January 04, 2008

There is a line of argument in some policy circles - and amongst quite a few public health advocates - that the pharmaceutical industry spends too much time and money promoting "me too" drugs that aren't any better than cheap generic alternatives. For these critics, "Big Pharma" claims of being a research industry are belied by its spending on marketing, which, they claim, far outstrip industry spending on R&D. If Big Pharma stopped spending money on advertising and spent more on R&D, or so the argument goes, we'd have a lot more truly innovative drugs.

This dubious claim, which has been around for a very long time, got another plug this week when Canadian researchers published a study claiming that the industry spends nearly double on marketing drugs as it does on researching new medicines.

In their analysis of data from two market research companies, Marc-Andre Gagnon and Joel Lexchin of Toronto's York University found that American drug companies spent US$57.5 billion on promotional activities in 2004.

By comparison, spending on industrial pharmaceutical research and development in the United States was $31.5 billion in the same year, according to a report by the National Science Foundation, which included public funding for industrial research.

The authors clearly have an agenda and aren't shy about promoting it. You can read their whole article for free at the Public Library of Science.

They conclude that "governments should force the industry in the direction of more research and less promotion" in order to bring more innovative medicines to market. There are a lot of problems with this line of argument; for instance, the authors can, by choosing what to count as marketing and what not to count as marketing, skew their findings in whichever way they want.

But let me just make a few other observations that challenge their argument. The first, and most fundamental, is that the authors assume that pharmaceutical marketing is intrinsically bad, which runs counter to mainstream economic thinking.

Marketing helps to protect and promote brand value, educate consumers about product quality and other attributes, and (most likely) lowers the cost of pharmaceuticals by allowing development costs per-pill to be spread over a greater volume of sales.

Ideally, doctors may some day have the technology to prescribe the right drug to the right patient at the right time - developments in personalized medicine will help in this area - but, until then, they doctors have to make educated guesses based on their clinical experience, patient characteristics and preferences, and - you guessed it - communications from drug companies. (Which BTW, are regulated by the FDA.)

Couldn't the government just tell physicians what drugs to use? This merely substitutes one potential bias problem for another, as government bureaucrats have their own agendas, mainly revolving around budget savings, not patient health. At least in a competitive marketplace, consumers and physicians have access to many different sources of information and advice to choose from in helping them select the right treatments.

Second, the drug development process is highly regulated, both in the U.S. and Europe. Companies cannot depart from this process, even if they wanted to. Sadly, the vast majority of drug research efforts fail, much to the dismay of the industry and its investors.

For instance, the industry has more than doubled its R&D spending in recent years, with (relatively little) additional productivity to show for it. If there was a direct relationship between dollars spent and drugs discovered, it isn't showing up in the data. And this isn't surprising: discovering new drugs isn't like making widgets. Many drug candidates that look promising in preliminary research fail dramatically and expensively in late stage testing - and companies just have to eat the losses (remember torcetrapib's implosion at Pfizer?).

Even if we accept the authors claim that the industry spends "too little" on R&D relative to marketing (an entirely arbitrary judgment in itself), this fact alone undercuts the idea that government could magically bring more or better new drugs to market by mandating X level of R&D research.

Last but not least, consider the fact that the industry is losing tens of billions of dollars in revenue on bestselling drugs to generic competition as patents expire now and over the next few years. If companies could just invent new, more innovative drugs at the drop of a hat to fight off new generic competitors, don't you think they would have done so a long time ago?

In other words, patent expiration, advances in science, and market competition drive industry innovation, not government fiat. The claim that the case could be otherwise is, to be blunt, incredible.

Posted by Paul Howard at January 4, 2008 11:35 AM

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