“Big Bucks, Big Pharma”
Last week, I watched Big Bucks, Big Pharma, which is more or less what SiCKO would have been if Michael Moore had focused on pharmaceutical marketing, although BBBP’s criticisms are much more well-reasoned and well-researched. In fact, many of its facts are more or less right, although I question some of the business interpretations.
For example, one of the talking heads questions the pharma industry’s claims that R&D is what drives up the cost of medicine, rather than marketing, whose budget is often larger than that of R&D. He asks how that claim can be true if a drug company spends more on marketing than R&D each year.
What is missing from his position is an ROI analysis. Compare:
- A $1 million promotion that delivers $3 million this year with a 95% probability.
- A $1 billion drug development budget that delivers $5 billion spread out over the next fifteen to twenty years with a 30% probability.
Which is better? Well, it depends on the priorities of the company to raise cash now versus planning for the future. When measuring the near-term budget, the marketing option seems to cost almost nothing, because it pays back so quickly. On the other hand, if you only marketed drugs and didn’t develop anything in-house — well, you’d be Pfizer. Balancing the portfolio of projects across R&D and marketing is a major challenge for any company. Too little sales and marketing, and you can’t turn the lights on. Too little R&D, and you have to keep spending money buying other companies just to get their compounds.
