How Prescription Drugs Are Driving Multi-Billion Dollar Marketing Budgets

Though consumer and retail companies may spend the most on marketing, making their brands household names all over the world, the healthcare industry is not too far behind.

In this clip from Industry Focus: Consumer Goods, Motley Fool analysts Vincent Shen and Kristine Harjes look at the nine-figure marketing budgets for many prescription drugs and the controversy surrounding this spending.

A full transcript follows the video.

This podcast was recorded on Nov. 15, 2016.

Vincent Shen: I found that, in terms of ad spending, in a report from STATNews, the pharmaceutical industry spent over $5 billion in 2015. That's up about 60% in the last four years. That is only on traditional media, like television and print, which is probably losing its share in terms of overall ad spending, because digital ad spending is growing so much in popularity. What are your thoughts on that?

Kristine Harjes: It is incredible to me that we're still doing this. This is not something that you see in pretty much any other country in the world. New Zealand is the only country that comes to mind as a major established country where you can have drugmakers directly advertising to consumers. There's a pretty strong lobby against it. The American Medical Association has called for a ban on these DTC, direct-to-consumer ads, in November 2015. There has been legislation introduced. There are a lot of lawmakers that don't think you should be able to do this.

If you think about it, I can sympathize with that argument. On the one hand, it's good for patients to know about these chronic conditions they might have and not even realize it. It's good that it encourages people to go see doctors and ask questions and know their treatment options. On the other hand, you have doctors reporting that patients come in and are like, "I saw this specific drug on TV, and that's the one that I want." And that might not be the best drug for them. And if you're the doctor in that situation, your hands are tied, because the patient can easily leave and go to another doctor, and you don't want to do that. Meanwhile, you can also have patients demanding the brand name when there might be a generic, which is literally the same exact chemical compound, but yet they're demanding that they want this specific one because of an advertisement.

Shen: We will talk more about the branding and how important that is, especially with examples, like you just mentioned. I've always been surprised, as well, like you mentioned, you don't see prescription drug commercials -- especially right now, because TV is the biggest format that they advertise on -- you don't see that in other places. You mentioned New Zealand, and there's the United States, and I think those might be the only two major markets where that happens. But looking in terms of the incentives, it makes a lot of sense for the big drug companies to do this. I have a list here of the 20 most advertised prescription drugs in 2015 by spending. Again, this is only with traditional media. It doesn't get into the digital side.

Harjes: Yes, which is harder to track and report on.

Shen: Exactly. Humira, which I'm sure you're familiar with, spent over $350 million from what I could find. Correct me if I get any of this wrong. First nine months of 2016, those first three quarters, revenue for Humira was $7.6 billion. That is enormous.

Harjes: That sounds about right. (laughs) 

Shen: So, they have plenty of incentive to do this. At the same time, in my research, I have seen some arguments that people say, being able to see one of these commercials, people might become aware of the symptoms they describe, of a condition they didn't realize they had. So, it's not just a black-and-white issue, necessarily.

Harjes: There's absolutely some gray space. One of the other interesting nuances is just how much information does the drugmaker need to disclose in these ads? This especially becomes an issue when you consider how social media has become a bigger presence in ad budgets. If you only have 140 characters in a tweet, you can't possibly say every little thing that the FDA wants you to. I don't know if you've seen magazines that have drug advertisements in them, but it'll be one page of the ad, and then you flip it over and there's two pages of all the prescribing information.

Shen: I've seen that.

Harjes: If you have a tweet, how are you supposed to do that? Is it sufficient to just have a link, "Full prescribing information here"? Or what? It's another grey area.

Shen: The question becomes, how often do people click on those follow-up links? Otherwise, all you end up seeing is that marketing message. With something like prescription drugs, it can be very important that you get that full picture.

One other related item I wanted to bring up was, something else that people are taking up arms about in terms of prescription drugs and what their marketing looks is, they often use animated characters and cartoons. The thing that I think about that was cracked down on in the '90s was big tobacco. They had famous characters like Joe Camel, the Marlboro Man, and they would have them dressed in leather jackets and t-shirts, looking cool. And a lot of people argue that this was targeting tobacco toward children. Eventually, in the '90s, I think it was President Clinton who signed the bill banning the use of these characters. In your opinion, do you feel that using animated, funny looking characters -- sometimes it might be for a condition, or something that's not as serious -- overall minimizes the risk of certain drugs, even though they have a lot of side effects?

Harjes: My hunch here would be, the use of cartoon characters would be more prominent in drugs that are in conditions that have a visible effect on a person. Because you don't want to depict somebody that's really sick maybe getting a little bit better, which is unfortunately the case with a lot of these drugs. The tiny little marginal improvement is enough to get approval, because that is better than nothing. But if you were then to advertise that drug, depicting the reality of it is not exactly an uplifting picture.