WASHINGTON—Companies in the pharmaceutical and other industries have recently been caught engaging in a number of deceptive marketing practices.
“Many companies consider the upside of deceptive marketing techniques worth the risk of being called out by regulators,” said Knowledge @ Wharton (KW) in a recent report.
The KW experts determined that pharmaceutical officials expect only a slap on the wrist instead of being publicly chastised by the U.S. Food and Drug Administration (FDA), allowing them to take even greater risks in advertising their products.
“The researchers show that while spending on direct-to-consumer advertising has increased dramatically—by 269%—the number of [FDA] citations has decreased by nearly 85%,” KW said.
A major concern is that the FDA has not grown exponentially with the increase in the number of companies and complexities in the market. The Office of Management and Budget decreased the FDA’s budget by 3.25 percent, leaving the FDA with far too few regulatory enforcement agents.
Tricks of the Trade
Pharmaceutical companies have become adept in using the Internet to advertise products in deceptive ways.
Research about positive and negative effects of certain drugs is discussed extensively by what appears to be a group of experienced researchers. But often the audience is unaware that the pharmaceutical company originated much of the information and that often profit motive, instead of concern for the public’s health, is involved.
“The web is like the Wild West as far as pharma advertising is concerned,” Sundar Bharadwaj, marketing professor at Emory University, said in the report.
The FDA’s budget needs to be adjusted because of new societal realities and inspectors should be added to the FDA’s staff. Bharadwaj said, “Without the drug company's name on the material, it is not clear whether deceitful claims about efficacy or risk are enforceable.”
Searching for Culprits
“For a number of pharmaceutical companies, spending on marketing is greater than on R&D, which indicates that these organizations are under pressure to provide returns because R&D is not paying off as well,” Bharadwaj explained, bringing to the forefront a truth that escaped FDA regulators.
The FDA opened a can of worms in 1997 when it gave pharmaceuticals the green light to market products directly to consumers, Emory University’s Martha Myslinski Tipton opined in her dissertation titled “Essays on Deceptive Marketing Strategies.”
For a few years, U.S. annual advertising budgets increased a little over 10 percent, but since 2005, pharmaceutical advertising has increased about 14.3 percent annually.
Tipton notes that Merck & Co. spent more advertising dollars in 2000 on the drug Vioxx—later recalled due to safety concerns—than Budweiser and Pepsi spent on advertising combined.
“The [pharmaceutical] industry now spends $5 billion in advertising aimed directly at consumers—a tactic that has eroded doctors' roles as gatekeepers in the prescription process,” Guy David, Wharton health care management professor, said in a KW report.
The U.S. Department of Justice recently fined Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. $2.3 billion for fraudulent marketing practices—the highest fine it has ever leveled against a health care provider for deceptive marketing practices.
The negative effect on Pfizer’s company valuation was more than evident.
“The decline amounts to a drop of 1% in market value, which translates into an $86 million loss of shareholder wealth for a median-sized firm in the [Lipton’s] study sample. In the case of Pfizer—whose market capitalization was nearly $98 billion in June 2009—the loss would have been about $1 billion,” KW said.
Reality could be crueler, as stockholders’ wealth could take a nosedive shortly after the negative information hits the airwaves.
Shareholders lost close to 9 percent of their stock value when Merck’s stock dropped from $25.19 per share to $22.93 per share on April 22, after the press had a heyday telling the world that a publication that appeared to be a peer-reviewed medical journal was in effect a marketing tool for Merck.
“I've seen no shortage of creativity emanating from the marketing departments of drug companies,” said Peter Lurie, deputy director of the public health research group at the consumer advocacy nonprofit Public Citizen.
“But even for someone as jaded as me, this is a new wrinkle [Merck’s fake medical journal marketing tool],” Lurie commented.
Pfizer was fortunate, as its stock price fell by just 1.12 percent on Sept. 9, from $16.13 to $15.95 and took only a few days to recover; however, the U.S. Justice Department recently charged Pfizer a large fine for deceptive marketing practices.
“Many negative marketing-related events, such as when a firm is exposed for using deceptive marketing, have no immediate impact on cash flows but garner a quick investor response,” the KW said.
Doctors, lured into cooperating with pharmaceuticals due to financial benefits, could face litigation from patients when victimized by a drug they prescribed.
“Physicians face consequences from deceitful drug marketing in the form of malpractice actions,” the KW article said.