Drug utilization depends as much on price as it does on marketing

NEW YORK —When drugs lose patent protection, they and their generic counterparts gradually become cheaper. One might expect the lower price to translate into greater utilization, but according to a study by conservative public policy think tank the Manhattan Institute, this is not necessarily the case.

A drug usually loses patent protection 12 years after its introduction onto the market, at which point prices can decline by 61%, according to the study, conducted by Columbia University economist Frank Lichtenberg and Paris School of Economics economist Gautier Duflos, and based on U.S. prescription data between 2000 and 2004 from IMS Health. But even 16 years after the drug’s introduction, the rate of utilization—measured by the number of prescriptions dispensed—remains about the same.

So what happens?

Lichtenberg and Duflos found that decreased utilization of a branded drug offsets the increased utilization of its generic versions. At the same time, the decline in marketing of the drug by the branded drug’s manufacturer offsets the increase in utilization that results from the decline in price.

The authors wrote that utilization of a drug depends as much on the manufacturer’s marketing of it as it does on the drug’s price, and four years after a patent for a drug expires, the drug company typically has reduced spending on advertising by 60% because generic competition reduces the incentive to spend on marketing.