How Pharma Wastes Billions While Tainting Doctors
If You Experience a Marketing Campaign for Longer Than 4 Hours Consult Your Doctor
Imagine you spent twenty odd years in school to become a doctor. You aced all the tests, learned all the acronyms, got 4.0’s across multiple degrees, and somehow got through residency and board exams. You would think that you had some level of reasonable expertise in your field – let’s say ophthalmology (i.e., fancy eye doctors). In fact, you have a claim to expertise exceeding all but a few thousand ophthalmologists more senior than you are. Not to mention that you likely specialized in a sub-field making your competitive set a literal handful of fellow ophthalmic specialists.
In this scenario you know your shit. In the odd chance that a patient comes in with a condition that you’re unfamiliar – or just less familiar – with you ask a colleague, check your specialties standard operating procedures, and read a couple things on it. In short, if you don’t already know what’s going on you will quickly figure it out.
Now, imagine a shiny 23-year-old comes striding into your practice or hospital one day wielding promotional materials for a given treatment option from the likes of Merck, Pfizer, etc.… We can assume that the 23-year-old (or even a veteran 45-year-old) is moderately intelligent. They’re not dumb. However, who is going to know more about a given condition – such as Thyroid Eye Disease? The physician who went to school for too long and sees patients every day, or Joey Bag-of-Donuts fresh out of Syracuse. Furthermore, as a patient, would you want your attending physician to be swayed by a pamphlet and a brief spiel instead of objective merits? Probably not.
However, according to the most solid numbers (admittedly from back in 2016) published in the Journal of the American Medical Association, the healthcare industry (device manufacturers, pharmaceutical companies, and testing firms) spends in the neighbourhood of $30 billion a year on advertising to patients and physicians in the United States. 68% of this spend goes towards marketing to physicians. So just north of $20 billion. That’s a fair chunk of change. If you account for exchange rates, that’s more than Canada spent last year on its military.
Here's the dirty secret though. HCP marketing does not work. Okay, maybe 5% of it does. But just working through the thought experiment posed at the beginning of this piece would lead you to the conclusion that doctors either don’t give much weight to pharma’s efforts OR they at least shouldn’t. But allow me to give some insider scoop – as the kids say.
I was at a medical conference in Hawaii recently. For one reason or another I had a conversation with the Chief Commercialization Officer of a pharma company with a market cap in the single-digit billions. Not big, but also, not small. I asked this individual why their company was there sponsoring the event – branded tote bags given to each attendee and a speaking slot discussing clinical trial data. My estimate was that all in this person’s company was spending north of $200,000 on the conference.
Their response was “we’re here to be here.” When pushed on the topic of ROI for the event they quite bluntly said “oh, it’s a deeply negative ROI, I don’t think we get a single marginal penny from being here… Our events team will throw out some numbers but they’re all bullshit.” So why were they there?
The individual elaborated further that “well, if we aren’t here and one of our competitors was, then people would ask why.” This statement makes sense at first glance except it doesn’t necessarily feel right. I countered with the question of “do people actually notice these things? For example, I’ve never seen a sell-side analyst mention that a company wasn’t at a second-tier medical conference.” The CCO’s response? “Oh, no analyst cares if we’re here or not.”
So let me reiterate my first question. Why the hell was this company – or any company – at this event? Eventually the CCO said the quiet part out loud. ‘A lot of the organizers of this event are KOLs [key opinion leaders i.e. medical influencers].’
Ah, so there we have it boys and girls. The CCO’s company wasn’t there because doing so moves the needle in terms of equity valuation or for the purpose of releasing new data (their presentation was several months old at this point). Instead, they were there because by sponsoring the conference they built up goodwill with the leaders of the medical community. I should add that when pressed the CCO explicitly stated – “it’s not quid pro quo” but of course it’s not, that’d be a bit dodgy and certainly something you would not want to admit as an officer of a public company.
But here’s the thing. It is 100% quid pro quo – and on top of that it is completely useless unless you have some morally and/or legally dicey things going on.
Let me explain.
As mentioned, KOLs are physicians who are influencers. Think of the head of a given department at Harvard Medical School. That doctor probably has a certain level of credence and prestige within the medical community at large and certainly within their specialty. If this person were to be seen as a spokesperson for a treatment option, then people would at the very least notice. It’s a case of ‘if Dr Big-Shot stands behind it then it must be legit.’ Note though that this heuristic is an abdication of a doctor’s moral and professional obligation to use a treatment option based on underlying science and patient specific parameters. But you can see how having Dr Big-Shot associated with a product could – in theory – move marginal dollars.
Let’s say though that due to FDA regulations you can’t have Dr Big-Shot out there shilling your wears. Or perhaps, Dr Big-Shot does not want to be perceived as a sellout. So, what do you do as a pharma company? You stick the good Dr on your ‘advisory board’ whereby they receive hard and soft compensation for ‘advising’ development efforts and what not. If that doesn’t work, you might hire them as a consultant. Downstream from that you can hook them up in terms of – I don’t know – sponsoring an event or convention that they help organize.
To be fair, physicians are required to state their financial conflicts of interest when speaking in a public capacity. The funny part is how ridiculous these financial disclosures can be.
If you ever go to a medical conference, you will see that the second slide of any PowerPoint presentation lays out the potential conflicts. These slides are always rushed through. What is likely the biggest shock is not that KOLs are getting compensated by pharma companies but just how many they are in cahoots with. I’m talking size 6 font taking up the whole slide. Inversely, there are some physicians who have 0 conflicts and disclose accordingly – although it would seem strange for them to have no pharma stocks in their portfolios but anyways.
I was at a rheumatology conference a few months back talking to a KOL and they rattled off three pharma companies they were giving talks for and three more who were taking them out to dinner and drinks. You can make a lot of money just shilling for companies while nominally being associated with a treatment center.
What’s the benefit to a pharmaceutical company in paying a dozen or so physicians thousands of dollars a year to be connected to their brand in some capacity? Again, there is no reason to a priori assume that compensation will move a physician in such a way as to inappropriately prescribe a treatment option for a patient. You might think ‘oh, but opioids’ but let’s be clear, the ‘science’ in that case was presented as favoring the increased usage of opioids. Sure, it was all a lie, but a doctors doing due diligence in the early days likely would have come to the conclusions Purdue Pharma wanted them to. It’s an extreme example that I’m not sure works in general.
If the science is seemingly competent and there’s a valid medical use case, then the damn things basically sell themselves. Why? Because there are sick people out there with physicians aiming to heal them. Viagra didn’t sell like hotcakes because of marketing it did so because suddenly men who felt as though they had lost their manhood could get jiggy with it.
This leads us back to the question of ‘why would the CCO’s company be at this conference?’ Sure, we’ve settled on some level of quid pro quo but that’s a symptom not a cause. By sponsoring a conference – as with soft or hard comping ‘advisors’ etc.…. – the pharma companies are really buying word of mouth from KOLs.
I can tell you right now that the bulk of the CCO’s time was spent talking with KOLs expounding the miracle that is his company’s forthcoming treatment option. Sure, there was a session dedicated to presenting the gospel of the new drug to a broad audience but that was window dressing. Pharma companies will post on LinkedIn that their SVP of [insert meaningless noun] is presenting at a conference. But it’s largely to distract from what they are really doing at the event. They’re there to ensure that the KOLs feel good about themselves and the company’s brand in the hope that when they are networking with colleagues, they will name drop the company and their offerings. If you’re wondering ‘where’s the ROI there?’ my answer is simply ‘the fuck if I know.’ My guess is near 0.
Why is word of mouth questionable in terms of economic value? Great question. So, word of mouth can raise awareness – fair enough. But at the end of the day medical colleges, association, etc.…. have guidelines of care. This means that the American Academy of Ophthalmology has protocols regarding ‘lines’ of treatment. So, if a patient has – I don’t know – Age-Related Macular Degeneration there is a treatment option regarded as 1st line. Why this matters is that (1) if a doctor deviates from the recommended treatment option they have to justify it in case of complications, and (2) insurance companies typically raise a kerfuffle if a doctor prescribes a treatment that is not in accordance with the standard operating procedures.
Now, there are 2nd, 3rd, and so on and so forth lines that are used if prior ones do not work but the idea here is the 80/20 rule of 80% of cases are treated with the 1st line option. The power associated with designation should be somewhat obvious.
I know of one case, via hearsay, where – allegedly – the position of a KOL relative to a pharmaceutical company at least contributed, if not led, to that company’s offering being designated as the 1st line treatment option for a condition. The KOL in particular – or so is my understanding – was an advisor, consultant, and speaker for a pharmaceutical company. At the same time, the person – as a KOL – was elected head of their specialty’s governing association. While this individual recused themselves from the selection process of a 1st line treatment option when the time came for selecting one, they are alleged to have put their thumb on the scale, shall we say, when it came to influencing those making the decision.
The treatment option is effective at treating the condition and likely would have been selected as the 1st line treatment option regardless but how much do you think a pharma company would pay for increased chances of being selected as the go to option? I can tell you it ain’t $0.
As with the Purdue case mentioned above this case is an exception to the rule given that I assume – rightly or wrongly – that 99% of doctors are ethical and not materially influenced by marketing efforts alone. Hilariously, I was at a nephrology conference where one of the poster presentations (basically glorified science fair shit that wouldn’t pass peer review) spoke about how the trade journals in the field were, more or less, funded by pharma companies in exchange for press promoting either clinical trials or specific disease state awareness.
The author was shocked I tell you to learn this. Even though they didn’t ask the question of ‘who the fuck else would pay for the garbage journalism here?’ It was the medical equivalent of the scene in Casablanca where Captain Renault is stunned by the occurrence of gambling at Rick’s.
Actually, let’s stay on this topic for a moment. I like doctors. They are normal folks who despite predominantly massive egos are good professionals. They really aren’t all that different from the rest of us. But 99% of them – at least in the US of A – are delusional regarding the nicety of their lives. Doctors are well compensated and often enjoy high-end facilities. They go to a couple conferences a year for like $750 admission fees and reduced rates on hotels. If they so choose, they can have every meal covered by attending industry events during the day and throughout the evening. The thing is though that they think that sort of thing is normal – that it just happens for everyone.
Doctors get pissed when they see taxi cabs outside conference centers wrapped in pharma ads. The moral indignation they express by the mere presence of pharma at their conferences can be intense. Not once do they stop to think that without sponsorships and pharma booths, they would have to pay full freight.
For a week in Chicago earning continuing medical education credits you’re looking at, I don’t know, $3,000. Without pharma they’d have to pony up over $10,000. The best they could do for their current rate would be a Holiday Inn outside Tucson.
Anyways, let’s focus again on the issue at hand. Why was the CCO’s company at the conference? Not because it gets press amongst sell side analysts. Not because it leads to materially more prescriptions being written. Not even because it fosters goodwill amongst doctors and KOLs that could increase the chances of being declared a favorable line treatment option. Instead, they are there for the sake of being there.
Of course, there’s a quid pro quo with KOLs because they organize the events and pharma’s presence makes the event affordable for their audience. In response, pharma gets good billing and favorable word of mouth. But again, this does not matter because 99 times out of 100 a doctor will simply follow the treatment guidelines as set forth by their specialty or through FDA approved options presented at a given conference or announced through other channels. Pharma companies simply spend money on in-person and digital marketing because they can.
What does this mean though? Let’s take the CCO. they make – probably – between $250,000 and $500,000 base plus bonus and stock options. On top of that, their company probably gives them $300,000 a year in travel allowance for them and their team. The CCO in question here had just come from the JP Morgan biotech showcase in San Francisco and was staying at a much nicer resort than me. The demand driver in his industry is God who keeps letting people become ill. The commercial success of the treatment will come down to FDA approval, the timing thereof, and the prevalence of the condition mixed with the treatment’s cost. If the drug fails to pass muster with the FDA that’s not his fault, it’s the scientists’ problem.
The CCO has no downside in terms of being blamed and all the upside coming from the work of others. What’s their purpose? Why does the role exist? No one really knows exactly except for the fact that they have a job, nonetheless.
What happened in pharma is that like any business, the powers that be decided that they had to have a marketing department. Why? To sell more stuff obviously. Except, as we’ve discussed at length here, doctors aren’t all that interested in – or allowed to – just select a treatment option for shits and giggles in response to a marketing effort. But the die was cast, the marketing department was created. And with every year the offerings sold, and the department asked for more money and people because it seemed to work – the drugs sold. But it’s all bullshit. The drugs sold because people got sick, and doctors sought to heal them.
Marketing departments though need to show their worth somehow in terms of being good relative to competitor teams and even objectively so. This leads to marketing departments seeking out those KOLs so they can tell the CEO that ‘hey, we got the head of oncology at Cleveland Clinic onto our advisory board’ or ‘Dr Smith from Harvard is in our video campaign.’ These are vanity projects mixed with dick measuring contests aimed to make the CEO and other higher ups feel like captains of industry. With this said, I fully understand why pharma companies would go to investor conferences – or host their own if they’re big enough. That’s where the equity upside lies. It’s the $20 billion in doctor marketing that doesn’t make any fucking sense. It’s a waste of money.
Allow me to introduce Johnson’s law: Any pharmaceutical company can reduce their physician marketing budget by 90% and still get the same revenue results.
This applies to both in-person and digital efforts. What gets measured gets managed and for some reason pharma companies decided to measure marketing metrics like foot traffic at conference booths, industry information session attendance, and engagements with digital assets. The result is that the industry – thanks to these metrics – thinks that performance thereof indicates improvement in the top and bottom line.
If metrics go up but revenue falls short – it must be because the competitors were more effective in their marketing efforts. The only solution? More marketing dollars to fight back. If metrics go up and revenue meets or exceeds expectations the only logical step is to invest more in marketing because, by God, it’s working. The difference between this situation and selling shit like shoes is that you can’t manufacture demand in healthcare. In the case of Viagra either your dick works, or it doesn’t. An ad can’t make you impotent.
Another insight from the CCO was that, in pharma marketing, spend has a lifecycle. For the first 3 years of a drug’s life companies throw seemingly endless amounts of dollars at any and all marketing efforts and channels because they only get one kick at the first impression can. After year 3 companies pull back on spend and seek to optimize by calculating some bullshit ROI based on metrics other than revenue. If you want video views, you look at what digital vendor provides the most views from the most target audience doctors for the least amount of dollars. This means that so long as drugs are being developed, there will be shit loads of dollars looking to do something with little to no care because funds will be pulled in 3 years anyway. Before they realize it’s all a façade the dollars are flowing to the new new thing.
The dollars keep flowing and CCOs keep heading to Hawaii for expense account meals.
Sure, pharma marketing is a waste of money. But it’s more than that. As the title of this piece states, these marketing efforts taint doctors. There is 0 legitimate reasons why a physician who is not a full-time employee of a pharma company should be speaking on the company’s behalf. What good does it do? Will they not merely parrot the company’s FDA approved talking points? Hint hint, they legally have to.
Sure, they can give testimonials about how their particular patients have responded to a treatment option and how they handle its administration with them but that’s a minor contribution to the commentary rather than an entire lecture. In fact, physicians publish peer reviewed papers post drug launch looking specifically at reactions and best practices associated with the utilization of a particular treatment option. What happens under the current regime is the leveraging of a KOL’s credibility to make the treatment option look better beyond its own merits. Isn’t the ideal world one in which a physician is prescribing based on a treatment option’s merits alone?
In each of the cases mentioned above where pharma spending interacts with KOLs in the hope of a favorable outcome for pharma companies the mechanism of success is dodgy at best. There is no innocent nature to these. Some of these mechanisms – such as gaining goodwill to pressure the selection of treatment line options – could probably be easily categorized as illegal or at the very least immoral. So, what the fuck is the point here? As far as I can tell it’s to justify a marketing team’s budget while massaging the ego of those in charge of the company. If I were a shareholder, I think I’d just want the marketing budget paid out in a dividend instead – at least then I, rather than an impotent CCO, would see the benefit.