For pharmaceutical companies, more marketing equals less innovation

Turn on a TV and be bombarded by ads for new medications. Yet, new research indicates that the firms that aggressively market these drugs are less likely to produce truly pioneering ones.

In studies published by UNC Charlotte faculty members Denis Arnold and Jennifer Troyer, research shows the more pharmaceutical firms spend on marketing drugs, the less likely it is that the firm will produce breakthrough drugs that offer major advances in treatment.

Conversely, the more pharmaceutical companies spend on research and development, the more innovative are the results in terms of the development of pioneering drugs according to FDA classifications, i.e. drugs that will improve public health.

The researchers presented their findings in the paper “Does Increased Spending on Pharmaceutical Marketing Inhibit Pioneering Innovation?” published in the Journal of Health Politics, Policy and Law on Jan. 5.

Arnold, Surtman Distinguished Professor of Business Ethics and a professor of management in the Belk College of Business, said the research has important policy and ethics outcomes.

“This article is the first using empirical data to demonstrate that aggressive marketing of pharmaceutical drugs and truly innovative new drug development are at odds. The current patent regime can be manipulated by firms to increase sales and drive up costs for society without improving public health,” Arnold said.

“The pharmaceutical industry benefits from equal patent protection for drugs regardless of their innovativeness. Rather than researching and developing the novel, pioneering drugs needed by society, many firms employ an alternative business strategy in which revenues are generated by aggressively marketing weakly innovative drugs that do not significantly enhance public health,” he noted.

He added, “Many of the marketing schemes utilized by drug companies are deceptive, violating both pharmaceutical industry marketing ethics standards and federal regulations. The industry has paid billions of dollars in penalties for illegal marketing during the time period of our study.”

According to one study, overall pharmaceutical promotional, or marketing, expenditures increased from $11.4 billion in 1995 to $28.9 billion in 2005. Promotions included direct-to-consumer advertising (such as TV ads), promotions to physicians, journal advertising and free samples.

Troyer, associate dean for research and graduate programs and a professor of economics at UNC Charlotte, said the risk to public health is that firms with a strategy of spending heavily on marketing did so at the expense of truly groundbreaking new drug production.

“In our sample, the average publicly traded firm produced only one pioneering drug between 1999-2009. Our results indicate that a permanent 1 percent increase in marketing spending by an average firm with at least one pioneering drug would have been associated with a firm-level reduction in pioneering new drug approvals of approximately 1.25 drugs over the period examined – a 49 percent decrease,” she said.

“By contrast, the effects of increased spending on research and development are large for pioneering drugs. For firms producing at least one pioneering drug over the period, increasing permanent R&D spending by 1 percent results in an almost one pioneering drug approval per firm,” Troyer added.

The researchers point to major policy recommendations as a result of the research, including:

• Differential pharmaceutical patent lengths in the United States and in other jurisdictions such as the European Union. Currently, patent protection is 20 years from drug development, no matter how innovative the drug
• Prohibiting the tax deduction of all drug marketing expenditures to reduce company incentives for developing and aggressively marketing weakly innovative drugs at the expense of more innovative drugs
• Channeling pharmaceutical marketing tax resources into increased FDA oversight and Department of Justice enforcement of existing marketing regulations
• Transparent disclosure of all drug company marketing expenditures to the public