BACKROUND
The pharmaceutical industrys claim that high and increasing drug prices are needed to
sustain research and development is a lie to the American public. 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.
Recent prices rose more than twice the rate of inflation last year and among the top nine
pharmaceutical companies (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 executive with the highest compensation package in the year 2004, exclusive of
unexercised stock options, was William C. Steere, Jr., Pfizers Chairman, who made $40.2
million. The executive with the highest amount of unexercised stock options was C.A.
Heimbold, Jr., Bristol-Myers Squibbs 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 USAs 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 2005, 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. 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 industrys 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.”
