Pharma TV ad study finds drug rivalries have fringe benefit

New research finds that too much pharma advertising is focused on attacking rival drugs. But those ads are still driving people to ask their doctors about conditions and treatments, and that's a positive, said Wharton business economics professor Michael Sinkinson, who recently co-authored a study measuring the impact of DTC television ads.

"When economists look at advertising, we look at it doing one of two things. Is the ad about informing people it exists or is it about trying to convince people to buy from them versus another company?" he said.

In pharma advertising, that means is the ad more about awareness or more about trying to one-up the category competition? In the branded statin marketing Sinkinson studied, between AstraZeneca's ($AZN) Crestor and Pfizer's ($PFE) Lipitor, it was clear the TV ads then were more about "business stealing."

The concern over competitive ad spending is that a lot of money goes to simply beat up a rival--money that may be better spent on R&D, or not spent at all in an effort to keep drug costs down. The good news for consumers, however, is that rivalry ads still drive people to talk to their doctors and even increase sales of less expensive similar drugs, in this case Merck's ($MRK) Zocor, which had gone off patent.

The bad news for the rival pharma companies is that they're spending a lot just to stay even.

"It's a game theory problem. If they could all agree to do less advertising, it would benefit everyone," Sinkinson said. "There is some right level of advertising for pharma categories as a whole, and it's probably lower than what it is now."

The study looked at the statin DTC ad market in 2008, chosen so that the researchers could use the national political election cycle then as a control mechanism. State primary political ads tend to bump most other ads off the airwaves temporarily, so they could measure what happened regionally when some groups see an ad and some don't.

So, if rival ads are driving awareness, what happens when the rivalry ends? Or worse, when a whole category of drugs goes off patent--and branded advertising ceases?

Lipitor has gone off patent (2011) since the ads in the study, and its former ad rival Crestor will go off next year. It may be illustrative to note that for three years before Lipitor went off patent it was the No. 1 ad spender, according to Nielsen, and Crestor was in the top 20--but in 2012, the year after Lipitor went off patent, neither drug ranked among the top 20 spenders.

"Maybe rivals do spend a little too much now, but the word is getting out there and that's important," Sinkinson said. "When they go off patent, (drug companies) won't be spending hundreds of millions to tell people to go talk to their doctor about cholesterol. … The burden shifts to physicians and to insurers too because they care about prevention. Insurers would rather pay for Crestor than pay for you to go to the hospital. They might be the ones to get involved then."

Or new cholesterol drugs might step in to take up the advertising slack. Sanofi ($SNY) and Regeneron ($REGN) are preparing to launch their cholesterol-fighter Praluent, the first in the PCSK9 drug class, and Amgen ($AMGN) is close behind with Repatha. About the time the traditional 6-month delay in advertising elapses, Crestor will go off patent--and a new round of DTC ads can begin.

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