In the late 1950s, Chairman of the United States Senate’s Anti-Trust and Monopoly, Democratic Senator Estes Kefauver, put together an extensive indictment against the pharmaceutical industry. His 3 key charges were:
- Patents sustained predatory prices and excessive margins.
- Costs and prices were extravagantly increased by large expenditures in marketing.
- Most of the industry’s new products were no more effective than established drugs already on the market.
Fifty years later things have not changed much. The current debate centers on how much is spent by pharmaceutical companies on promotion versus how much is allocated for research and development. Actual expenditures by the pharmaceutical companies vary depending on who is doing the reporting.
IMS, is a firm that specializes in pharmaceutical market intelligence and considered by many to be the authority for pharmaceutical promotion expenditures. The US General Accounting Office referred to IMS figures when it concluded that “pharmaceutical companies spend more on research and development initiatives than on all drug promotional activities.”
Recently IMS has come under fire for the way it gathers data and its accuracy. The information IMS compiles is through surveys of firms, which raises the possibility of under reporting by pharmaceutical companies for self-serving reasons. Nor does IMS include the cost of meetings and talks the pharmaceutical companies sponsor for doctors and sales representatives. Just in the past few years such meetings have more than tripled from 120,000 in 1998 to 371,000 in 2004. In 2000, the top 10 pharmaceutical companies spent just under $1.9 billion on 314,000 such events.
When IMS was questioned about the procedures they used to collect information on different aspects of promotion they did not choose to provide information regarding the estimated value of unmonitored promotional expenditures. The pharmaceutical companies were approached independently about the figures and they provided the numbers under a confidentiality agreement. When those numbers were compared with additional research it was estimated that 30% of promotional spending was not accounted for in the official IMS figures.
The revised figures show that the pharmaceutical industry appears to spend twice as much on promotion as they do on R&D. While the amount spent on promotion is not in itself a confirmation of Senator Kefauver’s depiction of the pharmaceutical industry, it does confirm the public’s image of a marketing-driven industry.