Security quote of the week [LWN.net]

Security quote of the week

Posted Sep 16, 2021 12:48 UTC (Thu) by Wol (subscriber, #4433)
In reply to: Security quote of the week by Cyberax
Parent article: Security quote of the week

> > It's not an R&D investment from the companies seeking to make a return

> It is. Pharma companies have the largest R&D percentage among ALL industries: https://www.cbo.gov/publication/57126#_idTextAnchor003 - see figure 1. They have even edged out semiconductor manufacturing.

Have you ever heard of "Creative Accounting"?

Last I heard, the amount of R&D on the books was usually roughly ten times the *real* R&D spend.

I would take those figures with a LARGE scoop of salt.

Cheers,
Wol

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Security quote of the week

Posted Sep 16, 2021 13:07 UTC (Thu) by pizza (subscriber, #46) [Link] (3 responses)

> I would take those figures with a LARGE scoop of salt.

Large Pharma companies routinely spend 2-3x on marketing/advertising as they do on R&D:

https://www.nationalnursesunited.org/press/rn-report-phar...

(Granted, that article is five years old, but links to the underlying research and citations are provided therein)

Whether or not you trust 3rd parties to be objective, This report, using data taken directly from Large Pharma's 2019 public financial disclosures, shows marketing budgets of 10-250%(!) of R&D:

https://www.pharmacychecker.com/askpc/pharma-marketing-re...

(And that uses the pharma companies' definition of "R&D" which has been somewhat scandal-plagued over the years)

Security quote of the week

Posted Sep 16, 2021 13:13 UTC (Thu) by pizza (subscriber, #46) [Link]

> budgets of 10-250%(!) of R&D:

D'oh, that should be 110-250%

(in other words, they all claimed to spend more (sometimes considerably so) on marketing than they did on R&D)

Security quote of the week

Posted Sep 16, 2021 19:59 UTC (Thu) by Cyberax (✭ supporter ✭, #52523) [Link] (1 responses)

> Large Pharma companies routinely spend 2-3x on marketing/advertising as they do on R&D

Everybody is spending comparable amounts on marketing and sales, so this is not an argument at all. Your cereal manufacturer is likely spending more.

Want to lower that number down? Then you need to extend patent protection time. Right now a typical drug remains under patent protection for about 8 years after it's approved (patents are filed before the Phase 1 trials!). So companies have to aggressively promote drugs to have enough time to get profit.

Let's take an example from your list
> GlaxoSmithKline €21,891 €4,568 €11,402

GSK is spending 20% of its revenue on R&D. For comparison, Intel: $13.56B out of $77.9B (17%).

Profit margin for pharma companies is a more complicated story: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054843/

Security quote of the week

Posted Sep 16, 2021 20:38 UTC (Thu) by pizza (subscriber, #46) [Link]

> GSK is spending 20% of its revenue on R&D. For comparison, Intel: $13.56B out of $77.9B (17%).

...20% of revenue on R&D, and *over 50%* of revenue on marketing.

Meanwhile, Intel actually spent $19.7 billion, aka 25% of gross revenue, on R&D. They made about $20.9 billion in net profit, leaving $37.3 billion in non-R&D expenses. Of that, $24 billion was attributable to opearating costs (ie salaries and production costs of goods sold), leaving about $13.3B (18%) for everything else, notably including CapEx for future fab expansion.

(My source for this is Intel's 2020 financial report: https://www.intc.com/news-events/press-releases/detail/14... )

> Profit margin for pharma companies is a more complicated story: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054843/

I'm not sure what your point here is, but okay, let's take the summary of findings of that article:

"In this cross-sectional study that compared the profits of 35 large pharmaceutical companies with those of 357 large, nonpharmaceutical companies from 2000 to 2018, the median net income (earnings) expressed as a fraction of revenue was significantly greater for pharmaceutical companies compared with nonpharmaceutical companies (13.8% vs 7.7%)."

...So large pharma companies have a median profit margin 80% higher than non-pharma companies. That doesn't exactly support the assertion that R&D expenses are bleeding big pharma dry.

Security quote of the week

Posted Sep 18, 2021 2:24 UTC (Sat) by mbg (subscriber, #4940) [Link]

> creative accounting

Indeed, working out how much it 'costs' for pharma to develop a new drug is not at all easy. Even working out the year-to-year R&D costs is difficult, due to complex corporate structures, R&D tax incentives, financing, etc. A lot of what is called 'R&D' on balance sheets you and I might call marketing (case in point: clinical trials that exist simply to introduce doctors to the drug, *after* it has been approved).

The bigger issue is the massive failure rate of drug development candidates. Costs of successful drugs need to be amortized against all the ones that didn't make it through the pipeline.

Needless to say, industry sources come up with much larger 'costs' than independent sources. A summary here: https://www.cmaj.ca/content/180/3/279.short

As to alternatives to massive big pharma profits, two people who have given it serious thought are Jamie Love from Knowledge Ecology International, who favours prize pools, and the economist Dean Baker.

In fact, Dean has written a lot recently on the costs of and profits from COVID-19 vaccine development: https://www.cepr.net/financing-drug-development-what-the-...