CBO finds competition, market size impact DTC ad spend

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A study of direct-to-consumer advertising by the Congressional Budget Office found spending to be concentrated on a small subset of brands, particularly those facing few competitors and indicated for chronic conditions afflicting many patients.

The CBO found that average spending per drug on DTC advertising tends to decline as the number of in-class competitors increases.

“Like any monopolist, a drug manufacturer whose product has no competition can turn a profit on advertising-induced increase in demand because a monopolist can set the drug's price above what it costs to satisfy that increased demand,” said the report. “In addition, companies that produce drugs with few or no competitors run little risk that advertising for those drugs will spur demand for competing products.”

That's with exception to mega-blockbuster-studded categories like statins, “where potential market size might overwhelm other factors in setting a marketing plan.”

By contrast, spending on detailing was found to be unaffected by the number of competitors, since greater competition increases the need to differentiate a product. The study found sharp drop-offs in spending on detailing after year one and on DTC advertising after several years, and speculated that DTC spend might endure because of the time it takes to penetrate large markets and the need to attract customers before a competitor enters the market.

Of the more than 2,000 drugs included in the CBO's data set, 700-800 had some promotional spending reported in any given year and nearly all logged some spending on detailing, but fewer than 100 had purchased DTC ads in each of the years since 1995. Average expenditures for DTC advertising peaked at $41.8 million in 2006, while drug makers spent around a million per drug on journal ads and $3.6 million on meetings and events in 2008.

None of this is likely to be news to pharmaceutical marketers, but coming from the number crunchers at the non-partisan CBO, it's the authoritative word on the factors influencing consumer advertising of prescription drugs. 

Looking at trend lines in spending, the study, citing SDI data from 1999-2008, found that the growth of overall promotional spending has slowed from a double-digit pace in 2003 and 2004 to nearly zero, due to fewer new drug approvals and increasing generic competition. DTC advertising spend peaked at $5.2 billion in 2006 amid a dearth of approvals and increased focus on specialty treatments.

The report said marketers spent at least $20.5 billion on promotional activities in 2008, excluding sampling. Of that, $12 billion went to detailing, $4.7 billion to DTC, $3.4 billion to meetings and events, $400 million to journal ads and $93 million on online ads.

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