Marketing and Advertising of Prescription Drugs

1. Marketing and Advertising of Prescription Drugs An Economic Perspective • Richard Manning, PhD

2. Some Economic Concepts

3. Information is a good much like any other: the higher the price, the less people consume Price Demand for Information Quantity

4. 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 income • Difficulty of concepts • Perceived value/importance of information

5. 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

6. 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

7. 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

8. 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

9. 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

10. Potentially productive impacts of marketing activity • Improved access to health care and appropriate utilization • Reduced underutilization • Improved patient adherence

11. Under treatment is an important problem for US health care Prevalence (Millions) 24 M 48 M 20 M 79 M 62 M 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

12. People tend to discontinue therapies for important conditions 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.

13. Patients’ reasons for not taking medicines appropriately often involve issues related to information 70% 64% 60% 50% 40% 36% 35% 33% 30% 31% 28% 25% 20% 20% 20% 19% 10% The drugs prevented me from doing things I had no symptoms or the symptoms went away I had difficulty getting the prescription filled I forgot to take them Nobody reminded me to keep taking or refill it I didn’t think I needed to take them I had painful or frightening side effects The drugs tasted or smelled unpleasant I wanted to save money I didn’t believe the drugs were effective 33 percent were often or very often noncompliant for any reason.* 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.

14. Trends in pharmaceutical industry marketing

15. Annual growth rate of Rx drug expenditure in National Health Expenditures 1961-2010 Source: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html

16. Total industry promotional spending and growth +17% +4% +1% -3% -4% -1% -8% +16% Source: SDI/HPSA, IMS

17. Total industry promotional spending by type 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.

18. Industry Rx DTC spending Source: Nielsen Monitor Plus

19. U.S. pharmaceutical sales force trends 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

20. Evolving issues involving marketing

21. Fraud settlements and judgments, as reported by Civil Division of US DOJ Source:http://www.taf.org/FCA-stats-2010.pdf.

22. Nearly 60% of top 137 settlements involved health care entities Source:http://www.taf.org/statistics.htm.

23. 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.

24. 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?

25. BACK-UP SLIDES

26. FDA physician survey reported largely positive impact of advertising on interaction with patients Did the fact that this patient • 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 saw an advertisement... Have beneficial Have beneficial Cause Cause effects? effects? problems? problems? 41% 18% Caused Problems Had Benefits 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

27. Share of US National Health Expenditure Source: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html

28. Marketing expenditures, by type, for prescription drugs 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.

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

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

31. Excerpts from PhRMA Marketing Code Adopted July 1, 2002; Updated January 1, 2009 • 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