Prescription Pharmaceuticals• Rachel DiDominica

• Thomas Hawing

• Dylan Hull

The Pharmaceutical Industry

The prescription pharmaceutical industry is

primarily engaged in the development of

innovative prescription and over-the-counter

products that are used to prevent or treat

illnesses in humans or animals. Brand-name

drugs are products with patent protection. The

industry is significantly engaged in the

research and development of new drugs.

Industry Competitors

Johnson & Johnson

Bristol-Myers Squibb

Eli Lilly & Company

Pfizer Inc.

Merck & Co.

AstraZeneca PLC

GlaxoSmithKline PLC

Market Share

13.6

12.8

9.5

9.48.9

7.57.5

30.8

Major PlayersPfizer

Merck & Co

AsterZeneca PLC

GlaxoSmithKline PLC

Johnson & Johnson

Bristol-Myers Squibb

Eli Lilly & Co

Other

Barriers to Entry = HIGH

Knowledge: Patents

The Patent Protection and Affordable Care act of 2010

Companies have a 12-year patent period on their drugs

Proprietary knowledge is required to compete with other established companies

Drug Firms keep discovery process very secret

Production and Development of New Drugs As patents expire new drugs need to be made

Cant have a company with one drug

Research and Development Pharmaceutical manufacturers invest a higher percentage of sales in R&D than

companies in any other industry

Drug firms invest around 19-25% of total revenue in research and development

Those who do not invest in R&D often end up struggling to survive in the face of

stiff generic competition once their patent protection has expired

One in 5,000 new chemicals discovered actually goes to market

It takes around 10 to 15 years and $1.5 billion to develop a new product and just

two out of ten approved products recover the R&D costs necessary to research

them

HHI Index

699.28

HHI = 10,000 x Σwi2

HHI tells us whether an industry is acting in a monopolistic behavior or as if it were in a competitive market

An HHI of 699.28 indicates that the Prescription Pharmaceutical industry is acting as if they were in a completive market.

Four-Firm Concentration Ratio

CR4 = 45.3

C4 = w1+ w2+ w3+ w4

The CR4 Index measures the market power of the top 4 companies

This is under 50% Shows that the Prescription Pharmaceutical industry is a

competitive industry.

Government Regulation = HEAVY

In 1962 the Kefauver-Harris Amendments shifted all Federal Food, Drug and Cosmetic regulation and promotion from the Federal Trade Commision to the FDA.

Prescription Drug promotional materials cannot be false or misleading, must provide "fair balance" coverage of risks and benefits of using the drug, must provide a "brief summary" of side effects, and effectiveness and must also meet specific guidelines for readability and size of print.

The FDA interpreted this as everything must be in print form.

They must disclose where they spend all of their advertising dollars (Doctor Payments)

A Change in Government Regulation

In 1997 the FDA eliminated the requirement that ads present the entire "brief summary" taken from the product label.

The advertisements needed only to include: “major statements” of the risks and benefits of the drug Directions to information sources in addition to a physician such

as a toll-free phone number, a website or a print advertisement

This removed a major barrier that had made television and radio advertising infeasible and could only be done through print media

Television Ad. Occurrence

DOCUMEN

TARY/

SALU

TE/T

RIBUTE

ENTE

RTAIN

MEN

T MAGAZIN

E

GAME SH

OWGOLF

NEWS

DOCUMENTA

RY

NEWS

FORUM

/INTE

RVIEW

/VARIE

D FORMAT

NEWS

SPEC

IAL EV

ENT

COVERAGE

NEWSC

AST(C

ABLE/N

ETW

ORK ONLY

)

POLIC

E/SU

SPEN

SE/M

YSTE

RY

PUBLIC

AFF

AIRS

SITU

ATION C

OMEDY

SOAP

OPERA

SPORTS

CAST

UNCLASS

IFIE

D

VARIETY

- MUSI

CAL0

5000

10000

15000

20000

25000

30000

35000

Series1

Count of Ad

Company Background

Pfizer Founded in 1849

Lipitor, Viagra, Caduet, Chantix, Advil, Robitussin

2011 Revenue = $67.425 billion

2007 Ad Spending = $1.253 billion $456.6 million on TV $225.2 million on Magazines

• Heart Medication• $12.7 billion in sales• $220 million spent on advertising

Bristol-Myers Squibb

Founded in 1887 Abilify, Atripla

2009 Revenue = $18.8 billion

2007 Ad Spending = $796.3 million $201.4 million on TV $158.3 million on Magazines

Antidepressant

AstraZeneca

Merger between Astra (1913) and British ICI (1993) in 1999 Seroquel, Arimidex, Crestor

2011 Revenue = $33.59 billion

2007 Ad Spending = 697.4 million $55.6 million on TV $196.9 million on Magazines

Advertising Strategies

Total Market View

Direct-to-Consumer (DTC) Advertising

Direct-to-Consumer (DTC) Advertising

Targets general public via lay media

Expenditure has grown from $985 million in 1996 to $4,237 million in 2005

Real spending on DTC advertising increased by 330% from 1996 to 2005 (See Table) 14% of total

promotional expenditures in 2005

Role of DTC Advertising for Top-Selling Drugs

Drugs advertised to consumers: new drugs used to treat chronic conditions

Manufacturers of proton-pump inhibitors, statins, and erythropoietin medications Spent 34%, 34%, and 31% of

their total marketing budget respectively on DTC advertising in 2005

Spending for advertising of antidepressant agents, seizure-disorder medications, and antipsychotic agents was lower

Empirical Findings on DTC Advertising

Increases traffic to clinics

May help the sponsoring brand more than the competing brand

DTC advertising of competing firms could have synergistic effects on consumers

Demand for prescription drugs is sensitive to price

Television DTC Advertising

Average American television viewers see as many as 16 hours of prescription drug advertisements per year

Average ad length: 44.9 seconds Time above average Informative-

educates people about health conditions and available treatments

Television DTCA- FDA Regulations

Product Claim Ads Must include name and indication of the drug, major

statement of product risks, and must direct consumers to a detailed summary of product risks and benefits

Reminder Ads Shorter Can mention product name May not discuss indications, efficacy, or dosage

recommendations

How Ads Attempt to Appeal to Viewers

Rational appeals

Providing information about product use, features, or comparison with similar products

Positive emotional appeals

Evoking favorable affect

Negative emotional appeals

Evoking negative affect– fear, regret

Humor appeals

Using puns, jokes, or satire

Fantasy appeals

Depicting unrealistic or surreal scene

Sex appeals

Showing characters in an intimate encounter, scantily clad, or using provocative gestures

Nostalgic appeals

Using images from an earlier time, or black-and-white or sepia tone visuals

Study on Television DTCA

Programming Sample: 103 Ads 31 unique product claim ads focus of study 7 unique reminder ads

3 story structures: 44.7%: showed characters before and after taking the

product 39.5%: showed characters only after taking the product 7.9%: showed characters only before taking the product

Study on Television DTCA

Appeals Product claim ads

100% used rational appeals

95% used positive emotional appeals

68.9% used negative emotional appeals

Reminder ads Never use rational

appeals 100% used positive

emotional appeals

Conclusions of Study

Most product claim ads made some factual claims about target conditions and the disease mechanisms Ambiguous about whether viewers might legitimately

need the product Offered limited info about risk factors, prevalence of

condition, or subpopulations at greatest risk Provided info to viewers through rational arguments that

detail product use or potential risks and benefits of use

DTCA focuses on convincing people that they may be at risk for a wide array of health conditions that product might help with

Conclusions of Study

Themes about role of lifestyle in achieving and maintaining health One quarter of ads: target condition interferes with

healthy or recreational activities Never described behaviors as a reasonable alternative More than 56% of the ads showed the product enabling

healthy or recreational activities DTCA: suggests improvement comes from taking the

medication alone or in combination with healthy activities NEVER from behavior modification alone

DTCA Advertising Example

Abilify Anti Depression 2011 Commercial http://www.youtube.com/watch?v=jfPDrN-rHAg&feature=

related

Issues with DTCA

Television advertising Use of programs like

TiVo Commercial skipping Companies resort to

different strategies

Product Placement

Inclusion of brand into story line

2004: market for service increased by 30.5% to $3.46 billion

Use of Viagra in the film Love and Other Drugs http://www.youtube.co

m/watch?v=RNmi5ZNOtYs

Celebrity Spokespeople

Speak on behalf of particular diseases and mention specific brand treatments during interviews

Peggy Fleming on Good Morning America for Lipitor

Sampling

Sampling

Pharmaceutical representatives provide office-based physicians free drug samples

Accounts for 55% of advertising expenditures

Totaled $10.5 billion in 2001

Sampling

Samples also being made available through DTC advertising venues like TV, newspapers, and the Internet From 1996 to 2005

spending on DTCA and free samples has risen as a share of total promotion

Sampling: Psychological Effects

Belief and attitudinal confidence are found to be higher for physicians and patients exposed to product sampling alone than for those exposed only to product advertising Consumers automatically have a greater affinity to something

they have experienced as opposed to something that they haven’t

Have been shown to directly affect physician prescribing behavior More likely to prescribe brand name medications that they have

free samples of Provides immediate access to the medication and allows patients

to find out which brand and dosage amount works best for them

Advertisements in Medical Journals

Advertisements in Medical Journals

Value of professional journal advertisements

2% of spending

Specific ads targeting medical profession= cheaper and just as effective

Six of the top 10 drugs advertised through DTC were also among the top 10 drugs promoted to physicians through detailing and medical journals

Advertisements in Medical Journals

Companies are now paying journals to publish articles with content about their promoted drugs and to suppress unfavorable study results that would negatively impact their brand image

1989 study by the Association of Independent Medical Publications Journal advertising with effective sales theme increases a

product’s market share of new prescriptions in a predictable way

Concluded that doctors in study relied on promotional information rather than scientific material in forming opinions

Method Currently Under Scrutiny

Ability to impact a physician’s prescribing behavior for the wrong reasons Major deficiencies in advertisements

Study: Office of the Inspector Study: Study: General in the Department of Health and Human Services

Lacked necessary references and information on efficiency, appropriate populations, safety, and potential side effects

Reviewers rated 60% of the advertisements poor or unacceptable in terms of scientific references

17%: rejected for publication

24%: required major revisions

50%: little or no educational value

59%: would not lead to proper prescribing if the physician had no other information

FDA: Regulatory Response

Issue notice of violation and warning letters and requesting that manufacturers publish corrective advertisements or send letters to pharmacists and physicians correcting advertisements

Many medical journals do not review the content of the advertisements they publish

Detailing

Detailing

Sales activities of drug representatives directed toward physicians $4.8 billion: office-

based physicians $700 million: hospital

based physicians

$5.5 Billion spent in 2001

Detailing

81,000 pharmaceutical representatives in US Relationship selling

techniques Medical science and

product knowledge

Marketers identify group of physicians most likely to prescribe particular drug

Detailing is more effective in determining brand share

Detailing

Combined with other advertising methods May provide clinical

information paired with the presentation of approved journal articles and free drug samples

Interview with Susan DiDominica

Current pharmaceutical sales representative

“Human informative advertisement”

Sell yourself and the drug

Works Cited

http://oig.hhs.gov/oei/reports/oei-01-90-00482.pdf

http://www.nejm.org/doi/full/10.1056/NEJMsa070502#t=articleMethods

http://www.kff.org/rxdrugs/upload/Impact-of-Direct-to-Consumer-Advertising-on-Prescription-Drug-Spending-Summary-of-Findings.pdf

Analysis and Recommendations

Industry Outlook

Revenue continues decline through 2013 Slow growth after 2014 Increase in sales, decrease in profit

2012 2013 2014 2015 2016 2017 2018152,000.00

153,000.00

154,000.00

155,000.00

156,000.00

157,000.00

158,000.00

159,000.00

160,000.00

161,000.00

Industry Revenue Growth ($millions)

Patient Protection and Affordable Care Act

Extends health insurance to 32 million more Americans

2014: more Americans aged 26 to 64 will become covered by the act

PhRMA deal

Establishes approval pathway for generic biologic drugs

Biologic Drugs

Focus on investing in generic biologics production

Large brand-name companies gain a competitive advantage

Diversifies and mitigates risk

DTC Advertising

Rapid pace of growth in developing and launching second and third generation products

Focus on promoting the product

Increases in DTC advertising have contributed to overall increases in spending on the advertised drug

DTC Spending

DTC Spending

Social Media Advertising

More consumers willing to use social media to seek medical information

FDA Regulations pending

Pharma Ad Spending

Recommendations

Revenue is relatively steady.

Revenue is expected to drop in the next few years

Future of the industry is unclear

Questions?