Someone had just posted a really useful post that was deleted about 15 minutes later. Here is the post copy/pasted in its entirety:
EDIT: Wall of Text warning.
>The average is almost 20% of revenue.
This isn't exactly true. In fact the pharma industry lies so prodigously about it's own costs that it's almost impossible to know what they actually are spending on R&D. We can trace back the source of these numbers to various PhRMA reports like this one:
http://www.phrma.org/sites/default/files/pdf/2015_phrma_prof....
Which gives us this:
PERCENTAGE OF SALES THAT WENT TO R&D IN 2013
Domestic R&D as a percentage of domestic sales = 23.4%
Total R&D as a percentage of total sales = 17.9%
which basically supports your point. Their methodology though is quite interesting.
>In 1991, Joseph DiMasi and colleagues from the Tufts Center for the Study of Drug Development published a widely quoted, comprehensive study of drug development costs. Using project data from confidential surveys, the study estimated cash outlays of around $169M to successfully bring a drug to market during a period beginning in the 1970s. PhRMA relies on this research as the foundation for their statements about the cost of drug development. However, PhRMA uses different assumptions about a "hidden" expense called "opportunity cost" that boosts this estimate to the $500 million mark.
>PhRMA's assumptions begin with DiMasi's original estimate of R&D outlays with opportunity cost set at 9% and a 12-year development period. A review of the Tufts study performed by the US Office of Technology Assessment (OTA) subsequently calculated opportunity cost at a higher rate, which pushed the estimate towards $360 million. According to Public Citizen, this figure, when adjusted for inflation and rounded up, became PhRMA's $500 million.
>But Public Citizen says the OTA report also offers an alternative analysis of development costs. R&D expenses are tax deductible, but DiMasi's 1991 figures didn't consider the discount this offers. If the original Tufts estimate is reduced by 34% in tax savings and opportunity cost is subtracted, Public Citizen says the actual cash outlay for bringing a new drug to market during the seventies and eighties was actually closer to $65 million.
http://www.thebody.com/content/art13514.html
Furthermore:
>Notably, as in the Center's previous estimates, nearly half the cost of drug development was accounted for not by research expenditures but by the cost of capital. The analysts justified that assumption by noting that during the years a company spends developing a new product, it incurs opportunity costs by not using those dollars for other purposes. That argument is plausible, and such calculations can be an appropriate component of such analyses. However, nearly half the total cost of developing a new drug ($1.2 billion) was ascribed to this cost of capital, with only $1.4 billion attributed to funds actually spent on research. These capital costs were assessed at 10.6% per year, compounded — despite the fact that bonds issued by drug companies often pay only 1 to 5%.
>The Tufts calculations also explicitly do not take into account the large public subsidies provided to pharmaceutical companies in the form of research-and-development tax credits or substantial payments received from the federal government for other research activities, such as testing their products in children. Perhaps most important, because the calculations are based only on products that the companies described as “self-originated,” the $2.6 billion figure does not consider drug-development costs borne by the public for the large number of medications that are based on external research that elucidated the disease mechanisms they address. One recent analysis showed that more than half of the most transformative drugs developed in recent decades had their origins in publicly funded research at nonprofit, university-affiliated centers.4
http://www.nejm.org/doi/full/10.1056/NEJMp1500848#t=article
Now this is obviously just absurd. These R&D numbers are totally meaningless! They've been biased at literally every step of the process to be shown as larger than they really are.