Drug Firms Spend Small Portion on Research: Report

By Todd Zwillich

WASHINGTON (Reuters Health) - Leading pharmaceutical companies spent more than twice as much last year on advertising, marketing, and administration as they did on research into new medicines, according to a report to be released Tuesday.

This trend belies the industry's argument that efforts to control spiraling drug costs will undermine development and damage consumers' access to new treatments, according to Families USA, a Washington, DC-based healthcare consumers' group that published the data.

The report, based on companies' own financial disclosures to the Securities and Exchange Commission (news - web sites), also shows that the largest drug makers continue to lavish their top executives with compensation packages worth tens of millions of dollars per year.

The industry's main trade group dismissed the report, while individual companies defended their right to allocate resources as needed. Still, the study is sure to provide political ammunition to members of Congress who are gearing up for a fight as early as Wednesday on proposed federal measures designed to help lower the cost Americans pay for prescription drugs.

The data show that of the nine US companies that manufactured the 50 top-selling drugs for seniors in 2000, eight spent less than half as much on research and development as they did on advertising, marketing, and administration costs.

Six of the firms devoted a larger portion of their revenue to profit than to research.

Total prescription drug spending in the US went up 12% to 17% each year between 1997 and 2000, and is expected to rise another 10% to 14% each year from now until 2010, according to figures from the federal Centers for Medicare and Medicaid Services. Prescription drug costs are expected to outpace overall healthcare costs, which are expected to rise 6.5% to 10% each year until the end of the decade.

Numbers such as these irk consumer groups, whose arguments for federal action against skyrocketing drug costs often run up against arguments from the industry that any effort to curtail profits will scuttle expensive and time consuming innovation programs. Many analysts blame rising drug costs on expensive ''direct-to-consumer'' advertising campaigns and on doctors' preferences for newer and more costly drugs.

``The industry is hiding behind research and development as a way of increasing prices and therefore increasing profits,'' said Ron Pollack, the executive director of Families USA. ``The research and development mantra they use is clearly extremely misleading,'' he said.

According to the report, Pfizer, Inc., the nation's second largest drug company, last year spent 39% of nearly $30 billion in revenue on advertising, marketing, and administration. Fifteen percent of revenue went to new drug development, while 13% went to profits. The company also paid Chairman William C. Steere over $40 million in salary, bonuses, stock options, and other compensation in 2000.

Pfizer spokesperson Robert Huber confirmed the accuracy of the figures in an interview with Reuters Health. He said that the company has kept price increases for its drugs ``at or below the inflation rate'' for the last several years and that marketing and advertising help lower overall healthcare costs by better educating patients and doctors.

Asked whether the report damages the claims from Pfizer and other companies that price controls will destroy research budgets, Huber said, ``research and development becomes one of the casualties of that.''

Other companies mentioned in the report include Merck and Co., Inc; Bristol-Myers Squibb Company; Pharmacia Corp; Abbott Laboratories; American Home Products Corp; Eli Lilly and Co; Schering-Plough Corp.; and Allergan, Inc.

Judy Feder, dean of public policy at Georgetown University, pointed out that the study did not separate advertising and marketing costs from other administrative expenses, such as office space and staff salaries. But the report overall ``makes the argument that extraordinary profits are necessary to sustain research seem exaggerated,'' she said.

The industry's main trade group dismissed the report, saying it condemns drug companies for being successful at developing the treatments upon which millions of Americans depend.

``Americans, including the staff of Families USA, can be sure that whatever diseases they or a member of the family has or will get, the pharmaceutical industry is working on a cure. Pray the companies will always be successful,'' read a statement from Jackie Cottrell, a spokesperson for the Pharmaceutical Research and Manufacturers of America.

The report comes as Congress prepares this week to debate measures designed to lower the cost of prescription drugs for American consumers. Two amendments scheduled for debate in the House on Wednesday would facilitate the reimportation of American-made, FDA (news - web sites) approved medications from other industrialized countries, where the drugs are almost always significantly cheaper.

Lawmakers are also bracing for a potentially protracted debate over proposed reforms to Medicare, including the addition of a prescription drug benefit for the program's 39 million elderly and disabled beneficiaries.

The pharmaceutical industry strongly opposes both of the reimportation amendments. It also opposes Democratic proposals that would allow Medicare to purchase drugs in bulk and give the government substantial purchasing power.

Rep. Bernard Sanders (I-Vt.), who authored one of this week's expected amendments, said in an interview that the Families USA report ``debunks the myth'' that high drug prices are needed to support drug development inside pharmaceutical firms.

Referring to Pfizer, Inc., Sanders said, ``They have enough money to pay the outrageous salary and other benefits to their CEO but they do not have enough money to lower the cost of prescription drugs.''

Congress passed a bill last year allowing reimportation of US-made prescription drugs. But despite being signed by then-President Bill Clinton, the law was never enacted because Health and Human Services (news - web sites) Secretary Donna E. Shalala refused to certify that it would succeed in cutting drug prices.

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