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June 28, 2011
DTC Advertising: Is That Where Things Fell Apart?
Over at Forbes, Matthew Herper has a provocative comment from a former Merck executive, Peter DeVillbiss. He's wondering when and how drug companies lost the public standing that they used to have (remember, Merck used to be the "most admired company in America", just to give you one example). His theory (which I know is shared by some of the readership here) is that direct-to-consumer advertising was a terrible mistake, bringing in lots of profits while ruining the reputation of the drug companies. His thought experiment:
If there was a regulatory mandate for all pharma companies to cease direct-to-consumer advertising for prescription drugs and vaccines, what would happen? It is not clear to me that this would be a death knell for the industry. I think it’s reasonable to assume that revenues would fall, but the big question is whether costs would fall more? This could never happen on a voluntary basis because of game theory but if it were mandated and applied across the board, I’m not so sure that pharma wouldn’t be better off in a few ways.
Check out the post, and the comments that it's inspired. I'll get a few points out of the way - for one thing, DTC advertising has, in fact, probably enriched the drug industry a great deal. No one's claiming that it's been a money sink, just a reputational disaster. Another thing to remember is that advertising budgets are supposed to bring in more money to the company than you'd have if you didn't run ads - that is, they're supposed to pay for themselves and plenty more besides. So if we can skip the "Pharma spends more on ads than R&D!" part of the argument, that'll be fine. Ads make money; I'd rather focus on what else they do. Thoughts?
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