Healthy Skepticism Library item: 19527
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Publication type: news
Off the Charts: Pay, Profits, and Spending by Drug Companies
2001 July
http://www.actupny.org/reports/drugcosts.html
Abstract:
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
Full text:
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.
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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
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. $19,600,975The 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
