Spillovers and Other Externalities in Pharmaceutical Marketing - Innovation and Marketing in the Pharmaceutical Industry - page 665

yearly cost for the twice-a-day pills of Kalydeco is $294,000! By the same token,
however, when an approved drug goes off patent, the manufacturer encounters a
sharp decline in revenue. When faced with that eventuality (e.g., between 2012 and
2014, over 100 products in the US market are set to lose patent protection), drug
companies typically prepare diligently to counter the revenue loss, and undertake
defensive strategies: e.g., they plan on marketing the OTC versions of the drug,
form alliances, or acquire other firms to consolidate their NME portfolios, enter
new markets, or reevaluate the R&D expenditures. 3
The second unique feature is that in countries like the USA, UK, and Japan,
consumers can obtain an ethical drug only when equipped with a script from a person
licensed to prescribe that medicine (e.g., a physician, nurse practitioner, etc.). While
the prescriber has professional responsibility, s/he is nevertheless cognizant of other
considerations—such as the patient's insurance coverage and the associated formu-
lary, and counter-detailing efforts from HMOs, Medicaid, or other pharmacy benefit
managers (PBMs). In other words, the prescriber can be viewed as an agent (for the
consumer) who may have incentives that are divergent from those of the consumer.
In support of such a view are these results.
A survey by the Government Accountability Office (GAO) found that only
2-7 % of consumers, who saw DTCA, requested and ultimately received a prescrip-
tion for the advertised drug (see US GAO 2006 ). Similarly, a 2006 survey of
physicians by the Kaiser Family Foundation shows the following: When asked by a
patient about a specific treatment, 50 % of the surveyed physicians said they
frequently recommended lifestyle or behavioral changes, 14 % frequently recom-
mended no treatment, 18 % recommended OTC drug, another 14 % recommended
a different ethical drug, while about 5 % gave a prescription for the requested drug.
This is consistent with a 2004 survey conducted by the FDA which revealed that a
majority of physicians do not feel pressured to prescribe the requested medication
(see also Kravitz et al. 2005 ).
In any case, there is agreement in the industry (established by surveying
physicians) that when patients are more aware of the disease and treatment options,
the health outcomes are improved; in other words, the impact of both under-diagnosis
and under-treatment is attenuated via patient involvement and education (see
PhRMA 2008 ). Academic research that accounts for this involvement exists, but is
relatively rare; Ding and Eliashberg ( 2008 ), for instance, construct a joint utility
3 Historically, as noted in CBO (2006), the pharmaceutical industry has been at the forefront in
terms of the percentage of sales revenues that is devoted to R&D. While the investment continues
to be significant (PhRMA reports that in 2010, the pharmaceutical industry invested US$67.10
billion toward research and development), recent news reports are suggesting that the trend in
R&D spending may be changing (see Reuters, June 27, 2011 ). The 2010 spending level, for
instance, is 3 % less than that in 2008 and 2009, and reflects a growing disillusionment with poor
returns on pharmaceutical R&D. Reportedly, Pfizer has taken the most dramatic steps under its
new CEO, Ian Read, to slash about a quarter of its R&D budget over the next 2 years; other
companies have made smaller cuts.