A new study from Oxford Economics found the pharmaceutical industry retains a considerably smaller share of total spending on its products than other research-intensive industries, despite investing a much larger share of its revenue in research and development (R&D) than those industries.
The study found that of the various high R&D manufacturing industries, the telephone industry retains 61% of total spending, the auto industry retains 68% and the computer industry retains 67%. Pharmaceutical manufacturers, by contrast, retain a much lower share of total spending at just 52%, with the remaining spending going to wholesalers, distributors and retail margins. This finding further validates a recent study by the Berkeley Research Group that found nearly half of total spending on brand medicines went to the supply chain and other entities in 2018.
The study also found that the amount the pharmaceutical industry spends on R&D as a share of total revenue is the second highest among all R&D intensive manufacturing industries that create products for consumers. As a result, not only is the pharmaceutical industry receiving a smaller share of total spending, but a larger amount of this spending is invested into R&D compared to other industries.
The pharmaceutical industry is also unique in that it also faces outsized risks. In 2018 alone, the biopharmaceutical industry invested $102 billion, despite the fact that it takes, on average, 10 to 15 years to develop one new medicine, and only 12% of new molecular entities that enter clinical trials eventually receive U.S. Food and Drug Administration (FDA) approval. These numbers provide important context around medicine costs and spending as compared to other industries.
Our industry is committed to research and development in the face of these challenges and will continue working to find treatments and cures for the diseases patients face. To learn more, visit phrma.org/cost.
Gabby Migliara is a manager of public affairs at PhRMA focusing on the cost and value of medicines. She previously worked with the U.S. Census Bureau on marketing and communications for the 2020 Census campaign. Outside the office, Gabby enjoys trying new restaurants, hanging with her cat and exploring DC neighborhoods.