Marketing and Advertising of Prescription Drugs

DRAFT—Preliminary work product

Marketing and Advertising of Prescription Drugs

An Economic PerspectiveMay 3, 2012

Richard Manning, PhD

DRAFT—Preliminary work product 2

Some Economic Concepts


Information is a good much like any other: the higher the price, the less people consume

Price

Quantity

Demand for Information


How much information do you consume?

• Do you know: Names of your great grandparents? Causes of death for grandparents? What does Medicare cover (Parts A, B, C and D)?

What are the implications of the Affordable Care Act for Medicare part D? Age you will qualify for Social Security/Medicare? The name of your U.S. House Representative?

His/her views on vouchers for education? What was on the agenda at your last City Council meeting?

• Because information is costly, people are “rationally” unaware of a wide range of information

• The level of “rational ignorance” varies Cost of information gathering and retention

Time cost/foregone incomeDifficulty of concepts

Perceived value/importance of information


Some pros and cons of marketing and advertising

• Marketing and advertising can lower the cost of information for consumers and reduce the level of “rational ignorance.” More and better information typically allows consumers to make

choices that enhance their well being• Marketing spending may lead to higher prices, but also may lead

to lower prices through increased competition Both theoretical and empirical literature are ambiguous on the

relationship between price and marketing What does seem clear is that marketing and advertising costs are not

simply “added” to prices that would be lower if marketing were prohibited

• Marketing typically leads to increased utilization of marketed goods Increased utilization can be either good for consumers or bad,

depending on a variety of factors


Because information is costly, potential conflicts of interest abound

• Auto mechanics recommend and provide auto repair service• Auto dealers describe the characteristics of a new – or used(!) car

and sell the car• Builders recommend construction materials, negotiate prices and

then decide on the materials to use• Dentists examine teeth and tell patients how many fillings/other

procedures they need• Physicians decide whether to treat a patient or to refer him/her to

someone else• Surgeons recommend whether to have surgery or to seek medical

alternatives• Pharmaceutical sales representative compensation may depend

on prescriptions written for the drugs he/she promotes• Real estate agents provide advice on prices and earn

commissions based on transacted prices


Can potential conflicts of interest be eliminated?

Eliminating all situations in which conflicts of interest might arise would be very costly

• No auto mechanics, no dentists, no attorneys, no sales people, etc.

Mechanisms exist to limit conflict of interest problems• Government regulation/anti-fraud measures

FDA and OIG oversight roles in prescription drug industry• Professional societies establish standards• Entities have a real incentive to self-police

Repeated interaction makes behaving badly today costly tomorrow – a good reputation has value

• Competitors provide alternative sources of information and/or service


Common perceptions

• Doctors are scientists who learn all they need to know about what is new and important from medical journals

• Doctors know what patients need and will tell them when they need it

• Patients understand what their doctors prescribe and take their medicine according to direction

• Companies spend too much on marketing and promotion• Marketing drives up the cost of medicines• Stimulation of demand for medicines is inappropriate and

encourages unnecessary spending


What about studies that show contact with sales professionals affects physician behavior?

Several of these studies suffer from severe limitations Absence of control groups Prior assumptions about negativity of impact Ignore potential information component of interaction between

physicians and representatives Don’t evaluate health impact on patients

Nirvana fallacy When the real world is compared to an imagined perfect

world, the real world always looks bad

Source: Paul Rubin, PhD, Pharmaceutical Marketing: Medical and Industry Biases, J of Pharmaceutical Finance, Econ & Policy 2004


Potentially productive impacts of marketing activity

• Improved access to health care and appropriate utilization Reduced underutilization

• Improved patient adherence


Under treatment is an important problem for US health care

Prevalence, Diagnosis, and TreatmentSelected Disease Categories

0%

20%

40%

60%

80%

100%

COPD

Depre

ssion

/ Anx

iety

Diabete

s - Typ

e II

Dyslip

idemia

Hyper

tensio

n

Alzheim

er's

Bipolar

Diso

rder

Glauco

maHIV

Macula

r Deg

en. -

Wet

Post-m

enop

. Oste

o

Schizo

phren

ia

Undiagnosed Diagnosed but Untreated Diagnosed and Rx-Treated

24 M 48 M 20 M 79 M 62 MPrevalence(Millions) 4 M 8 M 7 M 1 M 1 M 8 M 2 M

Source: Internal analysis, completed March 2006, based on the following references: Decision Resources, Datamonitor, Mattson-Jack, NHANES, Cogent, JAMA, DDC Consumer Prevalence Survey, Synovate HIV Therapy Monitor, Verispan, National Osteoporosis Risk Assessment, Centers for Disease Control and Prevention


People tend to discontinue therapies for important conditions Figure 2.

Source: Ellis JJ, Erickson SR, Steveson JG, et al. Suboptimal Statin Adherence and Discontinuation in Primary and Secondary Prevention Populations. Journal of General Internal Medicine. 2004; 19:638-645.


Source: The Wall Street Journal Online/ Harris Interactive Health Care Poll (Vol.4, Iss. 6). Prescription Drug Compliance a Significant Challenge for Many Patients, According to New National Survey. Mar. 29, 2005. *Includes those with any drugs prescribed in the last year. N=2508 adults.

33 percent were often or very often noncompliant for any reason.*

Patients’ reasons for not taking medicines appropriately often involve issues related to information

30%

40%

50%

60%

70%

20%

10%

I forgot to take them

64%

36% 35%28%

I had no symptoms

or the symptoms went away

I wanted to save money

I didn’t believe

the drugs were

effective

I didn’t think I

needed to take them

I had painful or

frightening side

effects

The drugs prevented me from doing things

Nobody reminded

me to keep taking

or refill it

33% 31%25%

20% 19%20%

I had difficulty

getting the prescription

filled

The drugs tasted or smelled

unpleasant


Trends in pharmaceutical industry marketing


Annual growth rate of Rx drug expenditure in National Health Expenditures 1961-2010

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

13.9%

18.4%

1.2%

Broadcast DTC begins, 1997

Source: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html


Total industry promotional spending and growth

2003 2004 2005 2006 2007 2008 2009 2010$25

$26

$27

$28

$29

$30

$31

$32

$33

$34

$28.3

$33.0

$31.9$31.5

$32.9

$31.6

$32.1

$29.6

Prom

otio

nal s

pend

ing

($ b

illio

ns)

Source: SDI/HPSA, IMS

+16%

+17%

-3%

-1%

+4%

-4%

+1%

-8%


Total industry promotional spending by type

2003 2004 2005 2006 2007 2008 2009 2010$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

13.5

15.5

14.413.5

14.814.0 14.1 13.8

8.3

9.6 9.4 9.4 9.6 9.9 10 9.7

3.64.5

4.95.7 5.4

4.4 4.4 4.1

2.42.8 2.7 2.6 2.8 3 3.2

1.7

0.4 0.4 0.4 0.4 0.4 0.4 0.3 0.3

Dollarized Samples Dollarized Physician Details DTCPMEA Journal

Prom

otio

nal s

pend

ing

($ b

illio

ns)

Source: SDI PSA/HPSA Dollarized Details IMS Retail Value of Samples. CSD Meetings, SDI Journal Corol/Nielsen DTC SDI ePromo SDI PSA/HPSA Detail Count. SDI PSA/HPSA Package Count.


Industry Rx DTC spending

2008 ($000)

2008Share

% Change(‘08 vs. ‘07)

2009($000)

2009Share

% Change(‘09 vs. ‘08)

2010($000)

2010Share

% Change(’10 vs. ’09)

Branded 4,172,433 94.4% -7% 4,218,529 95.0% +1% 3,886,521 94.8% -8%

Disease specific

196,747 4.5% -24% 174,540 3.9% -11% 147,923 3.6% -15%

Corporate image

51,382 1.2% -38% 45,988 1.0% -10% 64,518 1.6% +40%

Total 4,420,563 100% -9% 4,439,056 100% +0% 4,098,962 100% -8%

Source: Nielsen Monitor Plus

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

$894$1,254

$1,823

$2,506 $2,707$2,982

$3,637

$4,518$4,865

$5,661

$4,833$4,421 $4,439

$4,09951%

40%45%

38%

6% 7%

27% 24%

8%16%

-15%-9%

0%-8%

DTC Spending ($MM) YoY Spending Growth

DTC

spe

ndin

g ($

MM

)

YoY

spen

ding

gro

wth


U.S. pharmaceutical sales force trends

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

20,000

40,000

60,000

80,000

100,000

120,000

89,724+20%

99,418+11%

99,626+0%

105,176+6%

109,128+4%

109,596+0%

102,022-7% 97,609

-4%87,641-10%

80,607-8%

Num

ber o

f sal

es re

ps

The SDI data are as of the end of 2010 and may not reflect internal numbers. Total includes all reps other than management, contract and part time reps. Source: SDI 2010 Q4 Sales Force Structures and Strategies


Evolving issues involving marketing


Fraud settlements and judgments, as reported by Civil Division of US DOJ

198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Health and Human Services

Department of Defense

Other

Mill

ion

dolla

rs

Source: http://www.taf.org/FCA-stats-2010.pdf.


Nearly 60% of top 137 settlements involved health care entities

Non-health care en-tities41%

Pharmaceutical mfrs-brand19%

Pharmaceutical mfrs-generic

1%

Health care providers

17%

Medical device mfrs/whlslrs

8%

PBMs/pharmacies5%

Health insurers5%

Clinical labs3%

Health care consultants1%

Source: http://www.taf.org/statistics.htm.


Off Label Promotion:What distinguishes these two hypothetical cases?

Case 1• ACME Air Traffic Inc. (AAT) manufactures and sells devices that facilitate communications between commercial airliners

and their maintenance centers. • Beta Airlines (BA) mechanics have learned through their experience that if they do X with the device (an action not

included in the manufacturer’s specified uses) they will be able to track Y more effectively, identifying when parts need to be replaced in a more timely way, saving BA inventory costs, down time on planes and perhaps enhancing passenger safety.

• AAT looks into the BA mechanics claims and decides they are right. They instruct their sales team to start telling other customers about the modified use of the device.

• The new use of the device becomes widespread. ACME profits rise from additional sales, airplane maintenance around the world improves and accidents are reduced.

Case 2• InjectaTherapy Inc. (IT) manufactures and sells a medicine (Z) that has been approved for a rare lung function disorder. • Dr. Jones, a respiratory specialist, uses Z to treat several patients with this condition, that happens to frequently be co-

morbid with type II diabetes. Over time, Jones notices that some of his overweight patients that are using Z lose weight and see reduced blood sugar levels.

• Jones mentions this observation to Mike, a sales rep for IT. Not remembering his training about off label promotion, Mike tells Dr. Smith, also a respiratory specialist, and Dr. Johnson, an endocrinologist, about Dr. Jones’ experience with Z.

• Dr. Johnson is intrigued so she starts talking to some of her patients about this interesting new use of Z. Some patients want to try it so she prescribes it. She sees no adverse effects, but some of her patients experience dramatic weight loss and such improved blood sugar levels that they are no longer considered diabetic.

• Over time, Dr. Johnson tells her colleagues and the use of Z becomes widespread for the treatment of diabetes. Treated patients have better energy, and happier lives, and IT’s profits increase due to increased sales.


Questions for thought

• Evolving information environment How will companies, regulatory authorities and the courts deal with

information demand and supply through social media? Will broadcast DTC be relevant in 10 years?

• False Claims, Off-label promotion, etc. Why is the pharmaceutical industry disproportionately involved in such

cases? What is the appropriate role of demonstrating patient harm as part of

an off-label promotion or other related claim? Does it make sense that an insurer can require a covered patient to

fail on a medication for an off-label indication before covering a different medicine on-label?

How (if at all) to address potentially perverse incentives provided to disgruntled employees by Qui Tam litigation opportunities?

Do current trends endanger patient health?


BACK-UP SLIDES


FDA physician survey reported largely positive impact of advertising on interaction with patients

Source: FDA Talk Paper, FDA Releases Preliminary Results of Physician Survey on Direct-to-Consumer Rx Drug Advertisements, January 12, 2003.

note: sample n=500

When a patient asked about a drug, 88% of the time they had the condition that the drug treated

80% of physicians believed patients understood what condition the drug treats

The vast majority (91%) of physicians said patients did not attempt to influence their treatment in a way that would be harmful

Did the fact that this patient saw an advertisement...

Have beneficialeffects?

Cause problems?

41%

18%

Had Benefits Caused Problems

Have beneficialeffects?

Cause problems?


Share of US National Health Expenditure

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Total Hospital Expenditures Total Physician and Clinical ExpendituresTotal Prescription Drug Expenditures

Source: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html


Marketing expenditures, by type, for prescription drugs

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008$0

$2

$4

$6

$8

$10

$12

$14

Detailing Direct to Consumer Meetings and Events Journal Advertisements

Bill

ions

of 2

008

dolla

rs

Source: Congressional Budget Office based on data from SDI’s promotional audits.Note: Detailing refers to the practice in which pharmaceutical representatives make sales calls to physicians and other health care professionals to discuss the uses of a particular prescription drug and its benefits for patients.


DTC advertising expenditures for newly approved drugs as a share of all promotional expenditures for those drugs

1999 2000 2001 2002 2003 2004 2005 2006 2007 20080%

5%

10%

15%

20%

25%

30%

35%

40%

Source: Congressional Budget Office based on data from SDI’s promotional audits.Notes: For this analysis, drugs are considered newly approved during the first two years following approval by the Food and Drug Administration. DTC = direct to consumer


Number of retail prescriptions of brand-name drugs, by DTC advertising use and age of drug

2004 2005 2006 2007 20080

100

200

300

400

500

600

DTC, not newly approved No DTC, not newly approvedDTC, newly approved No DTC, newly approved

(Mill

ions

)

Source: Congressional Budget Office based on data from SDI’s promotional audits.Notes: For this analysis, drugs are considered newly approved during the first two years following approval by the Food and Drug Administration. DTC = direct to consumer


Excerpts from PhRMA Marketing Code

• In interacting with the medical community, we are committed to following the highest ethical standards as well as all legal requirements… This Code is to reinforce our intention that our interactions with healthcare professionals are professional exchanges designed to benefit patients and to enhance the practice of medicine. The Code is based on the principle that a healthcare professional’s care of patients should be based… solely on each patient’s medical needs and the healthcare professional’s medical knowledge and experience.

• Our relationships with healthcare professionals are intended to benefit patients and to enhance the practice of medicine. Interactions should be focused on informing healthcare professionals about products, providing scientific and educational information, and supporting medical research and education.

• No grants, scholarships, subsidies, support, consulting contracts, or educational or practice related items should be provided or offered to a healthcare professional in exchange for prescribing products or for a commitment to continue prescribing products. Nothing should be offered or provided in a manner or on conditions that would interfere with the independence of a healthcare professional’s prescribing practices.

Source: http://www.phrma.org/sites/default/files/108/phrma_marketing_code_2008.pdf

Adopted July 1, 2002; Updated January 1, 2009

Marketing and Advertising of Prescription Drugs

Documents

lower prices

better information

higher prices

cons of marketing

sales people

costly tomorrow

presentation title marketing

good reputation