Many people believe that Drug companies spend more money on advertising than on research and development, and that prices may be reduced without harming innovation. This is incorrect, as evidenced by our research. Over the course of 40 years, we separated the aggregative revenue of publicly traded US companies into seven groups. We discovered that Congressional Budget Office and other evaluations of industry economics have overlooked major Drug companies’ purchases of medications created by smaller, sometimes private, enterprises.
Many huge corporations often purchase patents or medications in development from smaller firms whose research and development information is not publicly available. Fortunately, public firms must declare an amortisation expense for these acquisitions under accounting regulations. When research and development and amortisation charges are included together, the amount spent on innovation as a percentage of sales income becomes more realistic.
Purchases of medications developed by other firms increased from 0.1 percent of sales in 1979 to 5.2 percent of sales in 2018. In 2018, publicly traded pharmaceutical companies in the United States spent 24% of their sales income on internal Drug development and acquiring medications developed by others. That was nearly the same as the raw materials and direct labour costs.