Another Look At Marketing Vs. R&D In Pharma

Includes: PFE
by: Derek Lowe

FiercePharma has some good figures to back up my posts the other day on R&D spending versus marketing. I mentioned how many people, when they argue that drug companies spend more on marketing than they do on research, are taking the entire SG&A number, and how companies tend to not even break out their marketing numbers at all.

Well, the folks at Fierce had a recent article on marketing budgets in the business, and they take Pfizer's (NYSE:PFE) numbers as a test case. That's actually a really good example: Pfizer is known as a mighty marketing machine, and for a long time they had what must have been the biggest sales force in the industry. They also have a lower R&D spend than many of their peers, as a percentage of sales. So if you're looking for the sort of skewed priorities that critics are always complaining about, here's where you'd look.

Pfizer spent $622 million on advertising last year. Man, that's a lot of money. It's so much that it's not even one-tenth of their R&D budget. Ah, you say, but ads are only part of the story, and so they are. But while we don't have a good estimate on that for Pfizer, we do have one for the industry as a whole:

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.

So let's try for a Pfizer estimate then. If they stayed at roughly that ratio, then they would have spent seven times as much marketing to physicians as they did on advertising per se. That gives a rough number of $4.3 billion, plus that $622 million, for a nice round five billion dollars of marketing. That's still less than their R&D budget of $7.9 billion, folks, no small sum. (And as for that figure from a couple of years ago about how it only costs $43 million to find a new drug, spare me. Spare everyone. Pfizer is not allocating $7.9 billion dollars for fun, nor are they planning on producing 184 new drugs with that money at $43 million per, more's the pity.)

So let me take a stronger line: Big Pharma does not spend more on marketing than it does on R&D. This is a canard; it's not supported by the data. And let me reiterate a point that's been made here several times: no matter what the amount spent on marketing, it's supposed to bring in more money than is spent. That's the whole point of marketing. Even if the marketing budget was the same as the R&D, even if it were more, it still wouldn't get rid of that point: the money that's being spent in the labs is money that came in because of marketing. Companies aren't just hosing away billions of dollars on marketing because they enjoy it; they're doing it to bring in a profit (you know, that more-money-than-you-spend thing), and if some marketing strategy doesn't look like it's performing, it gets ditched. The response-time loop over there is a lot tighter than it is in research.

There. Now the next time this comes up, I'll have a post to point to, with the numbers, and with the links. It will do no good at all.

Note: I am not saying that every kind of drug company marketing is therefore good. Nor am I saying that I do not cringe and roll my eyes at some of it. And yes indeed, companies can and do cross lines that shouldn't be crossed when they get to selling their products too hard. Direct-to-consumer advertising, although it has brought in the money, has surely damaged the industry from other directions. All this is true. But the popular picture of big drug companies as huge advertising shops with little vestigial labs stuck to them: that isn't.

Disclosure: None