Life Science Compliance Update

March 05, 2018

Senators Once Again Taking Up the DTC Tax Write-Off


Senator Claire McCaskill recently introduced legislation that would eliminate the ability of drug manufacturers to deduct the cost of advertising their products from taxes. Senate Bill 2478 attempts to amend the IRS code to “deny the deduction for advertising and promotional expense for prescription drugs,” and is co-sponsored by Senator Jeanne Shaheen.

This is not the first time legislators have tried to stop pharmaceutical companies from deducting ad spending as a business expense the same way other companies do with their ad costs. In 2016, a group of four Democratic senators led by former Senator Al Franken introduced “Protecting Americans from Drug Marketing,” a piece of legislation that attempted to end the advertising and marketing tax deduction for pharma companies. The bill was sent to the Committee on Finance, but no other action was taken, so the bill died in committee.

McCaskill said that this legislation stems from the service she has performed with Senator Susan Collins on the Senate Aging Committee, where the two Senators worked together to investigate the rising price of prescription drugs. During the investigation, the Senators found that drug companies spent more on sales and marketing of their drugs than they did on research and development.

Following the introduction of the legislation, McCaskill released a statement. “Drug companies have too much influence in Washington,” McCaskill said. “So it figures we are one of the only nations in the world that allows both advertising of prescription drugs to consumers and allows those ads to be subsidized by taxpayers. I’m determined to fight these high drug prices and a good first step would be to stop subsidizing their ads for drugs that must be prescribed by a doctor. Too many drug companies are spending more on sales and marketing than on research and development. And Missourians are tired of paying for it.”

The bill is expected to receive pushback from the advertising and media industries, in addition to the pharmaceutical industry.

Holly Campbell, deputy vice president of public affairs for the Pharmaceutical Research and Manufacturers of America, which represents leading drug companies, said that McCaskill’s legislation “fails to recognize the value of such ads to patients.” McCaskill said, “I have talked to doctors and they say they now they spend a significant portion of their time talking patients out of drugs they have seen on TV.” In response, Campbell notes that the ads often do the exact opposite — prompting patients to seek diagnosis for such conditions as high cholesterol, hypertension, diabetes and depression, “These common, chronic and costly conditions are often underdiagnosed and undertreated in the general population, which drives up health care spending in the long run.” Campbell also noted that the advertising costs are misleading, as they often include other things such as sales and legal costs.

“We have always strongly opposed efforts to take away the tax deduction for advertising because we believe it would violate the First Amendment first of all, and second, it’s bad policy. A great deal of drug advertising is very valuable to consumers, as many are not aware of health issues they should be concerned about or how to handle health issues they have,” said Dan Jaffe, who heads the Association of National Advertisers’ (ANA) government relations office. “We have to just keep fighting and pointing out to people that this is a simplistic so-called solution that will not solve the problems they’re concerned about and will create new ones,” Jaffe said.

December 08, 2017

Drug Pricing Report Released by NASEM


The most recent example of drug marketing being caught in the crossfire of the drug pricing debate can be found in a report by the National Academies of Sciences, Engineering and Medicine, which included suppression of consumer marketing in a set of recommendations on how to lower the cost of prescription drugs for patients. One recommendation was that advertising costs should no longer be considered tax deductible as a business expense.

The report offers eight recommendations with twenty-seven different actions for their implementation (a sample of actions in each area appears below) to improve the affordability of prescription drugs without discouraging the development of new and more effective drugs for the future.

“Over the past several decades, the biopharmaceutical sector in the United States has been successful in developing and delivering effective drugs for improving health and fighting disease, and many medical conditions that were long deemed untreatable can now be cured or managed effectively,” said Norman Augustine, former chairman and CEO of Lockheed Martin Corp., former chairman of the National Academy of Engineering, and chair of the committee that conducted the study and wrote the report. “However, high and increasing costs of prescription drugs coupled with the broader trends in overall medical expenditures, which now equals 18 percent of the nation’s gross domestic product, are unsustainable to society as  whole. Our report seeks to address the market failures that currently permeate the biopharmaceutical sector, such as lack of competition due to distortions in the application of the patent protection process, the imbalance between the negotiating power of suppliers and purchasers, and the convoluted structure of the supply chain. Although changes within the current system will be demanding, they are likely to better serve the nation.”

One recommendation was that governmental purchasing power should be consolidated and applied to strengthen formulary design and improve drug valuation methods. The report recommends that to achieve that end, Congress modify current legislation to allow the United States Department of Health and Human Services (HHS) to directly negotiate prices with producers and suppliers of medicines, including acting on behalf of any relevant state agency that chooses to participate in the process. The report also recommends that Congress authorize HHS, related federal agencies, and associated private payers to expand flexibility in formulary design, including very selective exclusion of drugs, such as when less costly drugs provide similar clinical benefit.

As alluded to above, the report recommends that actions be taken with respect to marketing, including promoting the adoption of industry codes of conduct and discouraging direct-to-consumer advertising of prescription drugs as well as direct financial incentives for patients.

The report recommends,

Congress should disallow direct-to-consumer advertising of prescription drugs as a tax-deductible business expense. In addition, manufacturers and suppliers should adopt industry codes of conduct that reduce or eliminate direct-to-consumer advertising of prescription drugs and should increasingly support efforts to enhance public awareness of disease prevention and management. Clinicians, medical practices, and hospitals also should substantially tighten restrictions on pharmaceutical companies’ direct visits to clinicians, the acceptance and use of free drug samples, special payments, and other inducements paid by biopharmaceutical companies.

According to the New York Times, the “report is significant for several reasons,” including that a “respected national organization” has given a “searing critique of the way drugs are bought and sold.”

Two members of the panel that created the report filed dissents, including Dr. Michael Rosenblatt, who opined, “Allowing all government health plans to negotiate as a single block would establish a near monopoly” and could have a “devastating effect on long-term, high-risk investment” in drug research and development.”

July 11, 2016

Industry Expresses Concerns About FDA DTC Study

AbbVie, Eli Lilly, and Merck are all raising questions about the Food and Drug Administration's (FDA) plan to investigate the impact on consumer perceptions of prescription drugs when efficacy claims are included in advertisements. The Office of Prescription Drug Promotion (OPDP) conducted a study of direct-to-consumer (DTC) print advertising of drugs in 2015. OPDP plans to continue grappling with a better understanding of how consumers make choices and whether or not they really focus on efficacy claims or not.

The study, along with several others, follows the introduction of a bill by Representative Rosa DeLauro that would place a three-year moratorium on DTC ads of newly approved prescription drugs to fight rising drug prices and protect consumers from misleading information.


Prior research has found that marketing cues can have an influence on perceptions of drug quality and that patients and consumers may rely on those cues in the absence of quality information.

According to the FDA,

The objective quality of prescription drugs is not easily obtained from promotional claims in direct-to-consumer (DTC) ads; thus consumers may rely upon extrinsic cues to inform their decisions. Market claims such as '#1 Prescribed' and 'New' may act as extrinsic cues about the product's quality, independent of the product's intrinsic characteristics. Prior research has found that market leadership claims can affect consumer beliefs about product efficacy, as well as their beliefs about doctors' judgments about product efficacy.

FDA Study Plans

OPDP will run a main study, along with a follow-up, that will analyze consumer responses to fictitious prescription drug ads for a diabetic neuropathy treatment. There are two variables of interest to OPDP: the type of market claim (i.e., "#1 Prescribed," "New," etc.) FDA notes that the efficacy information will be in the form of realistic quantitative information (think, "46 percent of patients felt their nerve pain reduced by at least half, compared to baseline").

In the follow-up study, participants will complete a fifteen-minute paired choice experiment and will be asked to choose between two hypothetical drugs based on print advertisements, one of which includes a market claim from the Main Study. Participants will be provided with 48 sets of choices, with varying levels of efficacy information and market claims, and will be asked which drug they prefer based on them.

Industry Reaction and Comments

AbbVie raised concerns with questions in the study being biased by attitudes toward advertising in general that "may go well beyond the pharmaceutical ad" and that ads that present numeric efficacy claims and safety information may be susceptible to interpretation by participants.

Eli Lilly, on the other hand, has concerns with one of the research objectives for the main study, believing that it "suggests that the study will measure perceptions of the doctors' acceptance of the drug by respondents. Since respondents will only be seeing a print ad and not interacting with a doctor, we believe the research setting will be too artificial to gain meaningful insights into this topic."

Merck takes issue with several aspects of the study and would like for the FDA to "focus their efforts and research first on improving the health literacy of approved patient labeling and then on DTC print advertising. In addition, FDA should consider exploring the inclusion of benefit information in patient labeling, which may help improve consumer understanding and comprehension of patient labeling." Merck further suggests that for the follow-up study, the FDA reduce the number of trials for respondents across health literacy levels, as respondent fatigue can occur. Respondent fatigue is concerning because it can result in a reduced focus and unreliable responses.

The FDA somewhat responded to these concerns, noting that prior research has shown that consumers can actually reach numeric judgments about efficacy and risk despite the fact that no numeric information has been presented in an ad and that the FDA worked with an expert reviewer at OPDP to "produce efficacy claims that are realistic for this drug class."

The FDA agreed with Merck's concerns about the follow-up study and respondent fatigue, noting that pretest data "may reveal that the experiment can be shortened without loss to validity."


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