exactly why they price their drugs so high. Jon Conradi, a spokesman for CSRxP, called that line the industry’s “go-to defense.”

“It is really important context that is often not part of the conversation to know not only exactly how much the industry does actually spend on R&D, but what that number looks like in the context of what they spend on everything else — things that have nothing to do with inventing or innovating new cures, or helping patients,” he said.

The 22% figure, however, isn’t that far off from what drug makers have said in the past: that the industry spends, on average, $1 out of every $5 of revenue on research and development.

“The 22 percent they are criticizing us for spending on R&D is absurd given our industry invests more in R&D as a percentage of sales than all other manufacturing industries,” PhRMA spokeswoman Holly Campbell wrote to STAT in an emailed statement.

The two very different talking points — despite the largely very similar figures — highlight the deep discord over what drugs and drug development are worth, and who should bear those costs. Policymakers in Washington have increasingly spotlighted the issue as they work toward a bipartisan solution for lowering drug prices.

And while CSRxP takes issue with pharma spending roughly 22% of its revenues on R&D, it doesn’t get much better than that: Multiple studies have shown that the drug industry outspends other similar R&D-heavy sectors, like tech. A 2015 study commissioned by PhRMA found that the drug industry spent more on R&D than any other high-tech industry. A recent study from the data analytics firm Craft also found that the health care industry invested more on R&D as a percentage of revenue than any other sector — much of which was driven by pharmaceutical companies.

CSRxP, which has slammed pharma companies in recent weeks for beating earnings forecasts, also found that drug makers banked roughly 18% of 2017 revenues as profits. Three drug makers, Biogen (BIIB), Gilead and Pfizer (PFE), all banked more in profits in 2017 than they dedicated to R&D that year.

The coalition took a particularly hard shot at Pfizer, calling it the “worst offender,” and pointing out it dedicated 14.6% of revenue to R&D that year versus the 40.6% of revenues it banked as profits that year.

A spokeswoman for Pfizer noted that the company’s revenues that year were exceptionally high due to the revamping of the tax code. When adjusting for that windfall, Pfizer would have generated profits closer to 20 percent, the spokeswoman argued.

CSRxP’s new study also includes never-before-seen estimates from the firm GlobalData on how much drug makers spend on sales and marketing — a hot topic as the Trump administration finalizes new requirements that drug makers disclose drug list prices in their TV ads.

GlobalData found that the 10 U.S.-based drug makers spent a total of $47.5 billion on selling and marketing in 2017. (This tally is largely unavailable in drug makers’ SEC filings, which only include a tally of a drug makers’ “selling, informational and administrative expenses,” which typically includes a slew of other expenses beyond advertising and marketing.)

On average, drug makers spent 19% of revenues on marketing, advertising and promotion in 2017. AstraZeneca topped the list of the list of biggest spenders in this category, socking away 33% of revenues in advertising and marketing.

PhRMA’s Campbell criticized CSRxP’s advertising number as exaggerated. She pointed STAT to a recently study which found the drug industry spent $29.9 billon on marketing and promotion in 2016.

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  • You may want to check your numbers, Nick.

    A link to the cited report would be helpful. It is a common mistake in reports on such spending to count the entire SG&A line (which usually comes in ~ 33% of revenues and would be consistent with what is being reported here for AstraZeneca) as “marketing and advertising” when, in fact, marketing and advertising account for only a fraction of that entire line item. SG&A spending also includes things like salaries, utilities, and rental of facilities, all of which actually support R&D and should arguably be counted there – any idea how much electricity it takes to run a walk-in -20˚ freezers the size of an average apartment?


    When handled properly, expenditures on R&D are actually more than what is reported in the R&D line of financial statements and spending on advertising and marketing, when extracted from the SG&A line, tends to be closer to 7%. For instance, check out page 20 of Pfizer’s 2018 financial report where total revenues are reported as ~ $53 billion. R&D expenditures are reported as $8 billion (14.9% of revenues) and SG&A as $14.5 billion (26.9%). However, on page 84 it is reported that only $3.1 billion (5.8%) was spent on advertising.

  • Drugs have limited profitability life-spans due to patents. Pharma companies simply must spend more on R&D than any other businesses. Everyone knows that outrageous drug pricing for R&D support is a very old, much-abused excuse for ridiculously rich executive pay and totempole waxing. Medications are not just any business, they are everyone’s business. Therefore this industry needs to become much more regulated and transparent, with spending on overblown perks and advertising (eventually supporting more perks) curbed.

  • 22% seems like quite a lot to me. When I was in Big Pharma, my company spent about 20%. Our CEO said it was too much and we should target 16%. I would also note that it is among the highest in any industry, comparable to computers and electronics, far more than chemicals or energy, for example.

  • It should be considered also what actual Development stands for. I have kind of a feeling that a lot, if not most of it, has little to do with actually “developing” a drug.
    And the Research part, the one that actually should account for the innovation claims, is an even a smaller fraction of the all R&D budget

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