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7/27/2001

R & D Costs Constitute Small Part of Drug Company Expenses

Kate Traynor

Advertising and administrative expenditures—and often profits—dwarf the research and development spending by pharmaceutical companies, according to research by the Families USA Foundation.

The nonprofit group found that each of the nine U.S.-based producers of the 50 drugs most frequently prescribed for seniors spent more money on marketing, advertising, and administrative costs than on research and development in 2000.

Merck and Co. Inc., Pfizer Inc., Bristol-Myers Squibb Co., Pharmacia Corp., Abbott Laboratories, American Home Products Corp., and Schering-Plough Corp. spent more than twice as much on marketing, advertising, and administration as on research and development last year. Allergan Inc. spent 42% of its revenue on marketing, advertising, and administration and 13% on research and development. Eli Lilly and Co. spent a comparatively modest 30% of its revenue on marketing and administration and 19% on research.

Financial data cited in the Families USA report, Off the Charts: Pay, Profits and Spending by Drug Companies, came from information filed by the companies with the Securities and Exchange Commission (SEC). Data for subsidiaries of these companies were not included in the analysis. The report also excluded non-U.S.-based companies, such as AstraZeneca, that file information with SEC.

Families USA found that net profits reported by Merck, Bristol-Myers, Abbott, Eli Lilly, Schering-Plough, and Allergan exceeded the companies’ research and development expenses last year. The trend was greatest at Bristol-Myers, with 26% of company revenue reported as profits and 11% allocated to research. At the other end of the spectrum was Pharmacia, which allocated 15% of its revenue to research and earned 4% in profits, and American Home, which spent 13% on research and reported an 18% loss in income.

The report also examined the salary and benefits packages, exclusive of unexercised stock options, earned by executives of the top pharmaceutical companies. Pfizer Chairman William C. Steere, Jr., earned over $40 million last year, making him the highest paid of the nine companies’ top-earning executives. American Home’s chairman and chief executive officer, John R. Stafford, was the next highest paid at $27 million. Robert L. Parkinson, Jr., retired president and chief operating officer for Abbott, earned just under $6.5 million last year, making him the lowest-paid executive in the group.

The value of unexercised stock options held by company executives ranged from $22 million for Miles D. White, Abbott’s chairman, chief executive officer, and director, to $227 million for C. A. Heimbold, Jr., Bristol-Myers’ chairman and chief executive officer. Dollar figures for the unexercised stock options were reported by one of two SEC-specified methods, and do not necessarily reflect the recent volatility of the stock market.