The Pharmaceutical Industry: Specifi city, Challenges, and What You Can Learn from this Topic - Innovation and Marketing in the Pharmaceutical Industry - page 7

before seeing a physician. A fi rm must take into consideration the delicate relation-
ship between the two parties (i.e., patient and gatekeeper) when formulating and
executing its marketing strategies. Social networks have also enabled information
exchange and learning among physicians (e.g., Sermo) and patients (e.g.,
PatientsLikeMe) in a way that was not possible in the past. Firms have to closely
monitor and understand the impact of such physician and patient social networks
in medical decision making.
To complicate matters further, the majority of the drugs are paid for by a third
party, which exerts tremendous infl uence on fi rms, physicians, and patients. The
payers demand health economic analysis of a new drug from pharmaceutical fi rms
and determine, among other things, whether a drug will be included in a formulary
and whether it should be used as fi rst-line or as second-line therapy. The payers also
put substantial pressure on physicians, and on pharmacists in some cases, regarding
what kind of drugs they should prescribe, often steering them towards low cost and
older drugs. Sometimes the physicians need to get prior authorization for using a
particular drug, with appropriate justifi cation. In some cases, physicians and phar-
macies receive fi nancial incentives from payers for prescribing more generics and
preferred drugs. In addition, a third-party payer may induce patients to choose lower
cost drugs by imposing different levels of copayments for drugs, with only a small
fi xed payment (deductible) if a patient uses generics. On top of all these, the payers
also use their market power to demand drug discounts.
In the background of the dynamic relationship among the fi rms, patients, physi-
cians, and payers, lie the vigilant regulators. Regulation takes many forms in this
industry, including new drug approval, drug monitoring, manufacturing, promotion/
advertising practices to physicians, and direct-to-consumer advertising (DTCA).
In the more recent phenomenon of DTCA, fi rms can communicate their drugs to
patients, but all advertisements are subject to the oversight of the FDA and must
include a balanced presentation on both effi cacy and side-effects as in the corre-
sponding label approved by the US Food and Drug Administration (FDA). Outside
of the USA, DTCA is only allowed in New Zealand, and to some extent, in Canada.
Therefore, fi rms strongly rely on promotion to physicians to market their drugs.
The relationship between fi rms and physicians is also regulated, for example, in the
USA, a fi rm cannot mention off-label use to physicians, while a physician is free to
use the drug for whatever purpose he or she sees fi t. In other countries, the number
of detailing calls the fi rm can make to a doctor or the number of samples it distrib-
utes, may also be capped. Many other restrictions may apply. In almost all coun-
tries, governments play the role of both regulator and largest payer.
Drug price is also heavily regulated in various ways, such as ex-manufacturer
price regulation (i.e., direct capping of prices by the government), cross-country
reference pricing (i.e., restricting the price based on an international comparison
of the prices of the drug in reference countries), or therapeutic reference pricing
(i.e., restricting the price based on a comparison of drugs with similar therapeutic
potential). Several governments (e.g., the UK, as discussed in Verniers et al. ( 2011 ))
also restrict the total profi ts a pharmaceutical fi rm can make. Even in the USA, the