Spillovers and Other Externalities in Pharmaceutical Marketing - Innovation and Marketing in the Pharmaceutical Industry - page 683

These long-term ROIs are also reported in Table 23.5 for both detailing and
DTCA. Note that these long-term ROIs are significantly higher than the corresponding
current-period ROIs. And, the DTCA spillover effect into Canada contributes
around 4-6 % to the US long-term DTCA ROI. 9
Finally, it is interesting that even though DTCA elasticities are comparable, the
difference in the DTCA ROIs from the two countries is fairly large. First, this may
be explained by noting (e.g., in Table 23.2 ) that the average number of prescriptions
in Canada is significantly smaller than in the USA. In other words, the revenue base
is considerably smaller in Canada than in the USA. Consequently, it is not surpris-
ing that the ROIs vary significantly across the two countries. With a higher revenue
base, Canadian ROIs would have been larger. Therefore, spillover has the potential
to make a significant impact on revenues. Pharmaceutical companies should find
such observations useful. 10

23.4 Research Gaps

Begin by recalling our discussion from Sect. 23.2 about the under-investment
problem due to spillovers. It is noteworthy that both R&D and co-marketing
alliances can be observed widely in the pharmaceutical industry; e.g., Teva and
P&G have recently announced an alliance—combining P&G's marketing abilities
with Teva's global footprint and expertise in drug manufacturing—to target key
OTC markets such as those in Germany, Russia, and Brazil. In a similar vein, The
Wall Street Journal ( 2011 ) reports that according to the Elsevier's Strategic
Transaction Database, the pharmaceutical industry has witnessed roughly 780
alliances from 2007 to 2011! So, while the broad considerations outlined earlier
regarding externalities in R&D and co-marketing alliances will apply here, there
seems to be room to fine tune our understanding.

9 Previous research has computed brand -level ROI measures. Neslin ( 2001 ) examined pharmaceu-
tical brands with at least $25 million in annual revenues (a total of 391 brands and 127 generics
were analyzed over the 1995-1999 period). His study reports median brand ROI estimates for
detailing and DTCA at $1.72 and $0.19 respectively with DTCA ROI as high as $1.37 for recently
launched brands with high revenues. Wittink ( 2002 ) reports the following estimates for brands
with annual revenues between $100 and $500 million in 1998-2000: detailing ROI in the $1.8-2.6
range (average is $2.1), and DTCA ROI in the $0.1-0.4 range (average $0.1). More analyses by
specific therapeutic classes revealed differences across classes in the range of Detailing ROI
estimates ($2.8-3.3 for hypertension; $1.7-2.2 for arthritis; $1.2-1.8 for asthma) but no differ-
ences emerge for DTCA ROI (the range is $0.0-0.2 for all three classes).
10 From a resource allocation perspective, e.g., Mantrala et al. ( 1992 ) show that improvements in
sales and profits are more sensitive to improvements in resource allocation rules rather than just
increases in investment levels.