Pharma's Not So Stingy With R&D After All
Many pharma critics argue that drug companies skimp on research while earning outsized revenues – but a new analysis my colleague and I just published tells a more nuanced story.
First, some background. Journalists and academics often point to the fraction of revenues that drug companies spend on research versus “sales, general and administrative” (SG&A) expenses as evidence that pharma under-funds research. But as Derek Lowe (here, here) and others have noted, these analyses provide zero insight into whether spending in each category is too high, too low or just right. Just as households need to spend money on food and utilities, pharma companies need to pay for both SG&A (which includes not just commercial expenses, but also corporate infrastructure) and R&D, and it’s impossible to say a priori which should be a larger fraction of top-line revenues.
First, some background. Journalists and academics often point to the fraction of revenues that drug companies spend on research versus “sales, general and administrative” (SG&A) expenses as evidence that pharma under-funds research. But as Derek Lowe (here, here) and others have noted, these analyses provide zero insight into whether spending in each category is too high, too low or just right. Just as households need to spend money on food and utilities, pharma companies need to pay for both SG&A (which includes not just commercial expenses, but also corporate infrastructure) and R&D, and it’s impossible to say a priori which should be a larger fraction of top-line revenues.