Off the Charts: Pay, Profits and Spending by Drug Companies.
Refuting industry claims that high drug prices are necessary to sustain research and development efforts.

LINKS HIGH DRUG PRICES TO ADVERTISING, PROFITS, AND ENORMOUS EXECUTIVE SALARIES

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. [see chart 1.]

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. [see charts 2 and 3.]

"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.

This report is available on the Families USA website, www.familiesusa.org.

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.

.
OFF THE CHARTS: PAY, PROFITS AND SPENDING BY DRUG COMPANIES

2000 Financials for U.S. Corporations Marketing Top 50 Drugs for Seniors

Chart 1
 Company

.

Revenue

Net Sales in
millions of dollars:
.

Percent of Revenue Allocated to:

Profit:
(Net Income)

Marketing/
Advertising/
Administration 

Research and
Development
(R&D) 
 Merck and Co., Inc

 $40,363 _

 17%

 15%

 6%
 Pfizer Inc.

 29,574

 13%

 39%

 15%
 Bristol-Myers
Squibb Company

 18,216

 26%

 30%

 11%
 Pharmacia
Corporation

 18,144

 4%

 37%

 15%
 Abbott Laboratories

 13,746

 20%

 21%

 10%
 American Home
Products
Corporation

 13,263

 -18%

38%

 13%
 Eli Lilly and Co.

10,862 

28% 

30% 

19% 
 Schering-Plough
Corporation

9,815 

25% 

36% 

14% 
 Allergan, Inc.

1,563 

14% 

 42%

 13%

Five Highest Paid Drug Company Executives Salaries
2000 Annual Compensation Exclusive of Unexercised Stock Options

Chart 2

 Executive

 Company

 Compensation
 William C. Steere, Jr.
Chairman
 Pfizer Inc

 $40,191,845
 John R. Stafford
Chairman and CEO
 American Home Products
Corporation

 $27,008,927
 Edward M. Scolnick
Executive VP
 Merck and Co., Inc.

 $26,454,600
 Richard Jay Kogan
Chairman and CEO
 Schering-Plough Corporation

 $21,444,020
 David W. Anstice
President, the Americas
 Merck and Co., Inc.

 $19,600,975

 

The Five Drug Company Executives Salaries
with the Largest Unexercised Stock Options in 2000

Chart 3

  Executive

  Company

  Compensation
 C.A. Heimbold, Jr.
Chairman and CEO
 Bristol-Myers Squibb Company

 $227,869,513
 Raymond V. Gilmartin
Chairman, Pres., and CEO
 Merck and Co., Inc.

 $181,252,976
 William C. Steere, Jr.
Chairman
 Pfizer Inc.

 $130,944,439
 K.E. Weg
Vice Chairman
 Bristol-Myers Squibb Company

 $84,282,547
 John R. Stafford
Chairman and CEO
 American Home Products
Corporation

 $81,847,569

originally posted on FAMILIES USA

 

see also:

Price variations of HIV medications in different countries
Presented @ Durban South African AIDS Conference, 11 July 2000

also

Pharmaceutical Company Profits and Salaries

 

see more [off-site] on Public Citizen website: The Real Cost of Drug R&D

July 23, 2001
New Report Debunks Drug Industry Claims About the Cost of New Drug Research and Development

Report Documents Industry's Intense Lobby and Political Contribution Campaign to Keep Prices and Profits High

WASHINGTON, D.C. - The pharmaceutical industry spends about one-fifth of what it says it spends on the research and development (R&D) of new drugs, destroying the chief argument it uses against making prescription drugs affordable to middle and low-income seniors, a Public Citizen investigation has found.

The report reveals how major U.S. drug companies and their Washington lobby group, the Pharmaceutical Research and Manufacturers of America (PhRMA), have carried out a misleading campaign to scare policymakers and the public. PhRMA's central claim is that the industry needs extraordinary profits to fund "risky" and innovative research and development to discover new drugs. In fact, taxpayers are footing a significant portion of the R&D bill, which is much lower than the companies claim.

"This R&D scare card is built on myths and falsehoods that are maintained by the drug industry to block Medicare drug coverage and measures that would rein in skyrocketing drug costs," said Frank Clemente, director of Public Citizen's Congress Watch.

Public Citizen based the study on an extensive review of government and industry data and a report obtained through the Freedom of Information Act from the National Institutes of Health (NIH). Among the report's key findings:

Public Citizen is a nonprofit consumer advocacy organization based in Washington, D.C. >> Copies of the reports can be found at: http://www.citizen.org/congress/drugs/R&Dscarecard.html and http://www.citizen.org/congress/drugs/pharmadrugwar.html

 

see also:

Price variations of HIV medications _
Presented @ Durban South African AIDS Conference, 11 July 2000

Pharmaceutical Company Profits and Salaries Listing _
by Richard Laing, Department of International Health, School of Public Health, Boston University
Presented @ Durban South African AIDS Conference, 11 July 2000



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