NEW REPORT LINKS HIGH PRESCRIPTION DRUG PRICES TO MARKETING COSTS, PROFITS, AND ENORMOUS EXECUTIVE COMPENSATION

http://www.familiesusa.org/media/press/2001/drugceos.htm

FOR RELEASE:
July 10, 2001
CONTACT:

JENNIFER LAUDANO
(202) 628-3030
jlaudano@familiesusa.org

Off the Charts: Pay, Profits and Spending in Drug Companies. This study refutes industry claims that high drug prices are necessary to sustain research and development efforts.

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NEW REPORT LINKS HIGH PRESCRIPTION DRUG PRICES TO MARKETING COSTS, PROFITS, AND ENORMOUS EXECUTIVE COMPENSATION

Report Refutes Drug Industry Claims That High Drug Prices Are Necessary for Research and Development

Washington, D.C. - A new report by the consumer health organization Families USA refutes the pharmaceutical industry's claim that high and increasing drug prices are needed to sustain research and development. The report documents that drug companies are spending more than twice as much on marketing, advertising, and administration than they do on research and development; that drug company profits, which are higher than all other industries, exceed research and development expenditures; and that drug companies provide lavish compensation packages for their top executives.

The report comes on the heels of a recent Families USA analysis that found prices rose more than twice the rate of inflation last year for the 50 most-prescribed drugs to seniors.

Among the nine pharmaceutical companies examined in the report - Merck, Pfizer, Bristol-Myers Squibb, Pharmacia, Abbott Laboratories, American Home Products, Eli Lilly, Schering-Plough, and Allergan - all but one (Eli Lilly) spent more than twice as much on marketing, advertising, and administration than they did on research and development, and Lilly spent more than one and one-half times as much. Six out of the nine companies made more money in net profits than they spent on research and development last year. [See chart 1, attached.]

The report also documents profligate spending on compensation packages for top pharmaceutical executives. The executive with the highest compensation package in the year 2000, exclusive of unexercised stock options, was William C. Steere, Jr., Pfizer's Chairman, who made $40.2 million. The executive with the highest amount of unexercised stock options was C.A. Heimbold, Jr., Bristol-Myers Squibb's Chairman and CEO, who held $227.9 million in unexercised stock options. [See charts 2 and 3.]

"Pharmaceutical companies charging skyrocketing drug prices like to sugar coat the pain by saying those prices are needed for research and development," said Ron Pollack, Families USA's executive director. "The truth is high prices are much more associated with record-breaking profits and enormous compensation for top drug company executives."

Pollack added, "Drug companies' commitments to research and development are dwarfed by those companies' expenditures for marketing, advertising, and administration."

In 2000, the pharmaceutical industry was, once again, the most profitable U.S. industry, and profit margins in the industry were nearly four times the average of Fortune 500 companies. According to the Families USA report, three companies - Merck, Bristol-Myers Squibb, and Abbott Laboratories - received twice as much in net profits than they spent on research and development. Three other companies - Eli Lilly, Schering-Plough, and Allergan - received more money in net profits than they spent on research and development.

"The pharmaceutical industry's repetitious cry that research and development would be curtailed if drug prices are moderated is extraordinarily misleading," said Pollack. "If meaningful steps are taken to ameliorate fast-growing drug prices, it is corporate profits, expenditures on marketing, and high executive compensation that are more likely to be affected, not research and development."

The Families USA report is based exclusively on the annual reports submitted by the pharmaceutical companies to the Securities and Exchange Commission (SEC). Since Families USA periodically reports about price changes for the 50 drugs most frequently prescribed for seniors, the report focused on the SEC filings for fiscal year 2000 of the nine pharmaceutical companies that market, or are the parent corporations of the companies that market, these 50 drugs. Mylan Laboratories, a much smaller company than the nine companies analyzed, could not be examined since it had not filed its annual proxy statement with the SEC at the time the report went to press.

The report is available on the Families USA website, www.familiesusa.org.

Families USA is the national organization for health care consumers. It is a non-profit and non-partisan advocate for affordable and high-quality health and long-term care for all Americans.

OFF THE CHARTS: PAY, PROFITS AND SPENDING IN DRUG COMPANIES

2000 Financials for U.S. Corporations Marketing Top 50 Drugs for Seniors

Company	Revenue (Net Sales in millions of dollars)	Percent of Revenue Allocated to:
Company	Revenue (Net Sales in millions of dollars)	Profit: (Net Income)	Marketing/ Advertising/ Administration	R&D
Merck and Co., Inc	$40,363	17%	15%	6%
Pfizer Inc.	29,574	13%	39%	15%
Bristol-Myers Squibb Company	18,216	26%	30%	11%
Pharmacia Corporation	18,144	4%	37%	15%
Abbott Laboratories	13,746	20%	21%	10%
American Home Products Corporation	13,263	-18%	38%	13%
Eli Lilly and Co.	10,862	28%	30%	19%
Schering-Plough Corporation	9,815	25%	36%	14%
Allergan, Inc.	1,563	14%	42%	13%

The Five Highest Paid Drug Company Executives

2000 Annual Compensation Exclusive of Unexercised Stock Options

Chart 2

Executive	Company	Compensation
William C. Steere, Jr. Chairman	Pfizer Inc.	$40,191,845
John R. Stafford Chairman and CEO	American Home Products Corporation	$27,008,927
Edward M. Scolnick Executive VP	Merck and Co., Inc.	$26,454,600
Richard Jay Kogan Chairman and CEO	Schering-Plough Corporation	$21,444,020
David W. Anstice President, the Americas	Merck and Co., Inc.	$19,600,975

The Five Drug Company Executives with the Largest Unexercised Stock Options in 2000

Chart 3

Executive	Company	Compensation
C.A. Heimbold, Jr. Chairman and CEO	Bristol-Myers Squibb Company	$227,869,513
Raymond V. Gilmartin Chairman, Pres., and CEO	Merck and Co., Inc.	$181,252,976
William C. Steere, Jr. Chairman	Pfizer Inc.	$130,944,439
K.E. Weg Vice Chairman	Bristol-Myers Squibb Company	$84,282,547
John R. Stafford Chairman and CEO	American Home Products Corporation	$81,847,569

JENNIFER LAUDANO, Press Secretary
1334 G Street, NW n Washington, DC 20005 n 202-628-3030 n Fax 202-347-2417
E-Mail: info@familiesusa.org n Web site: www.familiesusa.org

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