WASHINGTON (Reuters) 11/30/01-- The drug industry, which spends more than any other industry on consumer advertising in the United States, is also the most profitable, researchers said on Thursday. The Kaiser Family Foundation, a nonprofit organization that does research into health and family issues, said Americans are buying more drugs than in the past and are spending more for them. "Compared to other industries, the pharmaceutical sector continues to earn the highest profit rates," the report reads.
"Profits as a percent of revenues for the pharmaceutical industry have been more than four times the median rate for all Fortune 500 firms in the late 1990s (18.6 percent of revenues compared to 4.5 percent for all Fortune 500 firms in 2000.)"The foundation's Larry Levitt, who helped direct the study, said Americans fill 3 billion prescriptions a year, or 11 per person on average.
"We now spend $117 billion a year on drugs," Levitt told a news conference. "We are taking more drugs," he added. Meanwhile, pharmaceutical companies are developing more and more prescription drugs. "As these new drugs come on the market, the average prices of drugs continues to go up," Levitt said. He said all 20 top-selling drugs are brand-name. "The result is the average price of a prescription is now $45 -- double what it was 10 years ago." This is triple the average generic price. "So efforts to encourage the use of generics have not helped a great deal and in fact may have failed in reducing costs," Levitt said.
Costs may be increasing due in part to the huge amount that companies spend advertising their drugs to potential patients and promoting them to doctors, Levitt said. "Since 1996 the amount spent on drug ads has more than tripled," he said. He said drug companies spent $15.7 billion promoting drugs in 2000, or 14 percent of revenues. That compared to 3.7 percent of sales revenues spent on promotion by department stores, 3.9 percent for tobacco products, 10.7 percent for soap and detergent, and 12 percent for games and toys.
"Drugs are among the more promotion-intensive products," Levitt said. "In terms of promotional intensity, drugs look most similar to toys and dolls." The report found that drug companies spend only 14 percent of revenues on research and development, although drug companies often argue that drugs are expensive because they cost so much to develop. "Profits also exceeded R and D (24 percent compared to 14 percent)," the report reads. But Americans, and their insurance companies, are buying and will probably continue to do so as the population ages.
"National spending for prescription drugs, projected to be $116.9 billion in 2000, has almost tripled since 1990," the report reads. "Although prescription drugs represent only 10 percent of personal health care spending, they are the fastest growing segment of health care spending, accounting for 20 percent of the estimated increase in such spending between 1999 and 2000," it says.
The Kaiser Family Foundation identified the top five most-advertised prescription drugs as Merck and Co.'s anti-inflammatory Vioxx; AstraZeneca's anti-ulcer drug Prilosec; Schering-Plough's antihistamine Claritin; GlaxoSmithKline's antidepressant Paxil; and Merck's anti-cholesterol drug Zocor.