Drug Companies (Partially) Give In To Congressional Pressure on Advertising Restrictions

Implications: Drug Companies including Pfizer, Merck, and Johnson & Johnson have agreed not to advertise newly approved drugs for their first six months. Key members of congress say this is not enough and want a two year wait. This will not only hurt pharmaceutical and advertising interests but it is bad for consumers as well.

Analysis: So why did big Pharma "voluntarily" decide to stop advertising new drugs in their first six months?

Did they do it to protect shareholder interests? Well, in a convoluted way, they did.

They feared that the Committee on Energy and Commerce may call for even more stringent restrictions, and the self-imposed rule would satisfy members.  But they miscalculated as the self-policing approach isn't likely to satisfy John Dingell, D-Mich., and Rep. Bart Stupak, D-Mich., who head up the committee's investigative and oversight team.

Direct to consumer (DTC) advertising is good for public health. Without any cost to government or nonprofit, ads raises awareness about disease and possible treatments, and is thus an effective vehicle to get patients to visit their physicians and discuss treatment options. 

But there is another public health advantage to DTC ads. They help keep drug costs lower. While DTC critics argue that ads contribute to the high cost of drugs, they have it backwards. This straw-man argument is exposed when one asks "why would drug companies make their products more expensive than necessary?" 

In fact, the most significant factors in the cost of drugs are research and development (plus regulatory expenses).

Companies are allowed a limited period of time to recoup these costs without competition -- and make the profit which attracts the investment in research -- before the patent expires. By delaying at least the first six months of DTC ads, a portion of sales in the profit-making  period will be curtailed, and companies will be forced to charge more for the drugs to make up for lost sales.

So a limit on DTC advertising may have the perverse unintended consequence of raising, rather than lowering, the cost of drugs for consumers.