The Senate voted down an amendment to allow drug re-importation this week. Democratic Senators from states with drug company headquarters made the difference voting against the measure. The supporters of re-importation think getting drugs from Canada and Europe will lower prices for Americans. Opponents worry about counterfeiters that cause safety concerns.

The myth rarely discussed is that re-importation will lower prices. If the bill was passed, drug companies would limit production in Canada and Europe to what is actually consumed in those markets. Any product diverted for re-importation would create supply shortages in those markets. While some cheaper supply may make its way to the U.S. initially, drug companies would quickly adjust production to prevent it. Canada and Europe would likely want to prevent exports to the U.S. if it led to shortages there.

The safety concern is a valid one. There is no safety issue if the drugs are real. It is the same drug whether it is produced in European or U.S. plants of multinational drug companies. The problem is that counterfeit drugs are a big problem and criminals are good at making them look real. The risks of phony drug s are high in that they can cause death from adulterated ingredients. Allowing imports would open the door for more opportunities for criminals to infiltrate the distribution system.

Congress needs to encourage drug innovation by allowing drug companies a chance to make good return on investment. The American drug industry is one of our few remaining manufacturing competitive advantages. Congress needs to understand that finding ways to force lower prices will only lead to less innovation, more domestic job cuts, and a high likelihood that the American drug industry will quickly become the Chinese or Indian drug industry. It is politically easy to demand lower prices in the U.S. market. It is loaded with negative long-term effects, however, and the American people will be better off long term with a vibrant U.S. led drug industry. Ask Americans if they want their next pandemic vaccine sourced from China, and I am sure they would rather depend on American companies. Congress did the right thing defeating re-importation.

The DTC spending declines seen in the last few quarters seem to be over. TNS reported growth of 15% in 3Q after a 6% decline in first half. While not at the levels of DTC peak spending it appears we will have stabilization if not modest growth for 2010. Drug companies can now see the health care reform bill emerging with some more clarity. This will help in their planning process.

It is clear that at least in the Senate, there is a more pro-business attitude than in the House. Therefore, it seems clear the Senate will not allow a bill that destroys the health care for profit businesses. That being said, drug companies are not out of the woods completely. There is still talk of re-importation of cheaper drugs and the ending of tax deductions for DTC.

My guess is we will see modest growth in total DTC spending in 2010 after what looks like a flat 2009 if 4Q looks like the 3Q trend. The good news is that big brands are still using DTC and the talk of switching to other non-consumer promotional techniques is materializing.  Some recent studies that have suggested DTC is not that effective have caused some angst about the future of DTC.  These studies, however, are limited in scope and not convincing.

There will be the continued evolution of targeted media, albeit slowly. The FDA will not quickly make social media or web search easy for drug companies. We will see mass media still a key part of media plans for the foreseeable future. Given the need for cost reduction, I would expect more DTC on disease prevention, diagnosis and early treatment. This may not be evident in 2010 but I am convinced it is a long term trend for makers of health products.

What is clear is that consumer communication of health products will be a booming field in the next decade. There is consensus that we cannot remain an ever fatter, less active society and have any money for anything other than treating our aging population.  Government, providers and suppliers of health products will need to be innovative to change the health behaviors of the American public. Much of that innovation will be in how to market products and services that facilitate that behavioral change. That bodes well for the careers of health marketers in the next decade.

The parade of anti-DTC studies continues. This one says prices of Plavix were raised just before DTC started. The study is one of the many done by academics who are implying DTC is bad for the public because it raises prices for consumers. Here, the Harvard researchers looked at Plavix sales pre and post DTC for Medicaid patients. They found that despite heavy DTC spending, no increase in sales was noticed. They seemed quite concerned that Plavix took a 12% price increase just before the DTC started and feel the motivation for the price increase could have been to fund the DTC.

It is too bad the authors are so off base. It is too bad so many media outlets jump on a study like this to imply DTC causes price increases. Nothing could be more incorrect. First, drugs take price increases and charge the maximum price they can whether or not DTC is done. All businesses price to maximize profit. They charge what the market will allow. Price increases were common before the DTC explosion in the late 1990’s.

Second, Medicaid patients are not the target of DTC. People with private plans who can afford co-pays are their target. Drug companies do not target people who have very little influence in prescribing decisions as in Medicaid. It is no surprise sales did not increase in that group.

Third, Plavix has been running DTC for years. I am sure they are seeing incremental sales for their DTC investment or else it would have been discontinued years ago. The fact that Medicaid sales were flat is no test of DTC success.

Here we have a case where the authors, without any real relevant facts, are raising a concern that has never been proven. DTC creates competition. Competition usually lowers prices. Of course drug companies need to price to cover all their expenses and DTC is one of those expenses. That does not mean they can automatically take price increases to cover DTC. What they expect is that incremental sales will cover the cost of advertising and they can recover that investment without price increases.

Most large drugs that use DTC are in categories with at least 2-3 major competitors. Their pricing power is weak and they can take price increases only if the market forces allow it. Most provide large discounts to volume buyers. I am quite confident consumers pay less because of DTC but we need a wide scale multi-brand study to prove it. Single brand studies done with an impoverished audience is not particularly relevant. Of course, the main media will jump on this study as an example of nefarious drug company marketing practices. That is the danger of this one study. I am sure we will hear anti-industry forces quote this study as proof that consumers are paying high prices to fund television campaigns. I hope the drug industry will provide the facts about the link between pricing and DTC. If not, I fear ending the DTC tax deduction will gain traction.