With medical coverage emerging as a major domestic issue for this election cycle, the cost of drugs is likely to become a hot topic, especially given the array of pills many aging baby boomers must take. The industry line is best articulated by a GlaxoSmithKline campaign implying that high drug prices really fund R&D for future drugs ("Today's medicines finance tomorrow's miracles"). Activists counter that the pharmaceutical companies are actually marketing-focused, a view popularly reinforced by incrementalism and the highly-visible promotional campaigns for conditions that are primarily cosmetic, such as hair loss and erectile dysfunction. A new study in PLoS Medicine by Marc-André Gagnon, and Joel Lexchin (click the link, PLoS is free) suggests that the latter view is closer to reality: they find that companies spend in excess of $57 billion annually on marketing to doctors and consumers. This amounts to nearly twice as much being spent on promotion as on R&D (which receives ~$30 billion). While by no means the final say in the dispute, this paper and distortions of its findings (on both sides) may figure significantly in future debates.The easiest criticism of this paper, and one that may often be repeated, is that the authors did no primary research. The paper is essentially a synthesis of research performed by two independent firms: IMS (its data is widely cited by industry groups such as PhRMA), and CAM. The article contains a single table, and a quick glance at it will inform the reader that whenever two numbers were available, the authors always took the larger. The authors explain this well in the case of detailing, and I agree with their decision there. I also agree with the principle, though I am not convinced of the magnitude, of the "other" category. When it comes to the cost of free samples, however, I disagree with the choice to use the retail price in the assessment.
The authors' justification on this point is rather feeble, and comes across as almost petulant in tone:
It seems to me that there is no point to this assessment unless our ultimate intention is to compare money spent on promotions that could be spent on R&D to the actual money spent on research. Certainly that is the only comparison that actually speaks to the issues the authors raise in the introduction. Including money that could not be spent on research or anything else, because it is fictional money, is nonsense. If the aim is to define the actual costs of the promotion to the drug company then the wholesale price is more appropriate. If the authors have an objection to using the wholesale cost for one kind of handout and retail costs for another, then the correct response would have been to use the proper, intellectually honest number (wholesale cost) in their own analysis and argue that pharmaceutical companies ought to do likewise when reporting charitable contributions. Just because Eli Lilly misrepresents its costs doesn't mean you can, too.
However, there are other factors that make the CAM estimate questionable on this point, especially that any number of samples was reported as one. Most likely the actual cost of samples to the company lies somewhere between the CAM and IMS estimates; promotional costs therefore lie somewhere between $48 and $57 billion, or 160% to 190% of research expenditures.
Another key feature to note from the table is that direct-to-consumer advertising makes up a relatively small fraction of the total expenditure. This reflects a truth that anyone even tangentially related to the healthcare system has known for a long time: most of the actual marketing that pharmaceutical companies do is lobbying your doctor. Although they are pervasive, fundamentally uninformative, and frankly annoying, television and print advertisements for drugs constitute such a small percentage of the actual promotional costs that banning them again would not lead to a noticeable reduction in drug prices.
The findings of this paper should also be put in the context of a transformation underway in the pharmaceutical industry. The so-called "blockbuster" drugs that provided substantial profits over the past decade or so will soon lose (if they have not already lost) their patent protection, and some needed to be withdrawn due to failures of the clinical trial system. In order to adapt, many companies are shedding most or all of their R&D operations. The emerging model in the industry is to allow "small pharma"—tiny companies started by academics or entrepreneurs using venture capital—to do most of the legwork and then buy up or enter marketing partnerships with those companies once they have promising products that have passed phase I or II clinical trials. This model was promising and robust up to about two years ago, because plenty of capital was available. In the present economic climate the availability of capital is far less certain, however. In addition, the same issue that induced big pharma to shed R&D—poor ROI—will eventually act to inhibit the venture capital investments that small pharma requires.
Despite this increasing aura of uncertainty, the fact remains that many pharmaceutical companies appear to be undergoing a transition from being primarily research entities to being primarily production and marketing entities. In that light, the new estimate of the research-to-marketing ratio is hardly surprising, though it will doubtless be embarrassing to PhRMA and feed the rhetoric of populists such as John Edwards. Yet despite the vitriol that will surely be spewed, in reality there is little that can be done. As mentioned, the most visible marketing efforts of pharmaceutical companies constitute only a minor portion of actual promotional costs. While it would be wise and probably beneficial to public health to restrict these advertisements once again, it is unlikely that any reduction in medical costs or increases in R&D budgets would be achieved by such regulations.
Congress, if it desired, could take steps to reverse the current trend and strengthen FDA power to restrict off-label marketing of existing drugs, and of course a new President could make this an enforcement priority at FDA. However, enforcement of any such provision would be extremely difficult and subject to legal challenge on First Amendment grounds. Moreover, the FDA (and not coincidentally the USDA) are in need of a major overhaul and possible restructuring in order to achieve their existing missions; stapling on another major enforcement problem will not serve anyone. Regardless, off-label marketing does not constitute a majority of the promotional budget.
The First Amendment clearly protects on-label marketing, and at any rate promotions of proven drugs actually serve the public interest, up to a point, by making doctors aware of improved approaches for dealing with illness. The truth of this statement, however, is inversely related to the degree of incrementalism in drug discovery. "It's a bigger pill" is generally not a compelling rationale for new prescriptions or enormous marketing outlays. Nonetheless, the presence of a definite public interest in allowing marketing to doctors makes unclear what steps Congress should (or even can) take to regulate or diminish promotional spending.
The only tool readily available for public use against on-label marketing is shame. Either the companies themselves can be pressured to reduce their promotional budgets (unlikely), or activists can put pressure on professional societies and medical boards to implement ethical restrictions on what kinds of promotions their members can engage in (possible). Regulations against accepting expensive lunches and dinners or attending marketing "seminars" in exotic locales may be able to push back some spending. In this regard, the Gagnon and Lexchin study may prove a useful tool; the grandstanding of politicians most likely will not.
Fundamentally, however, this trend cannot be stopped, because marketing will always be a better—or at least more predictable—investment than research. Although this attitude is ultimately self-defeating, the safer course to higher profits in the near term is to aggressively market existing drugs and secure longer periods of exclusivity by lobbying for longer patent protection or incrementally improving medicines and delivery systems. The release of combination drugs such as Caduet reflects this sensibility. Most money spent on research never produces so much as a Phase I trial, and the discovery of a revolutionary medicine, though extremely profitable, is also extremely rare. For that reason, a conservative mind will always prefer promotion and production to research and development. This is the attitude that underlies the ongoing strategic shift in big Pharma's approach, as well as the findings, debatable though they may be, of Gagnon and Lexchin.
Gagnon MA, Lexchin J (2008) The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States. PLoS Med 5(1): e1 doi:10.1371/journal.pmed.0050001
The authors' justification on this point is rather feeble, and comes across as almost petulant in tone:
Using the wholesale value for samples, the CAM figure would be appropriate if we were arguing that the money spent on samples should go to another activity such as R&D. However, we have used the retail value of samples because this is consistent with companies' reporting of drugs they donate [19]. As these are both categories of products that are being distributed without a charge to the user, it is inconsistent for donations to be reported in terms of retail value and samples in terms of wholesale value.
It seems to me that there is no point to this assessment unless our ultimate intention is to compare money spent on promotions that could be spent on R&D to the actual money spent on research. Certainly that is the only comparison that actually speaks to the issues the authors raise in the introduction. Including money that could not be spent on research or anything else, because it is fictional money, is nonsense. If the aim is to define the actual costs of the promotion to the drug company then the wholesale price is more appropriate. If the authors have an objection to using the wholesale cost for one kind of handout and retail costs for another, then the correct response would have been to use the proper, intellectually honest number (wholesale cost) in their own analysis and argue that pharmaceutical companies ought to do likewise when reporting charitable contributions. Just because Eli Lilly misrepresents its costs doesn't mean you can, too.
However, there are other factors that make the CAM estimate questionable on this point, especially that any number of samples was reported as one. Most likely the actual cost of samples to the company lies somewhere between the CAM and IMS estimates; promotional costs therefore lie somewhere between $48 and $57 billion, or 160% to 190% of research expenditures.
Another key feature to note from the table is that direct-to-consumer advertising makes up a relatively small fraction of the total expenditure. This reflects a truth that anyone even tangentially related to the healthcare system has known for a long time: most of the actual marketing that pharmaceutical companies do is lobbying your doctor. Although they are pervasive, fundamentally uninformative, and frankly annoying, television and print advertisements for drugs constitute such a small percentage of the actual promotional costs that banning them again would not lead to a noticeable reduction in drug prices.
The findings of this paper should also be put in the context of a transformation underway in the pharmaceutical industry. The so-called "blockbuster" drugs that provided substantial profits over the past decade or so will soon lose (if they have not already lost) their patent protection, and some needed to be withdrawn due to failures of the clinical trial system. In order to adapt, many companies are shedding most or all of their R&D operations. The emerging model in the industry is to allow "small pharma"—tiny companies started by academics or entrepreneurs using venture capital—to do most of the legwork and then buy up or enter marketing partnerships with those companies once they have promising products that have passed phase I or II clinical trials. This model was promising and robust up to about two years ago, because plenty of capital was available. In the present economic climate the availability of capital is far less certain, however. In addition, the same issue that induced big pharma to shed R&D—poor ROI—will eventually act to inhibit the venture capital investments that small pharma requires.
Despite this increasing aura of uncertainty, the fact remains that many pharmaceutical companies appear to be undergoing a transition from being primarily research entities to being primarily production and marketing entities. In that light, the new estimate of the research-to-marketing ratio is hardly surprising, though it will doubtless be embarrassing to PhRMA and feed the rhetoric of populists such as John Edwards. Yet despite the vitriol that will surely be spewed, in reality there is little that can be done. As mentioned, the most visible marketing efforts of pharmaceutical companies constitute only a minor portion of actual promotional costs. While it would be wise and probably beneficial to public health to restrict these advertisements once again, it is unlikely that any reduction in medical costs or increases in R&D budgets would be achieved by such regulations.
Congress, if it desired, could take steps to reverse the current trend and strengthen FDA power to restrict off-label marketing of existing drugs, and of course a new President could make this an enforcement priority at FDA. However, enforcement of any such provision would be extremely difficult and subject to legal challenge on First Amendment grounds. Moreover, the FDA (and not coincidentally the USDA) are in need of a major overhaul and possible restructuring in order to achieve their existing missions; stapling on another major enforcement problem will not serve anyone. Regardless, off-label marketing does not constitute a majority of the promotional budget.
The First Amendment clearly protects on-label marketing, and at any rate promotions of proven drugs actually serve the public interest, up to a point, by making doctors aware of improved approaches for dealing with illness. The truth of this statement, however, is inversely related to the degree of incrementalism in drug discovery. "It's a bigger pill" is generally not a compelling rationale for new prescriptions or enormous marketing outlays. Nonetheless, the presence of a definite public interest in allowing marketing to doctors makes unclear what steps Congress should (or even can) take to regulate or diminish promotional spending.
The only tool readily available for public use against on-label marketing is shame. Either the companies themselves can be pressured to reduce their promotional budgets (unlikely), or activists can put pressure on professional societies and medical boards to implement ethical restrictions on what kinds of promotions their members can engage in (possible). Regulations against accepting expensive lunches and dinners or attending marketing "seminars" in exotic locales may be able to push back some spending. In this regard, the Gagnon and Lexchin study may prove a useful tool; the grandstanding of politicians most likely will not.
Fundamentally, however, this trend cannot be stopped, because marketing will always be a better—or at least more predictable—investment than research. Although this attitude is ultimately self-defeating, the safer course to higher profits in the near term is to aggressively market existing drugs and secure longer periods of exclusivity by lobbying for longer patent protection or incrementally improving medicines and delivery systems. The release of combination drugs such as Caduet reflects this sensibility. Most money spent on research never produces so much as a Phase I trial, and the discovery of a revolutionary medicine, though extremely profitable, is also extremely rare. For that reason, a conservative mind will always prefer promotion and production to research and development. This is the attitude that underlies the ongoing strategic shift in big Pharma's approach, as well as the findings, debatable though they may be, of Gagnon and Lexchin.
Gagnon MA, Lexchin J (2008) The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States. PLoS Med 5(1): e1 doi:10.1371/journal.pmed.0050001
4 comments:
Very interesting post. I know I read somewhere recently that some hospitals (possibly the harvard system?) were putting major restrictions on drug rep visits. And I know there are contingents of doctors who don't allow reps into their practices. We'll see how far it goes.
In bonus news, the government is apparently going to start cracking down on "Doctors" in pharmaceutical commercials. http://www.nj.com/news/index.ssf/2008/01/congress_plans_to_probe_celebr.html"
Double bonus: Congressman behind it is named Dingell.
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