Abstract

Pharmaceutical companies spend large sums of money in the time-consuming research and development of new drugs and the new classes of drugs. Each company marketing in the US seeks the possible payoff of staggering high profits which is possible on their patented medicines. Because of the lack of price regulation in the marketing environment in the United States, the United States has become a premium sales market targeted by all pharmaceutical companies. This explains the continued willingness of each pharmaceutical company to persist through the entire long process of idea, creation, development, testing, approval, marketing and distribution despite the high possibility of product failure. The pharmaceutical companies have had to additionally contend with more US federal FDA rules, regulation and oversight in the United States for the entire process before receiving clearance to start marketing their drug product. Other influences like HMO’s and Social Security cap limits affect profitability structure. Over the last fifty years newer marketing strategies by pharmaceutical companies on prescription drugs include a directive appeal to the end consumer to increase the odds of making corporate profits and a marketing focus on social and internet interaction.

Introduction

Pharmaceutical companies produce specialized medical drug material designed to fill a need. These pharmaceutical companies are usually multinational operations located in key countries around the globe. Many have grown to become complete facilities that attempt to do the entire spectrum of research, develop, test and finally market the subject drug in order to reap the whole benefits possible from the entire cycle (Kaitin, 2010). The pharmaceutical industry has shown over time that they have the capability to increase consumer perceived value with their unique drug products using their own successful plans for timely marketing. But because of these old and new factors causing cumulative hurtles, a new trend in marketing in the pharmaceutical industry is now to additionally market direct to the customer, for example: TV advertising spots showing a new superior drug product which has special features making it directly appealing to a consumer. Changes in basic marketing structure tactics will be evaluated for the key levels of pressure from these internal and external factors as these pharmaceutical companies seek to address continuing ongoing product failure rates, increasing US regulation and the ever present potential competition from others inside their own industry.

This trend has been a natural development over the last hundred years or so. This is reasonable because the same research that produces one drug may produce an entire class of drugs for market. Confidentiality, control, patents and oversight give these pharmaceutical companies the oversight. It also allows each pharmaceutical company to keep maximum control of all their connected environments. And by controlling these the final marketing each company achieve continues the cycle of giving the most control over the drug for the marketing campaign.

The drug industry often competes worldwide and on different economic levels but in some specific territorial markets like the United States, pricing structures are not preset by the government and therefore the free market sets its own competitive standards for pricing giving the possibility and most often the probability of higher drug prices with the resultant bigger profit level opportunities. However these are offset by rigorous structural standard guidelines set by the FDA that must be complied with for any drug sold or marketed to the US public.

In the past, drug companies in United States, marketed to doctors, hospitals, nursing homes and sometimes middleman companies as transitional handlers of the newest product. Marketing drugs in the United states has now changed as developers are now targeting consumers directly through television spots, online advertising and in print ads. The direct appeal is to make the end point consumer aware of the name of the drug and its benefits. The object is to have the consumer become familiar with the trade name, ask for the drug directly from their doctor thus boosting the initial sales of the new product and creating a ready market.

Industry History

Marchetti & Schellens (2007) outline the structures of development showing it to be complex and expensive. Not only does the potential class or specific drug have to be discovered or created, it has to show promise for certain illness or disease, then pharmaceutical research can proceed through certain phases. Pharmaceutical companies have a history of costly product failures. Generally there’s three clinical phrases and all this can take upwards of 15 years to complete. Additionally the FDA has trended over the last decade to creating higher pressures against drug companies by not approving as many new drugs for marketing. The probability odds are that any specific drug in early clinical phase has only 8% chance or less of ever becoming public (Food and Drug Administration, 2006) (Kummar, 2007). In the United States the U.S. Food and Drug Administration (FDA) has sought to control the drugs available to Americans because of the number of tragedies that have resulted in birth defects or deaths. The most highly publicized incident was in the mid-1960s and the drug was called thalidomide which for pregnant women often resulted in severe birth defects. As an end result of public outrage creating governmental pressures, the pharmaceutical companies are overseen at all levels and must now successful clinical trials. Lamb(1998) writes that testing protocols have been standardized and once clinical trials are completed there is a analysis period with the end result being an application to the FDA called an NDA ( new drug application) which contains all the technical information.

Over the last forty years (1970’s -2010) and now in 2011 differential forces are in opposition to the ends of pharmaceutical companies. Environmental and safety issues, new technologies, mergers and the rise of managed care and health maintenance organizations (HMO’s) have all effectively changed the environment that’s pharmaceutical companies operate in. additionally in 1997 the FDA changed regulations relating to the presentation of risk level. This action in the United States opened the door for pharmaceutical companies to directly market to the public .This freedom for the pharmaceutical companies is offset by the FDA still having oversight surveillance of the specific phases and clinical approval. The FDA must approve the drug. After the drug is marketed there is oversight for continued compliance by the pharmaceutical companies to ensure a low-level of side effects during marketing. Post approval by the FDA comes solely after this period (Silverman, 2011).

Pharmaceutical company spending on marketing exceeds that spent on research.[3][22] In 2004 in Canada $1.7 billion a year was spent marketing drugs to physicians and in the United States $21 billion were spent in 2002.[4] In 2005 money spent on pharmaceutical marketing in the US was estimated at $29.9 billion with one estimate as high as $57 billion.[3] When the US number are broken down 56% was free samples, 25% was detailing of physicians, 12.5% was direct to consumer advertising, 4% on hospital detailing, and 2% on journal ads.[4] In the United States approximately $20 billion could be saved if generics were used instead of equivalent brand name products.[3]

Although pharmaceutical companies have made large investments in marketing their products, overall promotional spending has been decreasing over the last few years, and declined by 10 percent from 2009 to 2010. Pharmaceutical companies are cutting back mostly in detailing and sampling, while spending in mailings and print advertising grew since last year.[23]

Historical Marketing

Pharmaceutical companies have employed various methods of marketing their products and this idea can be understood by the phrase “How would you like to be in an industry where your buyers are uninformed about your product and almost 100 per cent insensitive to its price?” (The Business Edge Consortium, 2010). For many decades this was true. Around the mid 80’s this started to change “The result of these industry conditions was impressive profit growth through the middle of the 1980s. With significant barriers to entry, docile suppliers, powerless buyers, almost no threat of substitutes, and little rivalry, the pharmaceutical industry in the 1980s was just about as perfect an industry as one could imagine. Given its attractiveness, the industry attracted the attention of genetic and molecular biology scientists and the venture capital community, who saw its appeal and thought their revolutionary approaches to drug therapy could attract enough money to overcome the formidable entry barriers the industry enjoyed.

Thus, as scientific advances in biotechnology took hold, numerous entrepreneurial companies like Genentech and Amgen were founded to commercialize new scientific breakthroughs. Genentech, the first biotech firm having commercial success, developed a protein that broke up blood clots. Amgen’s famous molecular biology used recombinant DNA to produce erythropoietin, a hormone that increases the supply of red blood cells in anaemic patients under treatment for cancer and other diseases. By 2000, erythropoietin was generating $2 billion in sales and another $3 billion in licensing revenue for Amgen. Both of these new entrants fared very well in this attractive industry:Genentech went public in 1980, and by 2001 its shares had appreciated 2700 per cent since its IPO. Amgen shares, first offered in 1983, soared more than 16,000 per cent. Starting in the mid-1980s, the barriers to enter the pharmaceutical industry began to show cracks. New legislation made it easier for generic drug companies to enter the market. In the USA, the 1984 Waxman-Hatch Act, which changed the rules for generic drug manufacturers, reduced the barriers to generic entry. Instead of having to prove the generic drug’s safety and efficacy, the act required companies only to prove their formulas were equivalent to that of the brandname drug. The subsequent growth in generic drugs was profound. By 1996, generic drugs accounted for more than 40 per cent of pharmaceutical prescriptions.

Aside from the influx of generics, the pharmaceutical companies also saw a wave of biotechnology competitors enter their industry – Genentech, Amgen and many others – suggesting that economies of scale meant less than they used to, and that barriers to entry, while still high in absolute terms, were dropping, thanks in part to the availability of venture capital. Further, the biotech companies’ new science-focused research model, known as rational drug design, stood the traditional approach to drug discovery on its head. These drug companies worked backwards from known disease biochemistry to identify or design chemical ‘keys’ to fit the biochemical ‘locks’ of that disease.”

Traditionally they employed very effective strategies that includes educational sponsorship to cover the costs of continuing instruction for top medical personnel, sponsorship of articles in well-respected journal publications, providing free drugs samples to doctors and promotional gifts that include a corporate logo or specifics about a drug the idea behind the promotional marketing is to simply connect the new drug with an old medical symptom and encourage the writers of the prescription to fulfill the marketing cycle. Promantally pharmaceutical samples are still given out to doctors as a promotion and marketing tactic and it works (Alexander, Zhang & Basu, 2008). A few generations ago these forms of marketing worked well for the pharmaceutical companies. However circumstances have changed. The FDA seeks to discourage the intimate connection between pharmaceutical companies and their pharmaceutical representatives is the connection to the doctors prescribing medicines, these days doctors see more patients and fewer pharmacy drug representatives, additionally there is a continuing trend by hospitals, doctors and pharmacies towards being conservative in their recommendations and prescriptions because of lawsuits of all kinds (Pharmaceutical Industry History, 2007). Medical drug malpractice suits in the US are rising. Fiscus (2008) writes that “ In the United States, the growing use of DTC advertising has raised challenges to one of the strongest defenses available to drug manufacturers against “failure to warn” allegations in product liability suits for prescription drugs and medical devices: the learned intermediary doctrine. Under this doctrine, a manufacturer fulfills its duty to warn by adequately informing a “learned intermediary,” typically a physician.”

Current Marketing

.In 2010 the global pharmaceutical market is worth over 825 million with a large percentage of this comes from newer and mature drug products and there are over 100,000 health-related websites (The Business Edge Consortium, 2010).

The statistics show that marketing by pharmaceutical companies is changing because of external pressures. There has been a dramatic rise in U.S. physicians routinely using d the web to check or research information making the relevance of digital promotion all the more important Pharmaceutical companies have risen to the changing challenge of Internet marketing and now promote and advertise doctor friendly physician and customer service online portals like PubMed, the U.S. National Library of Medicine, National, and Physicians Interactive (Kaitin, 2010). Pharmaceutical marketers are relying more on connecting digital medical information to their target audience through focused marketing, interactive social media campaigns, and cell and mobile linked advertising all targeted to connect to the 145 million + U.S. adults who go online for health answers .

The old saying “ time is money” is accurate in the case of pharmaceutical companies as it takes upwards of 15 years to develop a potential drug which only has a 8% probability of getting out of trials and going to market. Therefore it is a necessity to carefully control costs and expenses where possible. One major area of expense has been having marketing representatives which were costing out as high as15 to 20% of a pharmaceutical companies annual drug product revenues. As pharmaceutical company overall expenses and costs have additionally escalated over the last few generations there is a need to reduce expenses down where possible. So the switch from costly pharmaceutical representatives to cheaper graphic marketing is easily understood. Finkelstein (1997) wrote that Competitive and technological changes in the pharmaceutical industry-from powerful new drug chemistries to innovative R&D partnerships and marketing plans-are reshaping the business strategies of many pharmaceutical and biotechnology companies

Given these cost pressures it is understandable that the pharmaceutical companies are looking for better ways to market their drugs. The newest strategy is now to promote what is known as marketing blockbuster medical drugs directly to the consumer public. The idea was to empower the consumer. Right now only the United States and New Zealand allow pharmaceutical products promoted by DTC (Pharmaceutical & Drug Manufacturers, 2011). When an individual consumer requests information and the medicine by name by their Doctor some of the responsibility while also applying pressure on the doctor to prescribe the new medicine.

Additionally both the small and large pharmaceutical companies are now using digital media to promote their products. From TV and cable to Internet ads consumers are constantly being made aware of the virtues and minor drawbacks of a number specific pharmaceutical drugs. The reasoning behind this strategy by the pharmaceutical companies is relatively simple, if they can promote their products and make its trade name and cure synonymous with the ongoing medical complaint in the public’s mind, then they can create momentum utilizing the end customer. Another reason for doing this is to get any of their major blockbuster drugs to pay for the company costs for their other company made drugs sold in smaller volumes Another reason for marketing these blockbuster drugs as to make a success of these drugs synonymous with the company name creating consumer goodwill towards the next product. The latest trend is for reduction in the number of blockbuster drugs and pharmaceutical companies delving back into their former research to find potential missing new specialized drugs, .this can be seen clearly by the reduction in applications to the FDA showing ever reducing numbers of new drugs. Another complication that pharmaceutical companies must contend with is the ever-growing number of over-the-counter substitutes (OTC’s) that the consumers choose to purchase as an alternative.

Over a period of 20 years Naprosyn was widely prescribed as an arthritis remedy but now is available as an over-the-counter drug. A whole spectrum of drugs from arthritis to antihistamines are now available without prescription providing relief to customers but adding little to the economic bottom line of pharmaceutical companies that originally developed these drugs. Another complication in drug marketing is the force exerted by HMOs on doctors and what doctors prescribe .Generally the majority of HMOs are not big on covering high prescription costs for new medicines recently brought to market. The economics are easily understandable because it is not about a single client which needs a single drug but the numbers are multiplied by the potential hundreds of thousands. Therefore HMOs seek to be conservative. And because of that they create a potential customer roadblock for pharmaceutical companies with the new drug on the market at a very high price. Because of the HMO will not cover the price then the customer must, which generally means the consumer settles for less than the newest product.

managed care organizations (MCO), compared with 5 per cent of the US population covered in 1980. These MCOs typically provided full coverage for prescription drugs. But, because of their sheer mass, these institutions had considerable bargaining power with drug companies

If present industry overview is taken into consideration then the global pharmaceutical market in 2010 is projected to grow 4 – 6% exceeding $825 billion. The global pharmaceutical market sales is expected to grow at a 4 – 7% compound annual growth rate (CAGR) through 2013. This industry growth is driven by stronger near-term growth in the US market and is based on the global macroeconomy, the changing combination of innovative and mature products apart from the rising influence of healthcare access and funding on market demand.

Global pharmaceutical market value is expected to expand to $975+ billion by 2013. Different regions of the world will influence the pharmaceutical industry trends in different ways. http://www.da-group.co.uk/index.php?option=com_content&view=article&id=31%3Amicro-and-macro-environments&catid=2%3Amarketing-lectures&Itemid=3

CURRENT CHALLENGES FOR THE RESEARCH-BASED INDUSTRY

To understand why “business as usual” is no longer an option for the research-based drug industry, it is worth considering some of the myriad challenges that drug companies currently face. At the top of the list is the upcoming onslaught of patent expirations of many highrevenue- generating branded medicines. Between 2009 and 2012, worldwide sales for these products will exceed $112 billion (Table 1). Included in this list are 36 blockbusters (drugs with annual sales of $1 billion or more). Some important examples include Singulair (montelukast), with more than $4 billion in annual sales (patent expiration in 2012); Plavix (clopidogrel), with more than $8 billion in annual sales (patent expiration in 2011); and Lipitor (atorvastatin), with an industry-leading $13.7 billion in annual sales (patent expiration in 2010). Given that only 3 in 10 new products, on average, generate revenues equal to or greater than average industry R&D costs,1 the loss of patent protection on these blockbusters represents a very real threat to the industry’s ability to sustain its own growth. Without question, many of the large pharma mergers and acquisitions announced in 2009 reflect the industry’s desire to avoid the imminent danger of the patent cliff, rather than an interest in enhancing R&D capabilities or scope.

The current environment for innovation presents formidable economic, regulatory, and political challenges for the research-based pharmaceutical industry. In particular, the growing time, cost, and risk related to drug development are stubborn obstacles to filling industry pipelines and boosting the output of new pharmaceutical and biological products. Presented here is a model of an innovation network. Although structures may vary, the innovation network offers the best mechanism to ensure viability and economic success for all sectors of the pharmaceutical and biotechnology industry, as well as the uninterrupted flow of innovative lifesaving and life-improving medicines for waiting patients.

The Rise of Contract Research Organizations Clinical trials are administered by investigators at hospitals, academic institutions or managed sites. The investigators find and enroll healthy and symptomatic volunteers, each of whom is required to sign an informed consent acknowledging acceptance of the drug and its potential side effects. The testing protocol and informed consent form are monitored by Institutional Review Boards (“IRBs”) in the sites where the trials are conducted. In essence, the IRB acts as an ethics committee to ensure the safety of patients and volunteers. Once clinical trials are completed, the data are subjected to biostatistical analysis over a 6 to 12 month period.’3 If the data yield promising results, the sponsor seeks final approval though a New Drug Application (“NDA”). The NDA must contain all scientific information the sponsor has gathered and typically fills 100,000 pages or more.’4 During the review period, the FDA assesses the safety and effectiveness of the drug, the manufacturing process, and the risk-benefit calculus.’5 By law, the FDA has 180 days to either approve the application or notify the sponsor of the opportunity to request a hearing on the merits of the application.’6 In practice, however, the FDA review process takes more than two years; in 1996, for example, the mean approval time for NDAs was 17.8 months, down from over 30 months during the late 1980s.’7

Following approval, the FDA may require additional post-market research. Post-market surveillance regulations require the sponsor to collect and periodically report additional safety and efficacy data.’8 In addition, the FDA may request further clinical research (“Phase IV”) to find new uses for the drug, test dosage formulations, compare the drug to competitors’ treatments, and assess long-term effects.’9 Finally, pharmaceutical

Conclusions

A continuous call for ethical standards by pharmaceutical companies that market in the United States is often put aside because company marketing and business model of making profits matter more.(Pharmaceutical & Drug Manufacturer, 2011). Brezis (2008) writes that the US public will lose out in the long run because the pharmaceutical companies are more focused on marketing and profits than about public health. Drug trial deaths still happen and have been described as a trade secret. It is not just one of the big pharmaceutical companies by Johnson & Johnson, Merick and others whose own safety documents raise concerns that are buried in stacks of papers while marketing continues (Brezis, 2008). But this is offset by the ability of both the doctor and patient to use the Internet to search out the detailed information and become truly informed. Each of them can then make an informed decision about the benefits and potential drawbacks of using pharmaceuticals.