So I didn't want to mix this in with my book review, but I was blown away by one sidebar in the Know Your Bones book I read this weekend. It dealt with how much pharmaceutical companies spend on advertising and marketing.
Taking her data from an IMS Health Special Report as seen in Pharmaceutical Executive magazine in 09/01, she noted that in the year 2000 the pharmaceutical industry spent $16 Billion dollars on promotion, $2.5 Billion of which was direct-to-consumer. (Which means, if you do the math, that they spent over $13 Billion dollars marketing drugs to the medical industry...you know the people who are supposed to prescribe the best drug for what ails you.) The same report indicated that the industry employed 81% more people in marketing than in research.
This blows my mind. Read on for more...I even did a little independent research!
So, that little stat on marketing vs. research kinda blows the whole argument that drug companies are just poor, altruistic people who spend so much developing the drugs to help you that they need to charge what they charge.
They spend a lot to advertise to you, the consumer. "Ask your doctor about _____." And have you noticed how such ads don't even say what ____is for? Must be some regulations about that.
And they spend money to get doctors to prescribe their drugs...convention in Hawaii anyone?
And they spend money lobbying Congress too I'm sure.
And donating to candidates.
So, let's take a specific example in the book: In the year 2000, Merck spent $590 Million marketing Vioxx.
Looking at their annual report for 2000 I discovered these interesting facts:
-They had total sales of $40 Billion, of which Vioxx's category comprised $2.3 Billion. That category is only their third biggest selling category.
-They had total costs and expenses of $30 Billion, of which $6 Billion was marketing and administrative costs. R&D was only $2.3 Billion.
-So Marketing reflects 20% of their expenses and R&D only ~7% (not quite like a high tech company, huh?) Of course the biggest expense load is in product manufacturing...materials and labor.
-Despite such massive expenses, their net income rose in double digits for both 1999 and 2000 to a whopping $6.8 Billion dollars or 16% of sales.
-Oh, last interesting tidbit: they paid $3 Billion in taxes on nearly $10 Billion in pre-tax Income, making their total tax bracket...that's total...all the tax they paid...30%. Certainly a higher percentage than some companies get away with (Merck must not have one of those off-shore HQs.)
So, let me ask you: what conclusions do you draw from such numbers? Perhaps I'll give you mine tomorrow :)