Drug Ads are Prescription for Sales

By Scott Culver
Communications Specialist
WEA Trust

March 2001

Claritin. Prilosec. Viagra. Vioxx. While you might not know the purpose of each of these prescription drugs, you likely are familiar with their names. It seems any time you watch television, advertisements for medications such as these pop up as often as commercials for McDonald’s and Coke.

The ads differ in style, but they invariably include the line, “Ask your doctor about …” followed by the name of the medication. The drug companies want you to discuss these medications with your doctor, and, in turn, they hope your physician will prescribe the drug for you.

Marketing has become a major part of the pharmaceutical industry. An article in The Wall Street Journal explained how drug companies are shifting the core of their business away from the task of developing drugs toward the steadier business of marketing them. It has become more difficult to develop breakthrough drugs, so drug companies are investing more in marketing to boost the sales of the drugs they have created.

This includes promotional spending directed toward consumers and physicians. Consumer advertising on television and in newspapers and magazines resonates with most of us.

For the first six months of 2000, according to IMS Health (a health care information company), drug companies spent $1.3 billion on consumer advertising, 43% more than was spent during the same period in 1999.

But this money represents only a portion of the overall promotional budget for the drug companies. According to IMS Health, total promotional spending by the pharmaceutical industry topped $8 billion in the first six months of 2000, up 14.3% over the same period last year. Total promotional spending for 2000 should top $16 billion, based on projections.

The largest portion of the industry’s promotional investment is in product samples. The drug companies use sales representatives to distribute pharmaceutical products to office-based physicians. The retail value of these samples totaled $3.9 billion for January through June 2000. Claritin, a well-known allergy medicine, led the giveaway parade with 18 million samples.

Drug companies defend their actions
Drug makers defend the promotional budget, especially when it comes to direct-to-consumer advertising, which has become prominent in the United States in the last four years. The companies stress that the ads provide educational value, noting that many people who might benefit from a drug may not be aware of its existence.

The industry also justifies the high price of drugs, saying the costs cover the research and development of newer and more innovative drugs. According to a Wall Street Journal article, the pharmaceutical industry’s spending on research and development has tripled since 1990 to $26.4 billion per year.

As a percentage of sales, the newspaper reports, drug companies spend more on research than almost any other industry. However, the industry still spends more on sales representatives than it does on scientists, the Journal says. Its force of nearly 70,000 U.S. salespeople costs roughly $7 billion a year.

Drug costs soaring
This promotional blitz has increased the demand for prescription drugs and helped make drug costs a larger part of your health plan cost. For WEA Trust health plans, drug costs are now increasing by almost 20% per year and currently account for more than one-fifth of the cost of the average Trust health plan. For retired members who have Medicare as their primary insurer and the Trust as their secondary insurer, drug costs account for 55% of total plan costs.

Nationwide, prescription drug costs continue to be the fastest growing piece of the country’s total medical bill. In 1980, Americans spent $12 billion on prescription drugs. By 1999, the number grew to an estimated $100 billion annually.

One reason for increased spending is more Americans are reaching the age when taking medications becomes more likely. One in eight Americans is 65 or older, and this group accounts for one-third of all drug purchases.

Furthermore, medications now exist for disorders that previously could not be treated, and these drugs can be expensive.

Drug costs affect health care costs. Prescription drugs can bring substantial benefits, but these benefits come at a price. As prescription drug costs continue to rise, they propel the overall cost of health care.