The debate is likely to continue in 2016 over direct-to-consumer advertising of prescription drugs.
Critics have long pointed out that, since it requires a doctor to write a prescription, there is no reason that the TV airwaves should be filled with prescription drug ads. Any ads should be directed at doctors.
But pharmaceutical companies spend billions to advertise to consumers because they expect them to ask their doctor to prescribe the drug on their next visit. True, doctors don't always agree to do so, but enough obviously do to make the advertising campaigns cost-effective for drug makers.
Now, researchers at University of North Carolina (UNC) Charlotte suggest the drug companies that spend the most on advertising tend to spend the least on producing new drugs.
At the same time, they say their research shows the more pharmaceutical companies spend on research and development, the more success they have in producing innovative new treatments that improve public health.
“This article is the first using empirical data to demonstrate that aggressive marketing of pharmaceutical drugs and truly innovative new drug development are at odds,” said Arnold Surtman, Distinguished Professor of Business Ethics at UNC Charlotte. “The current patent regime can be manipulated by firms to increase sales and drive up costs for society without improving public health.”
Rising drug costs
Rising drug costs have alarmed healthcare providers and politicians. Instances where drug makers have sharply raised the prices of existing drugs have shocked patients and triggered Congressional hearings. Surtman says it all comes down to a shift in the way drug companies do business.
“The pharmaceutical industry benefits from equal patent protection for drugs regardless of their innovativeness,” he said. “Rather than researching and developing the novel, pioneering drugs needed by society, many firms employ an alternative business strategy in which revenues are generated by aggressively marketing weakly innovative drugs that do not significantly enhance public health.”
While the researchers were conducting their study, Surtman says drug companies have paid billions of dollars in penalties for illegal marketing. He cites a story showing overall pharmaceutical promotional, or marketing, expenditures increased from $11.4 billion in 1995 to $28.9 billion in 2005.
Innovative drug companies
But not all drug companies are buying up airtime and ad space. Jennifer Troyer, associate dean for research and a professor of economics at UNC Charlotte, said data shows that the companies that market the least have the best track record in producing pioneering drugs.
“For firms producing at least one pioneering drug over the (study) period, increasing permanent R&D spending by 1% results in an almost one pioneering drug approval per firm,” she said.
The research team offers a number of proposals to encourage drug companies to spend more on research and less on advertising. Among them is proposal to eliminate the tax deduction on all drug marketing expenditures.