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Pharmaceutical Marketing and Promotion

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Abstract

This article discusses the role of consumer-directed and physician-directed promotion in the pharmaceutical market, based on the classic conceptual framework of whether such promotion is 'persuasive' and/or 'informative.' Implications for public health and welfare partly depend on whether, and to what extent, advertising: (1) raises 'selective' or brand-specific demand versus 'primary' or industry-wide demand; (2) impacts drug costs; and (3) impacts competition. Empirical evidence from the literature bearing on these effects is surveyed. These studies show that pharmaceutical promotion has both informative and persuasive elements. Consumer advertising is more effective at enlarging the market, educating consumers, inducing physician contact, expanding drug treatment, and promoting adherence among existing users. Physician advertising is primarily persuasive in nature, effectively increasing selective brand demand. There is no strong evidence that drug promotion is anticompetitive and deters entry; it may even be mildly pro-competitive and increase branded substitutes as well as new products entering clinical development. There is also no strong evidence that either consumer- or provider-directed promotion substantially raises retail-level prices. Although all of these effects point to welfare improvements as a result of pharmaceutical promotion, there is also evidence that consumer advertisements may induce overuse and overtreatment in certain cases. Market expansion, overtreatment and shifting brands for nontherapeutic reasons further raise the concern of a suboptimal patient-drug match at least for some marginal patients. A comprehensive evaluation of the welfare effects of pharmaceutical promotion requires a balanced assessment of these benefits and costs.

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... of the effectiveness of industry payments on increasing prescribing (Dave, 2013(Dave, , 2014Kremer et al., 2008). Some inconsistency in the results may be explained by the fact that the effects of the direct-to-physician promotion may be different depending on which pharmaceutical drugs are being examined and other data related differences. 1 However, the primary empirical concern is variation in how well the studies account for the targeting bias, where high-prescribing physicians are more likely to be targeted for marketing interactions by drug producers. ...
... After removing physicians who moved during the timeframe of the study, as well as those providers who were in the dataset for only one year and those with missing control variables, we ended up with 663,922 US providers. However, since the central analysis relies on the within-physician variation, the main sample of analysis is restricted to physicians who had at least one industry interaction involving a patented opioid for years 2014.3% of Medicare physicians). This number is very similar to the estimate derived by Hadland et al. (2018) who find that about 7% of physicians who prescribed opioids under Medicare Part D had at least one non-research opioid-related payment in 2014. ...
... See, for example,Berndt et al. (1995);Dave and Saffer (2012);Iizuka and Jin (2007);Rizzo (1999). For a comprehensive review, seeDave (2013Dave ( , 2014 andKremer et al. (2008).2 The exceptions areCarey et al. (2020),Datta and Dave (2017), andMizik and Jacobson (2004) who use longitudinal data to look at the role of physician marketing on prescribing of various drugs. ...
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This paper examines the entry decisions of generic pharmaceutical manufacturers into markets opened by patent expiration. In particular, I examine the role of pre-expiration brand advertising to see if it deters generic entry. Other drug characteristics affect the number of entrants; the most important of these is pre-expiration brand revenue. Drugs that treat chronic conditions and drugs that are oral solids attract more entry. The previous literature has assumed advertising is exogenous to the entry decision when analyzing the role of advertising. The results under this hypothesis indicate that brands may affect generic entry very slightly by advertising before patent expiration, but two opposing effects render the result nearly insignificant. When instrumented, the coefficient on advertising is completely insignificant. I conclude that brand advertising is not a barrier to entry by generic firms into the US pharmaceutical market.
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Expenditures on prescription drugs are one of the fastest growing components of national health care spending, rising by almost three-fold between 1995 and 2007. Coinciding with this growth in prescription drug expenditures has been a rapid rise in direct-to-consumer advertising (DTCA), made feasible by the Food and Drug Administration’s (FDA) clarification and relaxation of the rules governing broadcast advertising in 1997 and 1999. This study investigates the separate effects of broadcast and non-broadcast DTCA on price and demand, utilizing an extended time series of monthly records for all advertised and non-advertised drugs in four major therapeutic classes spanning 1994-2005, a period which enveloped the shifts in FDA guidelines and the large expansions in DTCA. Controlling for promotion aimed at physicians, results from fixed effects models suggest that broadcast DTCA positively impacts own-sales and price, with an estimated elasticity of 0.10 and 0.04 respectively. Relative to broadcast DTCA, non-broadcast DTCA has a smaller impact on sales (elasticity of 0.05) and price (elasticity of 0.02). Simulations suggest that the expansion in broadcast DTCA may be responsible for about 19 percent of the overall growth in prescription drug expenditures over the sample period, with over two-thirds of this impact being driven by an increase in demand as a result of the DTCA expansion and the remainder due to higher prices.
Article
In August 1997, the Food and Drug Administration (FDA) reinterpreted its advertisingregulations to ease limits on the use of broadcast media when advertisingprescription drugs directly to consumers.We estimate the effect of direct-to-consumeradvertising on demand, using 1995-2000 data from the market for the statin classof cholesterol-reducing drugs. We find no statistically significant effect from anyform of advertising and promotion on new statin prescriptions or renewals and noevidence of adverse market effects from advertising or the FDA policy change. Wedid find evidence, however, that television advertising increased the proportion ofcholesterol patients who had been successfully treated, which suggests that advertisingreinforces compliance with drug therapy.
Health information drives crucial consumer health decisions and plays a central role in healthcare markets. Consumers who are better-informed about smoking, diet, and physical activity make healthier choices outside the healthcare sector (Kenkel, 1991; Ippolito & Mathios, 1990, 1995; Meara, 2001). Better-informed consumers also interact differently with physicians and other healthcare providers (e.g., Cutler, Landrum, & Stewart, 2006). In addition to the immediate consequences for individual consumers, health economists have long recognized that information also has broader implications for principal–agent relationships and the functioning of healthcare markets.¹ More recent lines of research in health economics and medical sociology emphasize the potential role of consumer information in explaining health disparities associated with socioeconomic status (Deaton, 2002; Goldman & Lakdawalla, 2001; Glied & Lleras-Muney, 2003; Link & Phelan, 1995). Both health economists and medical sociologists stress that because of disparities in consumer information, rapid medical progress tends to be accompanied by increased disparities in medical treatment and health outcomes.
Article
This paper tries to show how the major features of the behavior of advertising can be explained by advertising's information function. For search qualities advertising provides direct information about the characteristics of a brand. For experience qualities the most important information conveyed by advertising is simply that the brand advertises. This contrast in advertising by these qualities leads to significant differences in its behavior. How does advertising provide information to the consumer? The producer in his advertising is not interested directly in providing information for consumers. He is interested in selling more of his product. Subject to a few constraints, the advertising message says anything the seller of a brand wishes. A mechanism is required to make the selling job of advertising generate information to the consumer. [Авторский текст]
Article
The identification of sellers and the discovery of their prices is given as an example of the role of the search for information in economic life.
Article
This paper uses data on the majority of name-brand antihypertensive drugs marketed in the United States during 1988-93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry. This is the first study to directly estimate the effects of drug product promotion on the price elasticity of demand in this industry. We find strong evidence of an advertising effect. In particular, detailing efforts (the salient means for product promotion in this industry) systematically lower price sensitivity. Given the inverse relationship between elasticity of demand and price, it is likely that consumers pay higher prices as a result of the advertising that occurs in this industry. Our findings are thus consistent with Hurwitz and Caves, who find evidence that advertising inhibits entry into this market but in contrast to earlier research that found no anticompetitive effect. Copyright 1999 by the University of Chicago.
Article
This paper analyses one market characterized by very large promotional expenditures - the market for prescription drugs. This market is especially appropriate for detailed analysis since the polar positions on the desirability of advertising are well represented in policy discussions of the prescription drug market. The continual introduction of new, potentially life-saving products makes the potential gains from the rapid dissemination of product information via advertising substantial. Nonetheless, government investigations of the pharmaceutical industry stress that intensive advertising of drugs results in excessive use of high-priced heavily promoted brand-name products even though equivalent low-priced products are available. Those viewing pharmaceutical advertising with disfavor insist that these ads are frequently uninformative and seem simply to harp the products' names in order to persuade doctors to select products out of habit rather than by evaluative choice. The advertising of medicines is closely monitored by government authorities. To understand constraints on pharmaceutical advertising, Section I of this paper briefly considers the history and the regulation of pharmaceutical advertising in the United States. Section II empirically examines drug advertising that focuses on the informative versus the 'habit formation' roles of product promotion. Hypotheses concerning the variance in advertising intensities across drug submarkets and among individual drug products are developed and tested for these two alternative advertising theories. Section III explores the welfare effects of pharmaceutical advertising. The empirical analysis concentrates on the relationships between product innovation, product entry, product price, and the promotional strategies of both established and new products. The empirical results indicate a dual role of pharmaceutical advertising: advertising appears to inform physicians about the existence and characteristics of new products while also producing 'brand-name recall' effects that favor established products facing new competition. Pharmaceutical advertising thus serves to speed the entry of superior new products while likely retarding the entry of later, low-priced close substitutes.
Article
Several econometric studies have concluded that technical progress embodied in equipment is a major source of manufacturing productivity growth. Other research has suggested that, over the long run, growth in the US economy's 'health output' has been at least as large as the growth in non-health goods and services. One important input in the production of health-pharmaceuticals-is even more R&D-intensive than equipment. In this paper, we test the pharmaceutical-embodied technical progress hypothesis-the hypothesis that newer drugs increase the length and quality of life-and estimate the rate of progress. To do this, we estimate health production functions, in which the dependent variables are various indicators of post-treatment health status (such as survival, perceived health status, and presence of physical or cognitive limitations), and the regressors include drug vintage (the year in which the FDA first approved a drug's active ingredient(s)) and indicators of pre-treatment health status. We estimate these relationships using extremely disaggregated-prescription-level-cross-sectional data derived primarily from the 1997 Medical Expenditure Panel Survey. We find that people who used newer drugs had better post-treatment health than people using older drugs for the same condition, controlling for pre-treatment health, age, sex, race, marital status, education, income, and insurance coverage: they were more likely to survive, their perceived health status was higher, and they experienced fewer activity, social, and physical limitations. The estimated cost of the increase in vintage required to keep a person alive is lower than some estimates of the value of remaining alive for 1 month. One estimate of the cost of preventing an activity limitation is $1745, and the annual rate of technical progress with respect to activity limitations is 8.4%. People consuming newer drugs tend to experience greater increases (or smaller declines) in physical ability than people consuming older drugs. Most of the health measures indicate that the effect of drug vintage on health is higher for people with low initial health than it is for people with high initial health. Therefore in contrast to equipment-embodied technical progress, which tends to increase economic inequality, pharmaceutical-embodied technical progress has a tendency to reduce inequality as well as promote economic growth, broadly defined. Copyright © 2007 John Wiley & Sons, Ltd.
Article
We report on an exploratory examination of the extent of differences across fifteen countries and three therapeutic classes (antihypertensives, antidepressants and antiepileptics) in the rate at which medicines in general and new medicines in particular are promoted and then diffuse, as well as relative new|old drug prices. We find substantial heterogeneity across classes and countries in promotion and diffusion. In terms of diffusion, relative prices of old vs. new drugs, and intensity of detailing physicians, we find that somewhat surprisingly, the US is often “in the middle” relative to other countries, and is not an outlier. However, differences across classes are striking. Overall, new drug quantity elasticities with respect to own price are negative, ranging from about −0.75 to −1.1, while cross-price (new drug quantity with respect to old drug price) are positive but small. Total promotion effects on total utilization are generally positive, particularly antidepressants. Promotion of new drugs positively affects the new drug share, while promotion of old drugs negatively affects the new drug share. Promotion of old drugs is surprisingly substantial in some classes and countries. Copyright © 2007 John Wiley & Sons, Ltd.
Article
The Elixir Sulfanilamide disaster of 1937 was one of the most consequential mass poisonings of the 20th century. This tragedy occurred shortly after the introduction of sulfanilamide, the first sulfa antimicrobial drug, when diethylene glycol was used as the diluent in the formulation of a liquid preparation of sulfanilamide known as Elixir Sulfanilamide. One hundred five patients died from its therapeutic use. Under the existing drug regulations, premarketing toxicity testing was not required. In reaction to this calamity, the U.S. Congress passed the 1938 Federal Food, Drug and Cosmetic Act, which required proof of safety before the release of a new drug. The 1938 law changed the drug focus of the Food and Drug Administration from that of a policing agency primarily concerned with the confiscation of adulterated drugs to a regulatory agency increasingly involved with overseeing the evaluation of new drugs. The Elixir Sulfanilamide tragedy, its effect on drug regulations, and the history of other diethylene glycol and diluent mass poisonings are discussed.
Article
We sought to examine the impact of direct-to-consumer advertising (DTCA) and pharmaceutical promotion to physicians on the likelihood that (1) an individual diagnosed with depression received antidepressant medication and that (2) antidepressant medication was used for the appropriate duration. A quasiexperimental design was used to examine treatment patterns of 30,621 depressed individuals whose insurance claims were included in the MarketScan database from 1997 through 2000. The main explanatory variables were spending on DTCA, detailing to physicians, and free samples for 6 antidepressant medications. Individuals diagnosed with depression during periods when class-level antidepressant DTCA spending was highest (cumulative spending more than US 18.5 million dollars) had 32% higher relative odds of initiating medication therapy compared with those diagnosed during periods when DTCA spending was lowest (P < 0.0001). Free samples of medications dispensed to physicians had no effect on odds of initiating antidepressant use. Class-level DTCA spending on antidepressants had a small positive effect on the duration of antidepressant use, whereas DTCA spending for the specific medication taken by an individual had no effect on treatment duration. Detailing spending at the class or product level had no significant effect on duration of treatment with an antidepressant medication. Our results suggest that DTCA of antidepressants was associated with an increase in the number of people diagnosed with depression who initiated medication therapy. DTCA was associated with a small increase in the number of individuals treated with antidepressants who received the appropriate duration of therapy. Promotion to physicians was not associated with either the initiation of treatment with an antidepressant or with the duration of therapy.
Article
We study effects of direct-to-consumer advertising (DTCA) in the prescription drug market. There are two pharmaceutical firms providing horizontally differentiated (branded) drugs. Patients differ in their susceptibility to the drugs. If DTCA is allowed, this can be employed to induce (additional) patient visits. Physicians perfectly observe the patients' type (of illness), but rely on information to prescribe the correct drug. Drug information is conveyed by marketing (detailing), creating a captive and a selective segment of physicians. First, we show that detailing, DTCA and price (if not regulated) are complementary strategies for the firms. Thus, allowing DTCA induces more detailing and higher prices. Second, firms benefit from DTCA if detailing competition is not too fierce, which is true if investing in detailing is sufficiently costly. Otherwise, firms are better off with a ban on DTCA. Finally, DTCA tends to lower welfare if insurance is generous (low copayments) and/or price regulation is lenient. The desirability of DTCA also depends on whether or not the regulator is concerned with firms' profit.