Will Deceptive Marketing Cripple Pharma Brands?


Recent events suggest so.  Last month, pharmaceutical giant Pfizer agreed to pay $2.3 billion (the largest settlement ever levied against a US firm) to settle civil and criminal allegations that it violated federal rules governing drug sales and marketing for its pain-killer Bextra plus three other medications.  And the financial fallout will likely continue according to a paper recently published in the Journal of Marketing.  This study examined the financial implications of deceptive marketing on a drug company’s value.  The paper, “Regulatory Exposure of Deceptive Marketing and Its Impact on Firm Value,” analyzed the decline in shareholder value experienced by drug companies that have been the target of deceptive marketing citations by the U.S. Food and Drug Administration.   Specifically, the study identified a variety of deceptive marketing practices targeted at consumers and physicians, including 1) unsubstantiated superiority and effectiveness claims;  2) omitted risk information and 3) illegal marketing programs.

The study concludes that the identification and publication of deceptive marketing practices could result in a drop of 1% in a company’s market value, which translates into $86M of value destruction for a median-sized firm within the study sample.  These declines are in addition to any penalties leveled by the government or courts. In the case of Pfizer (whose market capitalization was nearly $98 billion in June 2009), a 1% drop in market value would equal  about $1 billion, above and beyond the agreed settlement.

Unfortunately, the Pfizer case is not the only example of deceptive marketing hurting a company’s share performance.  The paper reviewed 170 FDA letters citing inappropriate marketing practices, including promotion of drugs for so-called “off-label” uses-conditions for which the product was not officially approved by the FDA. One of the most famous and egregious examples of this was Merck’s marketing of Vioxx, which resulted in a multi-billion dollar balance sheet hit for the company.

Even if we accept these firms were acting ethically, there could still be many reasons why deceptive marketing occurs.  For example, there could be reduced marketing flexibility due to regulations; a product may not be superior to competition or; the product may generate a lower than expected value proposition (or higher risks) for patients.  To be fair, a number of internal and external factors generate powerful incentives to push marketing boundaries and to maintain inertia around hidebound marketing processes.  Yet, given the substantial risks, business practices will need to change. For example:

  1. Increase the efficacy hurdle rates for new products – stipulate that each new product must deliver better efficacy or lower risk versus alternatives;
  2. Refocus marketing spend towards increasing consumer and physician value – Compared to passive programs like advertising and promotion, some marketing initiatives like education and support programs could promote products and improve patient/physician satisfaction.
  3. Review how marketing is delivered through the organization – A typical drug marketer often comes up through sales with a sales-driven bias as well as little experience with branding, risk management and messaging.
  4. Improve risk management – Pharma companies should consider studying the lessons of other brand-sensitive industries like Financial Services to better understand the brand impact of marketing programs.

For further information on our services and work, please visit http://www.quantaconsulting.com

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2 comments so far

  1. Polprav on

    Hello from Russia!
    Can I quote a post in your blog with the link to you?

    • mitchellosak on

      Sure


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