Just how much does pharma really pay for drug research and development, how does that actually stack up as a percentage of sales and who covers the bill for basic drug research?
The US Government Accountability Office (GAO) took that task on and came up with some intriguing numbers that say a lot about the size of the R&D industry and some key underlying trends behind the spend. One figure demonstrating how personal healthcare spending grew from 7% in the ’90s to 12%, almost doubling in the process, also underscores why drug pricing has become a hot political issue that shows no sign of waning.
While checking a variety of sources, the GAO researchers zeroed in heavily on the number crunching done by the National Science Foundation on the R&D spending reported by US pharma companies and the US-based R&D done by overseas companies. Between 2008 and 2014, when it had a full set of numbers to look at, the hard dollars spent jumped from $82 billion to $89 billion, a hike of 8.5%.
This all was occurring while combined pharma and biotech sales soared from $534 billion in 2006 to $775 billion in 2016 — a 45% increase. But it’s also important to note that the biotech R&D numbers collected by the GAO gyrated radically from one year to the next, underscoring just how hard it is to track the spend by a wide range of smaller, often private, companies.
So how does the R&D spend relate to advertising and promotion, a subject that pharma critics in particular like to use to vex execs with? The report cites an estimate ranging from 11.5% to 14.2% for an average of 13% as the percentage of sales reserved for R&D cost. Those figures easily dwarf the 7.6% spent on advertising tracked by QuintilesIMS (now IQVIA), though the GAO notes that there are a variety of figures being batted around there.
There’s no question, says the GAO, that the NIH covers the bulk of the tab for basic research, with pharma clearly more interested in development than preclinical work.
Biomedical research took a definite hit in the period that the GAO covered, with NIH funding dropping 3.8%. The $26 billion in real dollars spent in 2014 was a steep drop from the $32 billion shelled out in 2010, underscoring the relative paucity of federal cash that has stirred widespread calls to do better.
The NIH allocated $13.6 billion for basic research in 2014, more than twice the $6.3 billion reported by pharma companies.
And as we’ve been tracking, outsourcing continues to gain a growing share of the R&D dollar. The government report notes that while 25% of research was farmed out by pharma in 2008, that figure grew to 35% in 2014.
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