Category : Pharmacy
Today, a pharma company's strategy towards becoming a diversified global healthcare leader involves increasing innovation in R&D. However, with the large spent seen in the marketing segment, a question that looms is whether the spending in marketing more than R&D?
A recent study by two York University researchers estimate that the US pharma industry spends almost twice as much on promotion as it does on R&D. The researchers' estimate is based on the systematic collection of data directly from the industry and doctors, which shows that the US pharma industry has spent 24.4 per cent of the sales dollar on promotion, versus 13.4 per cent for R&D, as a percentage of US domestic sales of $235.4 billion. IMS Health (IMS) and CAM Group (CAM), two international market research companies that provide the pharma industry with sales/marketing data and consulting services, aided the researchers in their estimate. Further, the Pharmaceutical Research and Manufacturers of America (PhRMA) concluded that pharma companies spend $29.6 billion on R&D and $27.7 billion for all the promotional activities. Thus, it is indeed a matter of discussion whether the pharma companies are spending more on marketing than on R&D. Experts try to discern the situation.
R&D and marketing are both distinct yet essential aspects of the pharma industry. While R&D ensures that therapeutic solutions are made available, the marketing department makes the end users - doctors and patients - aware of these therapeutic solutions. In fact, to be precise, pharma companies spends are decided based on its priorities and capabilities.
Sanofi has always been known for its rich R&D heritage. Further, the mission of Sanofi R&D is to address patients' real needs - those that are either poorly covered or completely ignored - and provide appropriate therapeutic solutions.
For achieving the desired goal, innovation is the integral part of any pharma company. Innovation is the heart of our research model, as it is being conducted internally, and also through acquisitions, partnerships and close scientific collaboration with academia and biotechnology research institutions.
Further, Sanofi Pasteur, the vaccines division of Sanofi Group, is at the forefront of developing immunological solutions to prevent diseases for every stage of life, and devotes more than^ €l million to R&D every year. Again, the Group also launched a transformation programme in 2009 to make R&D an innovation driver operating in a new environment that would stimulate creativity, openness and higher performance. Further progress was made during 2010 with the appointment of Dr Elias Zerhouni - world renowned leader in the scientific community - as President, Global Research & Development, covering medicines and vaccines. And closer home, the Group has appointed Dr Raman Govindarajan as Head - R&D for India. Clearly, R&D continues to be a key I focus area for Sanofi. By focusing on patients' needs, the company intends to become the most productive R&D organization in the healthcare sector.
Senior director-communications and public affairs
The two separate departments, R&D and marketing, are extremely relevant for a biotech company's growth and development. As far as Cytori is concerned, we have historically concentrated heavily on R&D. For any pharma company the R&D department is vital. Further, we have spent over $250 million in R&D, without expecting any returns and even or before we rolled out our investment plans in marketing. We believe that R&D activities of a company form the foundation of a company. Further, it should be remembered that the R&D spending is decided before the product is formed and marketing comes at the last stages of commercializing the product.
Therefore, one cannot also deny the importance of marketing spend in this area. Marketing communication is also an equally important area as it enhances the knowhow of end users like patients. Through marketing and communication processes in a pharma companies, doctors also get intimidated about the therapy in question. This is simply the reality of the entire business. Therefore, clinical trials, development of the drug forms a large part of the progress process. And we cannot curtail the investment in this or get away with it.
Dr. John fraser
Principal scientist, cytorui therapeutics inc
Of late a lot of investment has been made in marketing than R&D. But to be accurate, it is difficult to give an exact demarcation of investments between the two departments. Actually, severe marketing is done in order to live up to the existing competition in the pharma market. However, individually, bigger companies like Ranbaxy Laboratories, Dr Reddy's Laboratories and many others can afford to have an increased spending on R&D. In India, there are approximately 16,000 pharma companies and out of that total number only 20-25 are big players. Thus, it is quite natural that the total figure for the spend on marketing is more than that of R&D. But, there are enough reasons for small scale pharma companies to invest on marketing. For them this is the question of survival.
Thus, in order to reach the end users, marketing is an extremely important process. Also, R&D is fundamental for any pharma company. And with lot of drugs going off patent, there is an urgent need for a new molecule and this can only be established by a thorough R&D process. Thus, a perfect blend of apt investments in both the departments is required.
Dr. Lal krishna
Chief executive officer, Ramky pharma city India ltd
An estimated $250 billion in sales are at risk between now and 2015 because of patent expiry. And Obama administration's healthcare policy favours cheaper drugs and is also open to more good quality generics entering the US market. This again is a negative political atmosphere for the innovator pharma companies. The common man in the US has started raising voice against costly innovator drugs during this period of economic instability and is vouching openly for generic medications. In this scenario, pharma majors have always justified high cost of drugs by saying that the profits generated were consumed into fundamental research for the next novel drug. Thus, with the expected fall in profits, the axe has fallen on R&D units.
With the obvious loss in revenues over the next few years, innovator pharma companies have resorted in cutting costs by targeting their R&D enterprises. State-of-the- art facilities and the innumerable chemists and scientists working on newer drug entities have either been shut down or laid off.
Pre 2005 era, majority of the Indian pharma, sparing a few, were only into research. Post 2005, many companies have been forced to diversify their existing R&D into units for fundamental and collaborative research. This demands Indian companies to invest heavily into research so as to retain their edge in the drug market
This trend is new for majority of the pharma companies, who are struggling for funding these R&D projects. The output of R&D is still considered as an intangible asset, and hence, banks or financial institutions are not ready to support R&D projects. Hence, we require a government backed scheme or a venture capital fund being created to nurture and grow the Indian pharma R&D.
In either case, innovators or Indian generics, at present, there is lack of spending in R&D over marketing. And this is observed for reasons that are typical and unique to either of the giants,
Dr. Mandar kubal
Consultant infectious Diseases and HIV AIDS,
Infectious Dieseases and Pulmonary Care (IDPC)
Certainly, Indian companies or companies in the US are investing more on marketing. While companies in the US spend approximately 24 per cent on marketing, their R&D spend is just 13-14 per cent. Considering the fact that we do not get too much data on the spending on marketing in India. Lupin spends about 8.5 per cent in R&D. I believe spending on j this department is worth it. However, companies are willing to spend less on R&D as they believe that it is a cost centre expense account. There is a need to change the department into an investment centre account. An example will clearly illustrate the above fact. In a multi-storeyed building, if the base is not strong then it will not be able to withstand storms or any other form of natural calamity. Similarly, in a pharma company there has to be a substantial emphasis on research, for a long-term basis. This will be able to withstand any , strong call and thereby prevent the expected failures.
However, there might be certain forces that might compel a company to spend more on R&D. In this situation, it is worth mentioning that there are many Indian companies that are operating in the US market. Their marketing processes involve comparatively less investment. Additionally, regulatory body like the US Food and Drug Administration (USFDA) supports quality by design. Therefore, if there is not effective research, US PDA will not accept application on generics product. Thus, a substantial emphasis is levied on the research aspect in order to highlight the regulations and thereby ensure the quality of the product.
Dr. Shirish kulkarni
Vice president advanced drug delivery systems lupin ltd
First, pharma firms are multinationals and diversified; their annual reports provide no information on how much they spend on pharma marketing, as compared to the marketing of their non-pharma products, and they do not provide information about how much is spent on marketing specifically. Second, annual reports merge the categories of 'marketing' and 'administration' without delineating the relative importance of each. Finally, 'marketing' is a category that includes more than just promotion; it also includes the costs of packaging and distribution. Annual reports are thus far from satisfactory.
Thus, it appears that pharma companies spend almost twice as much on promotion as they do on R&D. These numbers clearly show how promotion predominates over R&D in the pharma industry, contrary to the industry's claim. Efficient research is one thing, but it takes a lot of profits from the few approved drugs that make it to market to pay for all the basic research and failed development candidates that lie beneath the surface and out views of most people.
It is difficult to make a case that a pharma company is R&D driven when a quick look at the income statement reveals that more money is spent on marketing and advertising than it is on R&D. It is an arms race and one can think that it has been shown that there are positive returns on marketing and advertising spend - or else it would not happen. However, bottom line profits could actually increase if one provides more money for R&D and also allows companies to focus more time and energy on portfolio management of drug pipelines.
Clinical research associate, international clinical research
The situation varies from place to place. As far as spend of pharma companies on marketing and R&D are concerned, the situation in India is different from that of the US. Despite several efforts by the government to emphasize 1 on the significance of R&D, companies still seem to not have understood the worth of this department. The general psychology of the average investor is that they lay more ' stress on the commercial benefits of the product and thus they spend more on marketing.
Piramal Life Sciences Ltd and Sun Pharma Advanced Research Company (SPARC) are the research oriented endeavours of two pharma companies. However, unfortunately, it has been seen that the advanced research centres did not really create too much value. Investors are yet to comprehend the value of the R&D investment. Everyone is interested in the tax benefits derived from the products and focus on the marketing side of the industry. However, it can be hoped that with the passing time a change is bound to occur. Today, it is seen that the value derived from generics is limited. Thus, in this arena, innovation is sure to happen since innovation is a natural phenomenon in the US and Europe.
With globalization there will definitely be trend setters who will change the dynamics of the entire pharma scenario. One will not be able to ascertain by when there will be a change, but surely a definite change is to come.
Founder and managing director
Ilycap ventures advisors pvt ltd
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