Direct-to-Consumer Drug Advertising Benefits Companies, but Patients Even More
By Merrill Matthews
Analysts at the nonpartisan Congressional Budget Office recently scored Speaker Nancy Pelosi's drug pricing bill, H.R. 3.
The CBO estimates the bill would reduce revenue at America's pharmaceutical companies between $0.5 trillion and $1 trillion over the next decade, dramatically reducing innovation and preventing the creation of important new medicines.
Proponents of Pelosi's plan appear unfazed. Many have used this news to contend that if drug companies simply scale back spending on television commercials and other direct-to-consumer (DTC) advertising, they would make up for losses imposed by Pelosi's plan.
Such suggestions disregard the math and trivialize the importance of drug advertisements.
First, consider the math. Drug companies' DTC advertising spend is on the low side compared to other industries.
The industry only spends about $6 billion annually on direct-to-consumer advertising to patients. That's just 3.2 percent of the $187.5 billion in total U.S. revenue for the top 10 pharmaceutical manufacturers, and only a fraction of the up to $1 trillion in lost revenue over 10 years.
By contrast, companies in the consumer-packaged goods industry spend, on average, about 24 percent of revenue on marketing, tech software spends 15 percent, and banking and finance about 8 percent.
While drug companies underspend on DTC advertising compared to other industries, they overspend on research and development, about 21 percent of total revenue -- more than any other industry. And it's the revenue from the sale of those drugs that funds that R&D.
Next, consider the importance of DTC drug ads.
Commercials serve a vital public health purpose by raising awareness of medical conditions that many patients might not know about.
Consider the famous drug ad for the insomnia medication Rozerem. In this spot, a haggard, sleepless man has a late-night chat with Abraham Lincoln, a talking beaver, and other fantastical figures. These characters are from his dreams -- and in the commercial, they explain how they've missed him since he stopped sleeping.
Nearly two out of three American adults suffer from sleep problems, and insomnia costs the economy billions of dollars a year in lost productivity. That commercial -- which went viral before we had a term for it -- helped raise awareness for a new, effective sleep treatment, which came with much lower addiction risks than existing products. That's an enormous public health win.
Drug ads convey in a concise, compelling way how products may improve health. Indeed, one national survey found that drug advertising prompts about two in three viewers to take concrete action to better manage their health.
Defenders of Pelosi's bill want to lower drug prices and many think eliminating DTC advertising is a way to do that. But advertising is a way companies convey important information to consumers about products that may help them.
The return on investment isn't just to drug companies, it's to people who act on that important medical information.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.
