This is brutal, but USA Today reports that equity analyst David Peterson from Bank of America Securities has a report out suggesting not that pharma spends more on marketing and gets more in profits than it spends on R&D, but that in recent years it’s spend more paying out dividends and on stock buy-backs than it’s spent on R&D. I’m not entirely sure these numbers are right. They seem to be comparing the entire health care sector’s R&D spend (at around 8%) with its use of dividends and buy-backs, whereas the sector’s R&D spend is heavily concentrated in big pharma (commonly 12-13% in R&D). But in any event it’s not great publicity for the industry, and Merck and Pfizer–the two biggest American companies–both had much more spending on dividends and buy-backs than on research:

Pfizer, the world’s largest drugmaker, spent $22.2 billion on stock buybacks and dividends, or 210% of what was spent on research. Merck returned $7.3 billion, or 143% of research spending. Merck spokeswoman Anita Larsen would not comment on the Bank of America report, but she said the company’s R&D budget grew 19% in 2003 to nearly $3.2 billion. Pfizer did not respond to a request for comment.

Some years back when I did a lot of business with a large pharma, the strategists there use to joke about the “bank in New York” that owned them, and how it restricted what they could do. My sense was that the people there wanted to do the right thing, in terms of spending money on improving their products and improving health care delivery. But it seems that they weren’t joking too much about the influence of the “banking” side of their business. And the resulting PR fallout continues to make pharma’s life harder.

UPDATE: Dave Schuler from The Glittering Eye tells me that:

I reported this six months ago It’s obvious to anyone who can read an annual report. But even more interesting is the behavior over time. Year-to-year increases in R&D spending vary with the rate of inflation NOT with profits. The conclusion that leaps to mind on this behavior is that Big Pharma sees their core business something other than developing new drugs.

Given that pharma spends two and half times on sales, marketing and GA what they do on R&D, and that the model successful company over the last decade has been Pfizer which did it by hiring the biggest and best sales force, I agree.