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Pharmaceutical companies typically claim that the reason for high drugs prices is because of the amount that they spend on research and development (R&D). Accor

by modzu 7y ago

Pharmaceutical companies typically claim that the reason for high drugs prices is because of the amount that they spend on research and development (R&D). According to the industry, it costs USD $2.6 billion to bring a drug to market [1]. Critics counter that companies are more focused on and spend more on promotion than on R&D. Gagnon and Lexchin produced figures that showed that in the United States in 2004 the industry spent USD $57.5 billion on promotion versus USD $31.5 billion on R&D [2]. A report from the California-based Institute for Health and Socio-Economic Policy stated that in 2015 out of the top 100 pharmaceutical companies by sales, 64 spent twice as much on marketing and sales than on R&D, 58 spent three times, 43 spent five times as much and 27 spent 10 times the amount [3]. [1] https://www.ncbi.nlm.nih.gov/pubmed/26928437 https://www.ncbi.nlm.nih.gov/pubmed/26928437 [2] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2174966/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2174966/ [3] https://nurses.3cdn.net/e74ab9a3e937fe5646_afm6bh0u9.pdf https://nurses.3cdn.net/e74ab9a3e937fe5646_afm6bh0u9.pdf

jonlucc 7y ago
I work in pre-clinical pharma research, so I would love more pharma R&D spend more than most people, but I don't see a problem with promoting approved drugs for their approved indications. The industry has to get the word about new approvals to physicians as quickly as possible, because the patent term is limited. It would be foolish to trickle a new drug into the market post-approval, and it might even be unethical, as patients who could benefit would be less likely to have access. How to structure that marketing spend is another discussion (and could use a good deal of overhaul in my opinion), but the need to market new products is not that unusual. I'm not super familiar with costs in tech startups, but do most companies spend less on marketing than product development?
refurb 7y ago
Companies don't spend $X on promotion unless they gets $X+ back. Otherwise why bother? So overall, promotion is a net positive to revenues.
- lenticular 7y ago
  The criticism is more that instead of increasing sales by developing more drugs, they focus their resources on marketing instead. This makes more money for them but is bad for society.
  - jonlucc 7y ago
    I still don't understand why it's bad for society? It seems like this is a common point that implies something, but I can't figure out what that thing is.
    - modzu 7y ago
      well in the context of developing drugs that cure disease (esp rare ones), pharma says its so expensive to do, it costs billions to develop a drug. but if in fact it "costs" billions to "market" a drug then is that the same thing? i dont have a strong opinion on this
      - jonlucc 7y ago
        I'm not super familiar with the numbers, but I believe the "billions to develop" number is a development number, if a little juiced. I think they take the total amount of R&D spend and divide it by the number of drug launches for a given period of time. So it's a good idea of how much money you have to spend to get a new launch, but it is higher than the cost of a single project, the majority of which are terminated before launch (many well before clinical trials). After you spend a couple billion per launch to make a new drug, then you spend another couple billion on marketing. Again, I could be mistaken, but I'm pretty sure that's the position of pharma.
  - AnthonyMouse 7y ago
    > The criticism is more that instead of increasing sales by developing more drugs, they focus their resources on marketing instead. This makes more money for them but is bad for society. The original point was that advertising increases their resources by more than its cost. If they spend $X to get $X+ then the "+" is additional resources that both increase the incentive to do R&D and provide more resources to do it with. Moreover, the only way advertising makes them money is by more people using the drug. Presumably the additional people taking the drug derive some value from it (or why take it?), so that isn't inherently a loss to society. If the value of taking the drug is worth more than what they're paying then it's a benefit. The biggest problem here is probably when you have insurance paying most of the price of something, so then the patient sees an ad for a drug which is 2% better and costs 2000% more, but the fact that the benefit isn't worth the money is removed from the patient's calculation when the insurance is paying for it, and then that causes everyone's premiums/taxes to go up. But the problem in that case isn't the advertising -- that's just the mechanism -- the problem is the misalignment of incentives caused by widespread low deductible insurance.
rayiner 7y ago
Your second article is very sketchy. It basically evaluates two different sources for various categories of promotion, takes the larger number of the two in each category, and adds a $15 billion vaguely-defined "unmonitored promotion" category. Some of the underlying expenses should not even be counted as "promotion." A quarter of the $60 billion is free samples, which generally are ultimately given out to patients. Other estimates put free samples at more than half the cost of drug "marketing": https://en.wikipedia.org/wiki/Pharmaceutical_marketing https://en.wikipedia.org/wiki/Pharmaceutical_marketing. A better way to look at it is R&D expenditures as a percentage of revenue: https://blogs.sciencemag.org/pipeline/archives/2013/05/20/how_much_do_drug_companies_spend_on_rd_anyway https://blogs.sciencemag.org/pipeline/archives/2013/05/20/ho.... (That is, after all, what we care about at the end of the day--what customers are paying versus what is invested in future development.) Drug companies are in the same ballpark on that metric as tech companies, spending 10-20% of revenues on R&D.
thousandautumns 7y ago
And? The arguments about marketing are completely non-sensical. People treat pharma companies marketing budgets being as large as they are as some indictment of the industry, but its not like they are just throwing money at marketing because they like to burn cash. Money spent on marketing is money that the company has determined will result in a greater return in sales and is therefore a calculated investment. If the company were to learn that their marketing was more costly than the money it generated, they would be eager to cut back on marketing. The revenue then available for the company to use for operating expenses, including R&D, is therefore greater than it would be if the company conducted no marketing. There are plenty of arguments to be had about how the pharmaceutical industry operates and how/should they be regulated in ways that other industries aren't, but the idea that marketing budgets are the reason for high drug prices is moronic.

by modzu 7y ago

jonlucc 7y ago

I work in pre-clinical pharma research, so I would love more pharma R&D spend more than most people, but I don't see a problem with promoting approved drugs for their approved indications. The industry has to get the word about new approvals to physicians as quickly as possible, because the patent term is limited. It would be foolish to trickle a new drug into the market post-approval, and it might even be unethical, as patients who could benefit would be less likely to have access. How to structure that marketing spend is another discussion (and could use a good deal of overhaul in my opinion), but the need to market new products is not that unusual. I'm not super familiar with costs in tech startups, but do most companies spend less on marketing than product development?

refurb 7y ago

Companies don't spend $X on promotion unless they gets $X+ back. Otherwise why bother? So overall, promotion is a net positive to revenues.

lenticular 7y ago
The criticism is more that instead of increasing sales by developing more drugs, they focus their resources on marketing instead. This makes more money for them but is bad for society.
- jonlucc 7y ago
  I still don't understand why it's bad for society? It seems like this is a common point that implies something, but I can't figure out what that thing is.
  - modzu 7y ago
    well in the context of developing drugs that cure disease (esp rare ones), pharma says its so expensive to do, it costs billions to develop a drug. but if in fact it "costs" billions to "market" a drug then is that the same thing? i dont have a strong opinion on this
    - jonlucc 7y ago
      I'm not super familiar with the numbers, but I believe the "billions to develop" number is a development number, if a little juiced. I think they take the total amount of R&D spend and divide it by the number of drug launches for a given period of time. So it's a good idea of how much money you have to spend to get a new launch, but it is higher than the cost of a single project, the majority of which are terminated before launch (many well before clinical trials). After you spend a couple billion per launch to make a new drug, then you spend another couple billion on marketing. Again, I could be mistaken, but I'm pretty sure that's the position of pharma.
- AnthonyMouse 7y ago
  > The criticism is more that instead of increasing sales by developing more drugs, they focus their resources on marketing instead. This makes more money for them but is bad for society. The original point was that advertising increases their resources by more than its cost. If they spend $X to get $X+ then the "+" is additional resources that both increase the incentive to do R&D and provide more resources to do it with. Moreover, the only way advertising makes them money is by more people using the drug. Presumably the additional people taking the drug derive some value from it (or why take it?), so that isn't inherently a loss to society. If the value of taking the drug is worth more than what they're paying then it's a benefit. The biggest problem here is probably when you have insurance paying most of the price of something, so then the patient sees an ad for a drug which is 2% better and costs 2000% more, but the fact that the benefit isn't worth the money is removed from the patient's calculation when the insurance is paying for it, and then that causes everyone's premiums/taxes to go up. But the problem in that case isn't the advertising -- that's just the mechanism -- the problem is the misalignment of incentives caused by widespread low deductible insurance.

rayiner 7y ago

Your second article is very sketchy. It basically evaluates two different sources for various categories of promotion, takes the larger number of the two in each category, and adds a $15 billion vaguely-defined "unmonitored promotion" category. Some of the underlying expenses should not even be counted as "promotion." A quarter of the $60 billion is free samples, which generally are ultimately given out to patients. Other estimates put free samples at more than half the cost of drug "marketing": https://en.wikipedia.org/wiki/Pharmaceutical_marketing https://en.wikipedia.org/wiki/Pharmaceutical_marketing. A better way to look at it is R&D expenditures as a percentage of revenue: https://blogs.sciencemag.org/pipeline/archives/2013/05/20/how_much_do_drug_companies_spend_on_rd_anyway https://blogs.sciencemag.org/pipeline/archives/2013/05/20/ho.... (That is, after all, what we care about at the end of the day--what customers are paying versus what is invested in future development.) Drug companies are in the same ballpark on that metric as tech companies, spending 10-20% of revenues on R&D.

thousandautumns 7y ago

And? The arguments about marketing are completely non-sensical. People treat pharma companies marketing budgets being as large as they are as some indictment of the industry, but its not like they are just throwing money at marketing because they like to burn cash. Money spent on marketing is money that the company has determined will result in a greater return in sales and is therefore a calculated investment. If the company were to learn that their marketing was more costly than the money it generated, they would be eager to cut back on marketing. The revenue then available for the company to use for operating expenses, including R&D, is therefore greater than it would be if the company conducted no marketing. There are plenty of arguments to be had about how the pharmaceutical industry operates and how/should they be regulated in ways that other industries aren't, but the idea that marketing budgets are the reason for high drug prices is moronic.