Pharma

Should Big Pharma spend more on marketing than R&D?

Nine out of 10 large pharma companies spend more on marketing than they do on R&D. It's a statistic often cited as a sign of industry greed, but it may be the best way to foster real innovation.

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Nineteen. That’s the number of new drugs approved by the FDA thus far in 2016. With just over two weeks to go, there is little hope for a stellar year like 2015, which yielded 45 approvals.

What gives?

According to a new report by Deloitte’s Centre for Health Solutions, large biopharmaceutical companies are struggling to convert on their R&D investments.

By one measure, annual projected pharma R&D returns have decreased to 3.7 percent, down from 10.1 percent in 2010. Those numbers represent 12 large, publicly-traded biopharma companies tracked by Deloitte since 2010.

The report also noted a lack of late-stage drugs in biopharma pipelines, suggesting the FDA approval drought will continue for at least the next few years.

Source: Deloitte 2016

Source: Deloitte 2016

New therapies are critical, but the problem isn’t a lack of desire or spending. The big companies just aren’t working effectively.

According to the report, smaller biotechs have also seen a decline in overall performance. However, they continue to outperform Big Pharma, on average generating returns up to three times higher.

“There is a negative correlation between the size of the company and both predicted returns, and cost per product,” the report highlights state. “Lessons can be learned from smaller companies—as they are able to achieve higher R&D productivity.”

The giants of the drug development world don’t need to invest more in themselves. To restock pipelines, they need to increasingly draw on external innovation.

That’s likely on the cards. In an email forwarded by a representative, Deloitte’s Neil Lesser, U.S. principal and life science R&D strategy lead, said mergers and acquisitions were the trends to watch in 2017.

“With late-stage pipelines of the largest companies at their lowest values since we began conducting the study, and peak sales/assets also at its lowest point, we expect to see an increase in the amount of external innovation and M&A activity in the coming year as Big Pharma looks to replenish pipelines.”

That brings us to marketing.

There’s a statistic that’s often cited as evidence of industry greed: Nine out of 10 large pharma companies spend more on marketing than they do on R&D.

Source: Leon Markovitz, dadaviz, 2015

Source: Leon Markovitz, dadaviz

It’s hard to argue for more marketing spend, especially at the expense of R&D. But it isn’t efficient to spend more on internal research, and marketing budgets are declining on their own.

The Deloitte report, as others have noted, declares the end of the era of blockbuster drugs. Peak sales per asset have declined 11.4 percent year-on-year since 2010.

“This has led to a situation with blockbuster costs without balancing blockbuster revenues, an equation which does not add up for long-term stakeholder value.”

Drugs are becoming more targeted. They serve smaller patient populations. Pharma can’t sustain the huge marketing campaigns of yesteryear, as seen with major, substitutable drugs such as Viagra and Cialis.

The heyday of advertising is over and a small amount will always be a necessary evil to commercialize the final drug.

Should marketing spend exceed that of R&D? It’s not really a good question to ask. What is clear is that drug development is increasingly the product of a much wider ecosystem, so any single company’s budgets can not be fairly compared.

Photo: Flickr

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