• by John Gaffney , July 19, 2002

The gloves are off in the fight over legislation to restrict pharmaceutical advertising. At issue is a report released Wednesday by consumer advocate group Families USA that claimed leading drug companies were spending upwards of 40 percent on marketing and administration. A pharmaceutical trade group has now accused Families USA of misleading the public in the report by including administrative costs to show excessive spending by its members.

“Families USA is using WorldCom accounting,” said Richard Smith, president of policy ad research for the Pharmaceutical Research and Manufacturers of America. “The only way the group can get a number for promotion that is higher than pharmaceutical R&D spending is to disguise the operating costs of running a business in their figures. Even Families USA has so-called "administrative costs" like electric bills, rent and trash collection.”

The Families USA report was released as the Senate is continuing debate on a bill that would limit the amount of money pharmaceutical companies could spend on advertising. The theory behind the bill is that if the drug companies spend less on ads, they will drop prices on widely used prescriptions. The American Association of Advertising Agencies is opposing the bill and has promised to challenge it in court, if it passes. The Families USA report isolates the top ten drug companies and compares R&D budgets to marketing, advertising and administration. For example, Prozac manufacturer Eli Lilly, according to Families USA, spends 19 percent of revenue on R&D and 30 percent on marketing and administration. Smith claims Families USA is misleading the public by including administration costs in the report, which are unrelated to marketing expenses. Families USA says its indicative of a focus on marketing, rather than R&D.

“If we’re using WorldCom accounting that is an insult to the members of Mr. Smith’s organization,” says Families USA’s executive director Ron Pollack. “We are taking our data from what his member companies give to the FTC. We’re using what they report and they report marketing and administration costs together.”

Not so, says Smith. He claims that last year, PhRMA member companies spent $30.3 billion on new drug research and development. He says the industry spent about $9 billion on promotion to consumers and doctors and about $10 billion on free drug samples. “When Families USA attacks our promotional spending, they are really attacking the $10 billion in free drug samples that we give away each year to doctors who often use these free medicines to help needy patients. That's not very family-friendly,” he said.

A survey of top drug companies earnings reports on Dow Jones supports Pollack’s claims. Pollack says he has nothing against the ad agencies or even the drug companies that are advertising their products on TV and in print. Regarding the widely reported claim that the enforced drug ad cuts will lower prices, he says that is not the main goal of his organization’s efforts.