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Consumers Ration Spending on Drugs

Consumers Ration Spending on Drugs

“Consumer product advantages need to be considered early on…”
-Bob Ehrlich

The economy has not surprisingly impacted consumer spending behavior on healthcare. IMS released some interesting data in their report on use of medicines in the United States. While spending in 2011 rose 3.7% to $320 billion, it was only up 0.5% without inflation. Branded spending was up only 2.2% and basically zero in real terms.

Consumer visits to physician offices dropped 4.7%, apparently a reflection of a desire to save on co-pays. Seniors reduced their prescription drug use by 3.1% in 2011. It is apparent that payers are requiring consumers to pick up more of the branded cost, as those drugs averaged a $40 co-pay.

What all these data show is a consumer squeezed by a weak economy and rising prices in things they cannot afford to do without like food, health insurance and gasoline. If consumers are paying $40 dollar co-pays for branded drugs versus a few dollars for generics, the pressure is on drug companies to justify the premiums.

We can expect the future to be even worse in terms of consumers taking on more of the cost burden. Drug makers are going to need to better differentiate the product advantages to get new users and do more coddling of existing users. The bombardment of physicians by detail reps is showing diminishing returns. Drug companies have cut back on freebies and physicians are more leery of taking those consulting fees and trips.

I admire Pfizer’s approach on Lipitor. They are essentially willing to sell the branded product at a generic price because some profit is better than no profit. I expect other brands to do the same when the generic alternatives appear. Keeping the brand alive is a good strategy while an RX to OTC switch is in the works. Other opportunities exist for branded drugs on patent to offer more dosing alternatives, easier to swallow pills, more non-pill options, innovative packaging, and other product enhancements.

Clearly the biggest opportunity is in after care for current users. While many drug companies have tried to have retention programs, the results are mixed at best. Consumers usually do not sign up and the offerings that are not particularly innovative. Most retention efforts offer the same health information found easily elsewhere. What we need are real consumer benefits that add value to the branded drug. I think most drug companies offer what they think the consumer needs, not what they really want. For example, a drug company selling a statin might create a custom recipe guide for healthy eating when the consumer would be happier with an off the shelf best selling cookbook.

Drug companies have to face the fact that their customers are equally consumers as they are physicians. Consumers are going to decide whether to pay $40 dollar co-pays. That means when generic alternatives exist, consumers are paying a lot more to buy a brand. That makes them more discerning buyers who expect real advantages. Even when no generic exists, there will always be OTC, dietary, and supplement alternatives. If drug companies are to thrive they better have a robust consumer marketing department that reminds the R&D and manufacturing groups that more is required that consumers can easily see, taste and feel in those products. That needs to be part of the advertising strategy and particularly highlighted in the DTC ads. Remember basic efficacy is only a starting point, so brand advantages need to be more than that and offer consumers other reasons to pay more. That is not easy in a heavily regulated environment where change is slow and approval process is long. That is why all the consumer product advantages need to be considered early on and consumer specialists brought in the early stages of drug development. Too often consumer specialists are brought in after the product is in phase 3 or near final approval. That is a mistake made by most drug companies. I hope that will change as consumers are more involved in the final drug selection due largely to their out of pocket contributions.

Bob Ehrlich, Chairman DTC Perspectives, Inc.

Bob Ehrlich
Chairman & Chief Executive Officer at DTC Perspectives
Bob Ehrlich has over 20 years marketing experience in pharmaceutical and consumer products. Bob is the CEO of DTC Perspectives, Inc., a DTC services company founded in 2000. DTC Perspectives, Inc. developed the DTC National Conference, the largest DTC conference in the industry. DTC Perspectives, Inc. also publishes DTC Perspectives, a quarterly journal dedicated to DTC issues and practices. In addition DTC Perspectives, Inc. does DTC consulting for established and emerging companies, and provides DTC marketing plans for pharmaceutical companies.
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