Villanova Study Claims DTC Spend Has No Effect on Drug Prices

The boffins in the business school at Villanova University are touting a formidable study with this headline: DTC advertising has no effect on the price of drugs (see download below). 

The study is potentially important because the role of the cost of DTC ads on the price of drugs (and therefore the price of healthcare) is continuously controversial.

(That scream you just heard was the folks at PhRMA yelling for joy because they finally found some academic backing for the notion that $4.5 billion spent on ads has no effect on prescription prices.)

I had a lengthy chat with two of the authors and they explained their research to me.

Here’s the summary:

They looked at the period 2001-2005, across five drug categories (sleep, antidepressants, bladder control,  cholesterol and erectile dysfunction). They compared prices with spend on DTC ads, detailing, sampling, and journal ads.

Once the numbers are crunched,  they say,  it turns out there is no relationship between adspend and moves in drug prices.

If you’re mathematically inclined I recommend looking at the charts on the download -- let me know if they got anything wrong!

As with all these things, the devil is in the details.

First, the data tracks changes in pricing, rather than initial pricing itself. That’s an important distinction because, arguably, the central question in the debate is what effect do DTC budgets have on pharma company decisions to set drug prices in the first place.

Second, in one category, bladder  control, the Villanova team did find that DTC spend had some role in driving prices. Let’s assume something completely unscientific -- that the proportion of categories in the Villanova study that did show DTC affects prices (1 in 5) is true across the board: I’d say that if the price of drugs in one of every five disease categories was affected by DTC, then that would indeed be quite significant.

Thirdly, in three of five categories the Villanova team found that other drug marketing factors, specifically sampling, did have an effect on creating “decreases in price sensititvity.” The presumed explanation is that if you’re given a free sample and it works, most patients will be extremely reluctant to switch even if price is a hurdle.

Fourth, the study sets up something of a straw man, because although everyone complains that DTC spend is jacking up the price of drugs, everyone in the business really knows that DTC spend is negligible in comparison to spend on detailing, sampling, etc. It is that spend that really drives pricing. The industry spends more on SG&A than it does in R&D, even though the industry routinely claims that drug prices are driven by the cost of R&D.

So, arguably, the real headline here is that either some drug price shifts are driven by DTC, or that most drug price shifts are driven by the cost of sampling.

The next crucial question is: Was this study funded by the drug industry? A PR woman for the Villanova team said no, definitely not.

But it’s worth noting that one of the authors of the study is Lance Longwell, who members of the media will recognize as the same Lance Longwell who’s a PR spokesman for IMS Health, the drug business measurement company whose main clients are, er, drug companies. So make of that what you will.

Personally, I’d like to see Pharmalyst to weigh in on this, because my knowledge of stats sucks and I already know I’m going to be making lots corrections to this entry.

Download dtc_drug_advertising_and_drug_prices_study.pdf

Comments

[John Mack]

Ed,

Thanks for picking up on this. This report is awesome, dude!

The proof offered is irrefutable. In fact, I think it will rival E=mc2 and I have designed a T-shirt emblazoned with the Villanova equation proving once and for all that "DTC advertising is not a contributor to increasing health care costs."

See my post at:
http://pharmamkting.blogspot.com/2007/06/villanova-scientists-prove-that-dtc.html

[Jim Edwards]

John,
I believe this is the third or fourth time I have had to remind you that my name is Jim. Ed is the other guy over at Pharmalot.
Jim Edwards, BrandweekNRX.

[Anonymouse]

David Ridley at Fuqua did a price elasticity model that included DTC and arrived at a different conclusion.

His paper got buried at some point. Don't know why.

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