<p>"I also note that many of these same drug firms spend more on sales and admin than on research."</p>
<p>They sure do because their shareholders expect their current sales to be sky high. Pipeline talk is very nice but does not keep the stock price up unless sales are moving along at a good clip. I would also point out the incredible legal costs drug companies face thanks to endless liability suits. Then there's the FDA demand for continuous ongoing clinical trials to assess the safety and efficacy of drugs already on the market. And now entities such as major insurers, medicare and medicaid demand continuous customized cost studies. Those most likely get put in the "informational" bucket but the drug companies have no choice in doing them if they want patients to even have access to their products. The criticism about sales spending has been lodged for a long time now. It's overly simplistic. The only drug companies that can plow everything into R&D are the tiny biotechs that have never actually brought a product to market - they're living of VC.</p>
<p>NMD, I dont know how Pfizer budget breaks down, but the drug companies (or any technology company for that matter) need very large administrative and informational staff to support their R&D: human resources, maintenance and facilities, information technologies, legal and intellectual property, statisticians, purchasing, mailing and receiving desks, administrative assistants and so on and so forth would all be considered administrative and informational staff. I worked for many years in several research universities (considered some of the best) as well as in industry, and I can tell you from personal experience that the fraction of research budget wasted in academia is significantly higher compared to industry. While the absolute amount of R&D budget is definitely higher, it is spent much more efficiently, which is not that surprising considering that industrial research is goal and product oriented, whereas academic research is grant and publication oriented. In additional, the average industrial researcher is much more experienced then the average academic researcher, hence they are much more productive (no offence to anyone, most principal investigators in academia have brilliant minds, but the majority of lab personnel is still in training and lack experience). Extraordinary expense of taking a drug to market is partially due to many regulatory and legal regulations. Also, the amount of money spent on research is dwarfed by the amounts spent on pre-clinical development and clinical trials, which is never a consideration in research universities. You should also consider that the vast majority of drugs fail at late stages of clinical development and companies must adsorb the costs. Regarding the layoffs, they seem to be cyclical, at least in my area. I know quite a few people who have been laid off and rehired by the same companies. Lastly, academic training is essential but insufficient for drug development, so most companies are looking for employees experienced in industrial setting, hence the disconnect between training and employment.</p>
<p>Neither of you seem to have much knowledge of either accounting or the financial reports drug companies file. That's the only thing I can conclude from statements like: "would also point out the incredible legal costs drug companies face thanks to endless liability suits." or "but the drug companies (or any technology company for that matter) need very large administrative and informational staff to support their R&D:".</p>
<p>mammal, please give me a few examples, preferably from a company's financial statements (to get a true cost, not a "press release" cost) of these "incredible" legal expenses. Then please compare them to the corresponding profits.</p>
<p>BTM, the things I quoted are part of the cost of doing research and accounted for in that manner. Research is not just the direct expenses, but also includes the relevant overheads.</p>
<p>It appears the pharma industry pr machine is working. We have at least two believers here....</p>
<p>NMD, I just checked my company annual report and General and administrative expenses are reported completely separately from R&D expenses, but apparently, as an expert in accounting and the financial reports, you know better. As for your last sentence, that was neither necessary nor particularly informative. I speak from experience, so you can either take this opportunity to learn something new or jump to your own conclusions about drug development based on your expertise in accounting. The choice is yours.</p>
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NMD, I just checked my company annual report and “General and administrative” expenses are reported completely separately from “R&D” expenses, but apparently, as an expert in accounting and the financial reports, you know better.
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<p>Yes, I do know better, having taught classes on financial statement analysis and elementary accounting principles. </p>
<p>Why my last line bothers you I don't know. I do know pharma spends a lot of advertising dollars telling us how much they spend on research, as a sort of justification for their high prices. They don't tell us in their advertising how much they spend on DTC (Direct To Consumer) advertising or on selling the drugs. They leave it to us to dig this information ourselves. You seem to think pharma spends more on R&D than their audited financial statements indicate. Where this misunderstanding came from I do not know, but Pharma PR seems to me to be a likely prospect.</p>
<p>I think BTM & Mammall have given an excellent overview of the obstacles pharmaceutical companies face. Not a PR snow job at all, but concise info from insiders. As BTM states, one is free to "take this opportunity to learn something new or jump to your own conclusions about drug development..." Learning is always better than jumping to conclusions.</p>
<p>What makes you think "insiders" have unique insight? What makes you think btm and mammall are the only insiders? I spent a good part of my career inside pharma and biotech.</p>
<p>Regardless, this "debate" is going nowhere. You are welcome to believe that the cause of pharma is a noble one, that their high drug prices are driven by (take your pick) high r&d investment, litigation expenses, or whatever. But I disagree, and pointed to data that show differently, only to be flamed. Go figure.</p>
<p>Well, I'm an insider/outsider, I guess, having worked for a big pharma for seven years and worked in NIH funded research at universities for many, many years -- beginning in grad school. So I guess I've seen a bit of the landscape on this. The compliance, regulatory, patent and liability environment for big pharma these days is absolutely hostile, accounting for ever increasing portions of the cost of developing and selling drugs. Are drug companies capitalistic entities? Sure. If newmassdad wants drug development performed exclusively by the government, then he's not alone. He's just wrong. Life is too busy to go into why but he could start by reading David Cutler's "Your Money or Your Life." Just one final point, though. The entire health industry is mostly for profit. Why the particular wrath directed at big pharma? No matter how the bean counters slice and dice it, drugs are less than 10 percent of the health care dollar, and they drive down the other costs - hospitalization, doctor visits, physical therapy, etc. Just doesn't make sense. The only real difference is that drug costs have traditionally not been covered by insurance or medicare. Thus the consumer feels the full cost, thus the wrath.</p>
<p>Believe it or not, I have no beef with most of what you say in your most recent post! (and I'll get a copy of the book and read it, too!). I also think drug companies should continue to be the conduit for commercial development of new drugs. I do disagree with your assessment of the economic impact of drugs. Research has shown that some of these drugs are life-savings and some drive down costs. Unfortunately, the pharma industry is all too often more interested in life-stye drugs (erectile dysfunction? restless leg syndrome?) that raise costs, instead of categories like anti-infectives.</p>
<p>Where we differ (I guess) originates in a point of agreement - that drug companies are "for profit". While a drug company has a right to pursue profits (indeed, one should argue that they have a legal obligation to maximize these profits to shareholders), I don't think that excuses them from the misleading publicity campaigns that they've undertaken to justify their obscenely high prices for new drugs sold in the US - high prices necessary to generate those high profits. </p>
<p>All too many of these new drugs offer no benefit to the patient. Nexium is a great example. Omeprazole (Prilosec) was coming off patent. Astra Zeneca developed a "next generation" product, backed by an expensive advertising campaign, to convert as many users to the new drug. This in the face of evidence that Nexium offers no clinical benefit over generic omeprazole. (Why no benefit? Same active ingredient!)</p>
<p>NMD, I dont believe that anywhere in my posts I commented on drug prices, their justifications, causes or advertisement campaigns; I am not an expert and dont claim to be one. I was addressing your statement in post #20:
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regarding drug company extraordinary risk and expense of taking a drug to market" I would argue that they actually do a crappy job of it which is why their research costs are so high.
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To me, this statement comes across as arrogant and misleading. With all due respect, you dont know what you are talking about and your ability to read financial reports or spending some of your accounting career at pharma companies, does not qualify you to make any judgments about quality or efficiency of R&D process. I would probably agree with your assessment 10-15 years ago, but definitely not today. As you appear to hold such a strong opinion, I thought that you may benefit from some information. Having said this, I do agree with most of your other posts.</p>
<p>Well, I worked inside big pharma for more than 20 years, and for many of those I was in anti-infective research. In those 20 years I've had way too many of these "big-pharma-is-evil" discussions, and I don't want to participate here. Those arguments are un-winnable.</p>
<p>I just wanted to say THANKS to mammall (and btm) for the comments on profit. People seem to forget that drug companies aren't in business to be altruistic - they're just as much driven by shareholder value as any other business. As a business entity, wouldn't you be more interested in selling these "lifestyle drugs" if they make you lots of money? Doesn't Wall Street demand profits every quarter?</p>
<p>New anti-infectives are notoriously difficult to discover and develop, and then when you've finally succeeded, the FDA restricts them for serious infections only (to control resistance). And then, people only take them for 10 days and they're done! Sure doesn't sound profitable to me.....</p>
<p>Another nice thing about the life-style drugs is that many who use them just plain want them and are willing to pay out-of-pocket. So drug companies don't have to keep doing back flips to keep the drug on somebody's formulary. All those cost studies to justify the drug to medicare, medicaid, blue cross, kaiser, etc. cost money and serve to drive up the cost of drugs. Kind of ironic. Scout is right - it's an endless unwinnable argument. Our aged parents are truly hostile to us because of our work history in big pharma. It's amazing the kind of conspiracy theories, naturopathic wacko nonsense that our seniors are inundated with concerning the pharma industry. Big media has been pretty irresponsible, too. Enough. I'd rather think about the ceaselessly interesting world of college admissions and do everything I can to keep my kids from working in the drug industry. Better they do something that really helps people - like work on wall street. Ha, ha.</p>
<p>I find it ironic that thousands of students strive through 15+ years of highly competitive schooling only to discover themselves targeted by constant negative publicity; perhaps Business week should have added a warning to their article. I happen to be proud about my work and refuse to be embarrassed or apologize for it. </p>
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New anti-infectives are notoriously difficult to discover and develop, and then when you've finally succeeded, the FDA restricts them for serious infections only (to control resistance). And then, people only take them for 10 days and they're done! Sure doesn't sound profitable to me.....
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<p>sounds like a sure recipe to become a victim of your own success not very appealing. Having said this, my company has just developed a drug for a very rare hereditary syndrome with only several hundreds of patients in the entire US. All patients have reported in their testimonies that they literally gained their life back after starting this medicine. Needless to say, we wont see any sales profits, but on a positive side, we wont incur any marketing and advertising expenses either!</p>