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 Pfizer Inc. Johnson & Johnson Merck & Co. Bristol-Myers Squibb AstraZeneca PLC Eli Lilly & Company GlaxoSmithKline PLC Market Share Major Players Pfizer Merck & Co 13.6 30.8 7.5 AsterZeneca PLC 12.8 9.5 7.5 8.9 9.4 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 = w 1 + w 2 + w 3 + w 4 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 35000 30000 Count of Ad 25000 20000 15000 10000 5000 0 Series1 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, seizuredisorder 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 Positive emotional appeals Depicting unrealistic or surreal scene Sex appeals Using puns, jokes, or satire Fantasy appeals Evoking negative affect– fear, regret Humor appeals Evoking favorable affect Negative emotional appeals Providing information about product use, features, or comparison with similar products 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=jfPDrNrHAg&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=RNmi5ZNOt Ys 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: officebased physicians $700 million: hospital based physicians $5.5 Billion spent in 2001 Detailing 81,000 pharmaceutical representatives in US Relationship selling techniques Medical science and product knowledge Marketers identify group of physicians most likely to prescribe particular drug Detailing is more effective in determining brand share Detailing Combined with other advertising methods May provide clinical information paired with the presentation of approved journal articles and free drug samples Interview with Susan DiDominica Current pharmaceutical sales representative “Human informative advertisement” Sell yourself and the drug Works Cited http://oig.hhs.gov/oei/reports/oei-01-90-00482.pdf http://www.nejm.org/doi/full/10.1056/NEJMsa070502#t=a rticleMethods http://www.kff.org/rxdrugs/upload/Impact-of-Direct-toConsumer-Advertising-on-Prescription-Drug-SpendingSummary-of-Findings.pdf Analysis and Recommendations Industry Outlook Revenue continues decline through 2013 Slow growth after 2014 Increase in sales, decrease in profit Industry Revenue Growth ($millions) 161,000.00 160,000.00 159,000.00 158,000.00 157,000.00 156,000.00 155,000.00 154,000.00 153,000.00 152,000.00 2012 2013 2014 2015 2016 2017 2018 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?