Christiane Truelove, Editor of MedAdNews said in a Pharma Blogs: Week in Review, “we really don’t know what any company’s ROI is, because we never have a full picture of what is spent. All that spend for doctors is never broken out in an annual report. We can only guess.”

She was commenting on my post “Lunesta Moth Being Mothballed as a Result of Negative Marketing ROI.”

She essentially takes the same position as Bob Ehrlich, publisher of DTC Perspectives, who said in a comment to my post: “This lack of insider spending knowledge is why we do not attempt to calculate external ROI analyses.”

Which prompts me to compose a modern pharma publishing fable.

A publisher of a well-known pharmaceutical trade magazine who cared too much about advertisers hired two editors who promised him the finest articles based on the most reliable sources and insightful analysis of the pharmaceutical industry.

These articles, they tell the Publisher, will appear to be void of critical analysis to anyone who was either stupid or not fit to be an expert on the pharmaceutical industry.

The Publisher is nervous about being able to see the insights in the articles himself so he sends his copy editors and fact checkers to view the articles. They see that the articles say nothing of substance yet praise them for the insightful analyses therein.

When the editors report that the articles are ready for publication, the Publisher allows his trade magazine to run the stories and be distributed all through the pharmaceutical industry.

In due course, a small blogger cries out, “But these stories lack substance, merely praising pharma at every turn!” The crowd of pharma people eventually realizes the blogger is telling the truth and begins laughing. The Publisher, however, holds his head high and continues to publish similar articles.

A Learning Experience
Whether my Lunesta marketing ROI analysis was a “guess” based on little or no information or an analysis based on facts and industry average practice is a minor point in comparison to what I and my readers learned from the process and resulting dialogue — something that frequently is missing in pharma trade publications.

Ehrlich, for example, informed us in a comment to my post that “Reported spending on DTC is always about 40% more than the company actually spends on media.” Does he know this for certain or is HE just GUESSING? Since he has experience in DTC marketing, I’ll take his word for it. I wonder, however, why Nielsen and other companies that report media spending, don’t mention this?

Anyway, let’s suppose that it’s a fact. If I recalculate the ROI discounting 40% from the DTC spend but assuming that spending on physician promotion is 2X as much, I still get that Sepracor spent more on marketing Lunesta in 2007 ($702 million) than it got back in sales ($600).

Let’s use data from a November, 2006 GAO report (“Improvements Need in FDA’s Oversight of Direct-to-Consumer Advertising“), which says the ratio of physician promotion to DTC is about 1.7 (2005 data: $4.2bn for DTC and $7.0bn for DTPhysician, which does not include CME spending — about $1.1 billion that year — and probably not salaries or bonuses paid to sales reps). If I use that low ratio in my analysis, I get about $632 for all Lunesta promotion vs. $600 million in sales. Still negative.

Another “guess” that Ehrlich made was that Lunesta may spend LESS on physician promotion than DTC “because this brand is more consumer pull driven than many pharma brands.” Spend less on physician promotion than on DTC? I suppose that could be — and I admit it’s one of the things we don’t know because such data is not broken out in pharma company annual reports. But if it is true, then shame on Sepracor!

[SIDE ISSUE: I say shame on Sepracor because 77% of American adults agree with the statement that “the cost of [DTC] ads makes Rx drugs too expensive” (see “What Americans Think About Drug Advertising“). The Lunesta DTC spending far and away exceeds every other Rx drug’s DTC spend — see “Lunesta’s Ad Spending Spree and Other DTC Oddities” — and it may well be more than what Sepracor spends on promotion to physicians.

Perhaps if the drug industry was more frugal in how it spent its DTC advertising dollars and maybe if it held back on DTC advertising of new drugs for a year or so after launch and focused more on innovative physician marketing (eg, online closed loop marketing; see here), it would help to counteract the impression that DTC advertising leads to higher drug costs.]

Let’s compromise and say Sepracor spends the same on physician promotion as it does on consumer promotion — this way we all are happy. In that case, the total promotional spend — still allowing for the 40% over-estimate on DTC ad spend — would then be $468 million vs. $600 million in sales.

So, finally, we are in positive ROI territory: this new estimate suggests that Sepracor got back $1.28 for every $1.00 it spent on promotion of Lunesta to consumers and physicians. This is not so good considering that IMS — another entity that “guesses” about pharma marketing ROI, says that “Seventy percent of the brands analyzed have an [DTC] ROI in excess of $1.50 for each dollar invested; 35 percent were in excess of $2.50. The best performing brand in the study yielded an ROI of $6.50 per dollar invested” (see “eDetailing ROI Better than DTC?“). Bob Ehrlich himself guessed — sorry, estimated — that the ROI for DTC advertising is in the range of $1.60 to $2.00 per every dollar invested and some estimates are as high as $4.00 per dollar invested (see “Key Issues Facing DTC Marketers in 2004“).

That just some guesses on the DTC side of the Lunesta marketing ROI analysis. Our estimate of an ROI of $1.28 encompasses BOTH DTC and physician promotion. I can’t imagine that the physician ROI is less than $1.28; consequently, the actual DTC ROI must be somewhat less than $1.28.

Whatever numbers we use, Lunesta is in trouble and Sepracor knows it, I know it, every child (and investor) out their watching the emperor strut down the street knows it!

P.S. This is all grist for my mill in preparation for the opening keynote presentation I will be making at the Measuring Marketing ROI in Pharma conference on June 24, 2008 in London (see the programme here). Unfortunately, they don’t do DTC advertising in Europe and I expect all this “guessing” about the ROI of Lunesta’s marketing campaign would be irrelevant to my European audience.