ECONOMIC AND BUDGET ISSUE BRIEF

Promotional Spending for Prescription Drugs

Pharmaceutical companies’ efforts to promote prescription drugs have attracted the attention of policymakers 

because such activities may affect the rate at which different drugs are prescribed and consumed, the total amount 

spent on health care, and, ultimately, health outcomes. 

Those promotional activities—usually undertaken on 

behalf of brand-name, rather than generic, drugs—may 

influence consumers and health care professionals through 

a variety of channels. For example, advertisements for prescription drugs that are aimed at consumers may prompt 

individuals to seek medical treatment they might otherwise have delayed. Such advertisements may also influence 

individuals to request a specific drug that is higher or 

lower in price or that is more or less effective than one 

they had previously used. Promotional efforts aimed at 

physicians may help them keep abreast of the latest drug 

therapies and improve their ability to treat patients. Those 

efforts may also lead doctors to prescribe brand-name 

medications that are more expensive than alternatives. 

The way that pharmaceutical manufacturers promote 

prescription drugs has changed significantly in the past 

decade. Until the late 1990s, pharmaceutical manufacturers confined their marketing efforts largely to 

physicians and other health care providers. In the late 

1990s, however, drugmakers began marketing directly to 

consumers—a practice known as direct-to-consumer 

(DTC) advertising. The Food and Drug Administration 

(FDA) issued draft regulatory guidance in 1997 (which 

was finalized two years later) that clarified the agency’s 

expectations about the way information in DTC advertisements should be presented in the broadcast media. 

Since then, the manufacturers of many prescription drugs 

have increased their purchases of air time on television 

and of advertising space in newspapers and magazines in 

an effort to make consumers aware of their products and 

to encourage them to visit their doctors to request a prescription. In 2008, spending on DTC advertising totaled 

$4.7 billion, nearly one-fourth of pharmaceutical manufacturers’ expenditures for all promotional activities. 

Those developments may be having an impact on the 

functioning, cost, and effectiveness of the nation’s health 

care system.

Marketing to Physicians and 

Consumers

Drug companies use advertising and promotions in much 

the same way that producers of other goods do: to inform 

consumers about an advertised product’s existence and 

uses and, if alternatives are available, to persuade consumers that the advertised product is better than competing 

products. If successful, advertising can spur demand for 

the good and therefore boost its producer’s sales and profits. Pharmaceutical manufacturers incur most of the costs 

of producing a drug during the research and development 

phases and during the process of gaining the FDA’s 

approval to put the drug on the market. Any additional 

sales that advertising generates can be highly profitable 

because the prices that manufacturers receive for their 

products generally exceed the cost to manufacture and 

distribute those additional units.

Drug companies face a different task in making sales than 

do the producers of most consumer goods, however, 

because several separate actors must be persuaded that a 

prescription drug merits purchasing. First, a consumer 

must perceive that visiting a doctor to seek diagnosis and 

treatment offers a benefit. Then, following an examination to diagnose the patient’s condition, the doctor must 

determine an appropriate treatment and, when warranted, 

write a prescription. Finally, the consumer must fill that 

prescription for the manufacturer to make a sale. (In many 

cases, the individual’s insurer can also influence prescription drug purchases by determining whether or not to 

include a drug on the formulary of drugs it covers and by 

deciding how large a copayment to assign to it.1

) 

Recognizing that both consumers and physicians take part 

in the decision to purchase a drug, pharmaceutical manufacturers adopt different marketing strategies for reaching 

CBO A series of issue summaries from

the Congressional Budget Office

DECEMBER 2, 2009

1. Pharmaceutical manufacturers promote their products to health 

insurers and pharmacy benefit managers (PBMs) to encourage 

them to include their products on plans’ formularies and to 

assign those products a low copayment. See, for example, 

SDI, “SDI Reports: Takeda Touts New Drugs to Managed 

Care” (press release, Plymouth Meeting, Pa., August 31, 2009).
2 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

each group. Direct-to-consumer advertising appears in 

magazines and newspapers, on television and radio, on 

outdoor billboards, and increasingly online. Drug companies also promote their products to physicians in a variety of ways. They send sales representatives to meet with 

physicians, nurse practitioners, and physicians’ assistants 

in a practice called detailing. During those sales calls, the 

representatives discuss drugs manufactured by their company that are relevant to the physician’s specialties, and 

they may provide product samples and reprints of academic literature that discuss their company’s products. 

In addition to detailing, pharmaceutical manufacturers 

purchase advertisements for their drugs in medical journals. They also sponsor professional meetings and events, 

both in person and online, including some that offer physicians credit for continuing medical education.2

Overall Marketing Trends

Pharmaceutical manufacturers spent at least $20.5 billion 

on promotional activities in 2008.3 Detailing to physicians, nurse practitioners, and physicians’ assistants cost 

$12 billion, accounting for more than half of that promotional spending (see Figure 1). Drug companies spent 

another $3.4 billion sponsoring professional meetings and 

events and about $0.4 billion placing advertisements in 

professional journals. Pharmaceutical manufacturers spent 

the rest of their promotional budgets, $4.7 billion in 

2008, on direct-to-consumer advertising. To place those 

figures in context, the Pharmaceutical Research and Manufacturers of America (PhRMA) estimated that, among its 

members, domestic sales of pharmaceuticals and medicines totaled $189 billion in 2008 and domestic spending 

on research and development totaled $38 billion.4 In 

2008, promotional expenditures equaled 10.8 percent of 

the U.S. sales reported by PhRMA, in line with most years 

since the early 1990s, during which time that share has 

remained between 10 percent and 12 percent.

The growth of pharmaceutical manufacturers’ overall 

promotional spending has slowed from a double-digit 

annual pace in 2003 and 2004 to a rate that is close to 

zero. That slowdown is probably related, at least in part, 

to the decline in the number of new drugs that have 

received FDA approval since 2000. In the second half of 

the 1990s, the FDA approved an unusually large number 

of drugs, some of which were the first on the market to 

treat certain conditions and a number of which treat widespread conditions. Not only are fewer new drugs being 

approved of late, but more drugs also face competition 

from generic versions. Those factors may be particularly 

important in explaining declining spending on DTC 

advertising, which peaked at $5.2 billion in 2006, because 

pharmaceutical manufacturers tend to use more DTC 

advertising for drugs that have especially broad potential 

markets, drugs with few or no substitutes, or drugs with 

some combination of those characteristics.

To study the potential effects of promotional spending for 

prescription drugs, the Congressional Budget Office 

(CBO) analyzed data from SDI, a company that collects 

and sells information about the pharmaceutical industry. 

CBO examined data on promotional activities from 

1989 to 2008 for drugs in the classes of medications that 

include most outpatient drugs that were produced in 

tablets or capsules and were among the top-selling drugs 

in 2003.5 

Direct-to-Consumer Marketing

Until the late 1990s, the use of DTC advertising was 

limited, consisting mainly of print advertisements that 

presented the required disclosure of the risks associated 

with the advertised product in a manner similar to the 

2. In several recent cases, the appropriateness of certain promotional 

activities undertaken by pharmaceutical companies has been 

called into question and some companies have come under 

scrutiny for promoting products for uses not approved by the 

FDA. See, for example, Department of Justice, “Justice Department Announces Largest Health Care Fraud Settlement in Its 

History” (press release, Washington, D.C., September 2, 2009).

3. That amount (obtained from SDI Promotional Audits) does not 

include the expense of the free samples that pharmaceutical manufacturers distribute to physicians, which one study estimated to 

have a retail value of $18.4 billion in 2005. See Julie M.Donohue, 

Marisa Cevasco, and Meredith B. Rosenthal, “A Decade of 

Direct-to-Consumer Advertising of Prescription Drugs,” New 

England Journal of Medicine, vol. 357, no. 7 (August 16, 2007), 

pp. 673–681. It also excludes other activities that may have 

promotional value, such as efforts targeting PBMs and research 

grants that encourage studies and publications about products.

4. Pharmaceutical Research and Manufacturers of America, Pharmaceutical Industry Profile 2009 (Washington, D.C.: PhRMA, April 

2009).

5. CBO’s data set was constructed using information from SDI’s 

Promotional Audit Suite. The data set includes 111 drug classes as 

defined by the IMS Uniform System of Classification and covers a 

majority of the top 200 (in dollar sales) outpatient brand-name 

drugs sold in solid form (for oral administration) in 2003 and 

their closely related therapeutic substitutes. Other dosage forms 

are not included in the data set. The starting date for each type of 

promotional spending varies, as SDI has expanded its data collection to include other types of promotional spending. 
ECONOMIC AND BUDGET ISSUE BRIEF

PROMOTIONAL SPENDING FOR PRESCRIPTION DRUGS 3

Figure 1.

Promotional Spending by Type of 

Marketing Activity, 1989 to 2008

(Billions of dollars)

Source: Congressional Budget Office based on data from SDI 

Promotional Audits.

Notes: The starting date for each type of marketing reflects the date 

at which SDI began including the series in its collection of 

data.

Detailing refers to the practice in which pharmaceutical 

representatives make sales calls to physicians and other 

health care professionals to discuss the uses of a particular 

prescription drug and its benefits for patients.

DTC = direct to consumer.

summaries offered in advertisements directed to physicians. Television advertising was less popular, however, 

because presenting the labeling information required by 

the FDA in a 30- or 60-second commercial proved 

impractical.6 A guidance document issued by the FDA in 

draft form in August 1997 and finalized two years later 

laid out an approach for pharmaceutical manufacturers to 

use in radio and television commercials that would comply with the risk-disclosure requirement. Instead of presenting all of the potential adverse effects as they appear in 

the package labeling, drugmakers could provide a brief 

summary and refer viewers to a toll-free number, Web site, 

physician, or print advertisement that would provide 

more-detailed information about potential risks and sideeffects.7 Subsequent guidance documents from the FDA 

focused on similar issues in print advertisements.

Since the FDA published its draft guidance document 

on DTC advertising in the broadcast media, drug companies have spent most of their DTC budgets on television 

commercials. However, some observers have questioned 

how carefully DTC advertising—especially television 

commercials—balances the presentation of a drug’s potential benefits and risks, as well as whether such advertising 

plays a useful role in the nation’s health care system.8

In 2008, pharmaceutical manufacturers spent $2.6 billion 

on DTC advertising for the drugs in CBO’s data set, equal 

to about 55 percent of the industry total for that year. 

Television commercials, including those broadcast on 

cable stations, accounted for $1.6 billion of those outlays, 

while expenditures for print advertising totaled about 

$900 million. The newest outlet for direct-to-consumer 

advertising—the Internet—still represents a small share of 

such advertising. Drug companies spent $93 million in 

2008 on online banner and display ads and for ad time in 

streaming video presentations for the drugs in CBO’s data 

set. In addition to that amount, drug companies also purchased sponsored links on search engines and hosted their 

own product- or disease-specific Web sites. Regulators 

have begun issuing warnings to manufacturers to ensure 

that the presentation of risks and benefits in Internet 

advertisements complies with the law.9

Different Marketing Strategies for Different Drugs

Pharmaceutical manufacturers use different marketing 

strategies for the drugs they produce. Many drugs are

promoted solely to physicians, with no attempt to reach 

6. See statement of Janet Woodcock, M.D., Director, Center for 

Drug Evaluation and Research, Food and Drug Administration, 

before the Senate Special Committee on Aging, Regulating 

Prescription Drug Promotion (July 22, 2003).

1989 1992 1995 1998 2001 2004 2007

0

2

4

6

8

10

12

Detailing to

Health Care

Professionals

Meetings and

Events

DTC

Advertising

Journal

Advertisements

7. For the final version of the draft guidance document, see 

Department of Health and Human Services, Food and Drug 

Administration, Guidance for Industry: Consumer-Directed 

Broadcast Advertisements (August 1999).

8. See, for example, Direct-to-Consumer Advertising: Marketing, 

Education, or Deception?, hearing before the Subcommittee on 

Oversight and Investigations of the House Committee on Energy 

and Commerce (May 8, 2008); and The Impact of Direct-toConsumer Advertising on Seniors’ Health and Health Care Costs,

hearing before the Senate Special Committee on Aging, Serial 

No. 109-14 (September 29, 2005).

9. See, for example, Department of Health and Human Services, 

Food and Drug Administration, Warning Letter to Johnson & 

Johnson regarding a Webcast video promoting Ultram ER, 

May 12, 2009; and Warning Letter to Bayer Healthcare Pharmaceuticals, Inc., regarding sponsored links on Internet search 

engines for Levitra, Yaz, and Mirena, March 26, 2009.
4 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 2.

Promotional Activity for Prescription 

Drugs in CBO’s Data Set, 1989 to 2008

(Number of drugs)

Source: Congressional Budget Office based on data from SDI 

Promotional Audits.

Notes: The starting date for each type of marketing reflects the date 

at which SDI began including the series in its collection of 

data.

Detailing refers to the practice in which pharmaceutical 

representatives make sales calls to physicians and other 

health care professionals to discuss the uses of a particular 

prescription drug and its benefits for patients. 

DTC = direct to consumer.

consumers. Others are heavily promoted to consumers 

and, in varying degrees, to physicians as well.

That different marketing strategies are used for different 

drugs is not surprising because there is no consensus 

among experts about the effects of such strategies on the 

sales or prices of prescription drugs. For DTC advertising, 

studies that have analyzed the effects for a few specific 

drugs or classes of drugs have shown mixed results; the 

writing and filling of prescriptions increased for some 

advertised drugs but not for others.10 For detailing, some 

analyses have found positive effects on the number of 

prescriptions written for the targeted drug, but others suggest that detailing’s effects are unclear.11

Of the more than 2,000 drugs included in CBO’s data set, 

700 to 800 have some promotional spending reported in 

any given year. For nearly all of those drugs, some spending on detailing was recorded. However, manufacturers 

purchased DTC advertisements for fewer than 100 of 

those drugs in each of the years since 1995, the year the 

data set begins to encompass DTC advertising, making 

DTC advertising the least frequently used form of drug 

promotion (see Figure 2). Journal ads and professional 

meetings are used to promote fewer drugs than detailing 

but more drugs than DTC advertising.

Though pharmaceutical manufacturers use DTC advertising for only a small set of drugs, they spend heavily on 

DTC advertising for those drugs. For those drugs in the 

data set that were promoted using DTC advertising, average expenditures for such advertising peaked at $41.8 million in 2006. The average detailing expenditure for drugs 

promoted through detailing that year was $10.4 million. 

Drug companies spend far less per drug to promote drugs 

through advertisements in medical journals or by sponsoring professional meetings and events. In 2008, for the 

drugs in CBO’s data set with such expenditures, they 

spent about $1 million per drug on journal advertisements 

and $3.6 million per drug on meetings and events. 

Drugs promoted using DTC advertising are, on average, 

newer to the market than drugs promoted through detailing, but the difference in the average expenditures for 

DTC advertising and detailing seems largely a result of the 

distribution of the two types of spending. Drug companies spend similarly large annual amounts on detailing 

and DTC advertising for a few drugs (in some cases, more 

than $200 million a year on each); but they spend small 

amounts on detailing for many more drugs. Among the 

10. See W. David Bradford and others, “How Direct-to-Consumer 

Television Advertising for Osteoarthritis Drugs Affects Physicians’ 

Prescribing Behavior,” Health Affairs, vol. 25, no. 5 (September/

October 2006); and Michael R. Law, Sumit R. Majumdar, and 

Stephen B. Soumerai, “Effect of Illicit Direct to Consumer 

Advertising on Use of Etanercept, Mometasone, and Tegaserod 

in Canada: Controlled Longitudinal Study,” BMJ, vol. 337 

(September 6, 2008).

1989 1992 1995 1998 2001 2004 2007

0

100

200

300

400

500

600

700

800

Detailing to Health Care Professionals

Meetings and

Events

DTC Advertising

Journal

Advertisements

11. Some studies suggest that detailing may have positive effects on 

the number of prescriptions written for a given drug. See Natalie 

Mizik and Robert Jacobson, “Are Physicians ‘Easy Marks’? Quantifying the Effects of Detailing and Sampling on New Prescriptions,” Management Science, vol. 50, no. 12 (December 2004), 

pp. 1704–1715; Puneet Manchanda and Pradeep K. Chintagunta, 

“Responsiveness of Physician Prescription Behavior to Salesforce 

Effort: An Individual Level Analysis,” Marketing Letters, vol. 15, 

no. 2-3 (2004), pp. 129–145; and Michael A. Steinman and others, “Characteristics and Impact of Drug Detailing for Gabapentin,” PLoS Medicine, vol. 4, no. 4 (April 2007). Other studies find 

no clear effects from detailing. See Meredith B. Rosenthal and 

others, Demand Effects of Recent Changes in Prescription Drug 

Promotion (Menlo Park, Calif.: Kaiser Family Foundation, 

June 2003).
ECONOMIC AND BUDGET ISSUE BRIEF

PROMOTIONAL SPENDING FOR PRESCRIPTION DRUGS 5

drugs in CBO’s data set, the 10 with the highest DTC 

expenditures in 2008 accounted for 30 percent of expenditures for DTC advertising industrywide. That concentration is nearly twice what was observed for detailing, 

where the 10 drugs with the highest expenditures totaled 

16 percent of the industry’s detailing expenditures. That 

difference may be explained, in part, by the fact that 

detailing visits can include discussions of more than one 

product while each DTC advertisement typically focuses 

on only one drug.

According to CBO’s analysis, when pharmaceutical manufacturers promoted drugs to consumers, they also spent 

more, on average, promoting those drugs to physicians. 

For those drugs in CBO’s data set with reported spending 

on DTC advertising, their manufacturers spent an average 

of $40.5 million per drug in 2008 on promotional activities directed to physicians—14 times the average amount 

they spent when promoting drugs exclusively to physicians. That difference may indicate that manufacturers use 

promotional activities directed to physicians and DTC 

advertising to reinforce each other. Although DTC advertising might spur a consumer to visit his or her doctor, the 

physician must prescribe the drug; therefore, manufacturers would seek to ensure that physicians were also 

informed about the drugs they advertised to consumers. 

Alternatively, pharmaceutical manufacturers could have 

spent extensively to promote to physicians those drugs 

marketed with DTC advertising even if advertising to 

consumers was not permitted, perhaps because of the size 

of the potential market for those drugs.

DTC advertising is almost never used in isolation. Detailing is far more likely to be the exclusive promotional outlet for a drug. Even if manufacturers find that it is not useful to promote certain drugs directly to consumers—for 

example, because the condition they treat is relatively 

rare—drug companies would still want to ensure that doctors know about their product and any advantages it has 

over its competitors. 

Market Characteristics That Influence 

Promotional Strategies

A pharmaceutical manufacturer’s decision to use DTC 

advertising or other types of marketing tools depends on 

the potential size of the market for a given prescription 

drug, the current competition in that market, and the 

amount of time that has elapsed since the drug received 

FDA approval. Manufacturers may also choose to alter 

their marketing mix over time, especially as new competitors enter the market, the manufacturer faces the end of a 

drug’s patent protection and the entry of generic versions 

on the market, or the manufacturer introduces new dosage forms, extended-release versions of a drug, or new 

combination drugs. The balance of this brief focuses on 

those issues for the two largest components of pharmaceutical manufacturers’ promotional expenditures—detailing 

and DTC advertising.

Market Size

Treatments for common conditions that affect a large portion of the population—such as high cholesterol, insomnia, or reduced bone density—are a primary focus of 

direct-to-consumer advertising. Many top-selling drugs 

have some of the highest DTC advertising expenditures. 

Drugs that have large potential markets are likely candidates for direct-to-consumer advertising because a substantial share of the intended audience may benefit from 

the treatment and may seek out and receive a prescription 

for the advertised drug. That effect may be even more 

important if that large potential market includes many 

individuals whose condition is undiagnosed or untreated. 

Drugs that treat rare illnesses are less likely to be the subject of DTC advertising because manufacturers would 

have to spend considerable amounts to reach the few individuals suffering from such illnesses.12

If a drug has both a large potential market and is approved 

to treat chronic or long-term conditions, its manufacturer 

may be even more likely to embrace DTC advertising.13

For those drugs, individuals who receive a prescription 

may continue with the advertised drug for a long time, 

producing a steady stream of sales for the pharmaceutical 

company if it succeeds in building brand loyalty. For 

patients already taking an advertised drug, DTC advertisements may serve as a reminder to refill the prescription. DTC advertising is less common for drugs (such as 

antibiotics) that address acute conditions (such as an 

infection)—perhaps because individuals are more likely to 

seek care for an acute condition without being prompted

12. Internet advertising may offer a more targeted approach for manufacturers whose products treat rare conditions. To date, however, 

there are no apparent differences between drugs advertised online 

and those advertised in more traditional media.

13. See General Accounting Office, Prescription Drugs: FDA Oversight 

of Direct-to-Consumer Advertising Has Limitations, GAO-03-177 

(October 2002), p. 13.
6 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 3.

Spending for DTC Advertising and Detailing to Health Care Professionals Among 

the 10 Drug Classes in CBO’s Data Set with the Highest DTC Spending, 2008

(Millions of dollars)

Source: Congressional Budget Office based on data from SDI Promotional Audits.

Notes: Detailing refers to the practice in which pharmaceutical representatives make sales calls to physicians and other health care professionals to discuss the uses of a particular prescription drug and its benefits for patients. 

DTC = direct to consumer; SNRI = serotonin-norepinephrine reuptake inhibitors.

by an advertisement or because such drugs are typically 

prescribed only for a short time.14

Detailing expenditures are reported for nearly all the drugs 

in CBO’s data set, regardless of market size. The more 

extensive use of detailing and other promotions to physicians is not surprising because physicians must be prepared to treat patients with both long- and short-term 

illnesses and both rare and common complaints. Nonetheless, there is substantial overlap among the types of 

drugs that have sizable expenditures for both direct-toconsumer advertising and detailing (see Figure 3). Among 

the 10 drug classes in CBO’s data set with the highest 

spending for DTC advertising in 2008, 5 classes are 

also among the 10 classes with the highest detailing 

expenditures. 

Competing Drugs

Direct-to-consumer advertising and detailing differ in the 

depth of the information they provide. DTC advertisements are more limited, generally informing patients only 

that a drug exists and naming or describing the conditions 

it is approved to treat. Detailing, like other promotions to 

physicians, may go beyond that to help doctors differentiate one drug from another. That difference helps explain 

the distinct patterns in DTC and detailing expenditures 

for drugs facing a different number of competitors within 

the same class of drugs. 

Pharmaceutical manufacturers tend to spend more, on 

average, on DTC advertising for drugs that have few or 

no direct competitors (meaning there are few other drugs 

that treat the same condition using the same mechanism) 

than on products with numerous alternatives. Excluding 

some classes of drugs with the highest-selling and mostadvertised drugs—where a drug’s potential market size 

might overwhelm other factors in setting a marketing 

plan—the data analyzed by CBO show that average 

spending per drug on DTC advertising generally declines 

as the number of competitors in the same class increases

Central Nervous System Stimulants

Atypical Antipsychotics

Seizure Disorders

Antiplatelet Agents

SNRI Antidepressants

Statins

Autoimmune Treatments

Nonbarbiturate Sleep Aids

Bone Resorption Inhibitors

Erectile Dysfunction

0 50 100 150 200 250 300 350 400 450

DTC Advertising Detailing to Health Care Professionals

14. Of the 260 antibiotics included in CBO’s data set, DTC advertising is reported for only 13. Average annual DTC advertising 

expenditures for those antibiotics were smaller than for other 

drugs in the data set—$2.9 million compared with $32 million.
ECONOMIC AND BUDGET ISSUE BRIEF

PROMOTIONAL SPENDING FOR PRESCRIPTION DRUGS 7

Figure 4.

Average Spending per Drug on DTC 

Advertising, by the Number of 

Competitors in a Given Class of Drugs, 

1995 to 2008

(Millions of dollars)

Source: Congressional Budget Office based on data from SDI 

Promotional Audits.

Notes: Drug classes are specified at the 5-digit level of the IMS 

Uniform System of Classification. To account for cases in 

which a drug’s potential market size might overwhelm other 

factors, four classes in CBO’s data set were excluded from 

this figure: nonbarbiturate sleep aids, statins, erectile 

dysfunction drugs, and proton-pump inhibitors. Drugs in 

those classes account for 35 percent of the expenditures 

for DTC advertising reported in CBO’s data set.

DTC = direct to consumer.

(see Figure 4). When a class includes more drugs, pharmaceutical manufacturers tend to spend less, on average, on 

DTC advertising because the benefits of that advertising 

(higher sales) may be diffused among the other drugs in 

the class. 

Several factors may contribute to that outcome. Like any 

monopolist, a drug manufacturer whose product has no 

competition can turn a profit on an advertising-induced 

increase in demand because a monopolist can set the 

drug’s price above what it costs to satisfy that increased 

demand. In addition, companies that produce drugs with 

few or no competitors run little risk that advertising for 

those drugs will spur demand for competing products. 

That circumstance is particularly important for DTC 

advertising because, at most, an advertisement might 

motivate an individual to contact his or her doctor and 

ask to be prescribed the advertised drug. The physician 

would have to assess the patient’s condition and then 

judge the advertised and requested drug to be the most 

effective course of treatment. The greater the number of 

other medications available, the greater the possibility that 

the prescriber will choose a treatment other than the drug 

the patient saw advertised. Some research suggests that 

DTC advertising encourages individuals to visit their doctors and increases sales for the advertised drug’s class—but 

not necessarily for the advertised drug itself.15

Detailing expenditures do not exhibit the same relationship between average spending and the number of competitors in a drug class. Even when there are several alternative treatments available, drug manufacturers have an 

incentive to spend on detailing to help doctors differentiate their drugs from those of their competitors. In a visit 

to a physician, a drug company’s sales representative can 

remind the doctor of the company’s products, provide 

samples that the physician can distribute to patients, and 

compare the benefits and risks of the company’s drugs 

with those of competing treatments. Because the physician decides which drug best meets a patient’s needs, any 

increase in sales that results from detailing expenditures is 

likely to accrue directly to the drug that is the focus of the 

detailing rather than to any potential substitutes. 

Years Since FDA Approval

Although there are substantial differences among drugs 

in the amount spent in a given year on advertising and 

promotions to physicians, there are fewer differences in 

those patterns over a drug’s life cycle. Pharmaceutical 

manufacturers promote more of their products to both 

physicians and consumers in the first few years after a 

drug has received approval from the FDA.16 Manufacturers tend to reduce spending for both DTC advertising 

and detailing the longer the product is on the market 

(see Figure 5). The longer a product remains on the 

123456789

0

5

10

15

20

25

15. See Toshiaki Iizuka and Ginger Zhe Jin, “The Effect of Prescription Drug Advertising on Doctor Visits,” Journal of Economics 

and Management Strategy, vol. 14, no. 3 (2005); and Rosenthal 

and others, Demand Effects of Recent Changes in Prescription Drug 

Promotion.

16. Drugs approved before the FDA issued its 1997 draft guidance 

document on advertising may not have any reported spending for 

DTC advertising for several years into their life cycle.
8 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 5.

Time Path of DTC Spending for Prescription Drugs

(Millions of dollars) (Percentage of drugs)

Source: Congressional Budget Office based on data from SDI Promotional Audits and Food and Drug Administration, Electronic Orange Book 

(accessed June 2009), available at www.accessdata.fda.gov/scripts/cder/ob/default.cfm.

Note: DTC = direct to consumer; FDA =Food and Drug Administration.

market, the more likely it is to face competition both from 

other brand-name drugs and from generic versions.17

For advertised drugs, the average spending on DTC advertising per drug stays fairly constant for several years, while 

average spending for detailing falls off more quickly, dropping 18 percent from year 1 to year 2.18 Drug companies 

typically persist for several years in their advertising campaigns for drugs with large DTC advertising expenditures. 

In many cases, that occurs because pharmaceutical manufacturers use DTC advertising to introduce drugs with 

large potential markets, and it may take time to penetrate 

those markets. Drug companies may also continue high 

DTC spending to attract customers before a competitor 

enters the market. 

Pharmaceutical manufacturers keep a detailing presence 

for many drugs for a number of years, but average spending declines more quickly. That observation suggests that 

drug companies may spend substantially to introduce 

physicians to a new drug and then reduce the intensity of 

their physician-directed efforts thereafter. 

0 5 10 15

0

10

20

30

40

50

0

2

4

6

8

10

Years Since FDA Approval

Average Expenditures (Left scale)

Percentage of Drugs with

DTC Spending (Right scale)

17. With brand-name competitors, drug manufacturers may still have 

strong incentives to promote their drugs to differentiate them 

from rivals. A generic version does not offer the same incentive 

because, in order to win FDA approval, a generic drug must have 

demonstrated bioequivalence to its brand-name counterpart. In 

addition, most states permit or mandate that pharmacists substitute generics when they are available and when the physician has 

not specified that the brand-name drug is necessary.

18. The jump in participation and average expenditures from year 0 

(the year in which FDA approval was received) to year 1 (the 

following year) is probably due to the fact that, for many drugs, 

year 0 does not constitute a complete calendar year.

This brief was prepared by Sheila Campbell of CBO’s 

Microeconomic Studies Division. It and other CBO 

publications are available at the agency’s Web site 

(www.cbo.gov).

Douglas W. Elmendorf

Director