New
Report Links High Prescription Drug Prices to Marketing Costs, Profits and
Enormous Executive Compensation
Report
Refutes Drug Industry Claims That High Drug Prices Are Necessary for Research
and Development
Families USA
Washington, D.C.
A new report by the consumer health organization Families
USA refutes the pharmaceutical industry's claim that high and increasing
drug prices are needed to sustain research and development. The report documents
that drug companies are spending more than twice as much on marketing,
advertising, and administration than they do on research and development; that
drug company profits, which are higher than all other industries, exceed
research and development expenditures; and that drug companies provide lavish
compensation packages for their top executives.
The report comes on the heels of a recent Families USA analysis that found
prices rose more than twice the rate of inflation last year for the 50
most-prescribed drugs to seniors.
Among the nine pharmaceutical companies examined in the report (Merck, Pfizer,
Bristol-Myers Squibb, Pharmacia, Abbott Laboratories, American Home Products,
Eli Lilly, Schering-Plough, and Allergan), all but one (Eli Lilly) spent more
than twice as much on marketing, advertising, and administration than they did
on research and development, and Lilly spent more than one and one-half times as
much. Six out of the nine companies made more money in net profits than they
spent on research and development last year.
The report also documents profligate spending on compensation packages for top
pharmaceutical executives. The executive with the highest compensation package
in the year 2000, exclusive of unexercised stock options, was William C. Steere,
Jr., Pfizer's Chairman, who made $40.2 million. The executive with the highest
amount of unexercised stock options was C.A. Heimbold, Jr., Bristol-Myers
Squibb's Chairman and CEO, who held $227.9 million in unexercised stock options.
"Pharmaceutical companies charging skyrocketing drug prices like to sugar
coat the pain by saying those prices are needed for research and development,"
said Ron Pollack, Families USA's executive director. "The truth is high prices
are much more associated with record-breaking profits and enormous compensation
for top drug company executives."
Pollack added, "Drug companies' commitments to research and development are
dwarfed by those companies' expenditures for marketing, advertising, and
administration."
In 2000, the pharmaceutical industry was, once again, the most profitable U.S.
industry, and profit margins in the industry were nearly four times the average
of Fortune 500 companies. According to the
Families USA report, three companies (Merck, Bristol-Myers Squibb, and Abbott
Laboratories) received twice as much in net profits than they spent on research
and development. Three other companies (Eli Lilly, Schering-Plough, and Allergan)
received more money in net profits than they spent on research and development.
"The pharmaceutical industry's repetitious cry that research and development
would be curtailed if drug prices are moderated is extraordinarily misleading,"
said Pollack. "If meaningful steps are taken to ameliorate fast-growing drug
prices, it is corporate profits, expenditures on marketing, and high executive
compensation that are more likely to be affected, not research and development."
The Families USA report is based exclusively on the annual reports submitted by
the pharmaceutical companies to the Securities and Exchange Commission (SEC).
Since Families USA periodically reports about price changes for the 50 drugs
most frequently prescribed for seniors, the report focused on the SEC filings
for fiscal year 2000 of the nine pharmaceutical companies that market, or are
the parent corporations of the companies that market, these 50 drugs. Mylan
Laboratories, a much smaller company than the nine companies analyzed, could not
be examined since it had not filed its annual proxy statement with the SEC at
the time the report went to press.
Families USA is the national organization for health care consumers. It is a
non-profit and non-partisan advocate for affordable and high-quality health and
long-term care for all Americans.
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This article was generated by the Families USA Listserv.
Comments on this article can be sent to Ingrid VanTuinen at ivantuinen@familiesusa.org.
Ingrid VanTuinen, Writer/Editor
Families USA
1334 G St., NW
Washington, DC 20005
PH: 202/628-3030
FAX: 202/347-2417
Web: www.familiesusa.org
Email: ivantuinen@familiesusa.org
