Medicines directly to the end consumer: The digital health strategy of pharmaceutical companies

More than a quarter century ago, the FDA loosened regulations to make it easier for drug companies to market directly to consumers. Today, it's almost impossible to watch a family sitcom without hearing an ad listing symptoms and side effects and urging the viewer to “talk to” their doctor.

If patients and doctors are fed up with the pleas of pharmaceutical companies, they should fasten their seatbelts.

Two major pharmaceutical companies have announced plans to sell directly to consumers through digital health platforms. Other companies are likely to follow suit. It seems like big pharma is trying to keep up with successful smaller platforms like Hims & Hers.

Will this trend benefit consumers? I am skeptical.

The new frontier: digital health and medicines directly to the consumer

If you've watched a PG-13+ streaming service with your teen or significant other, you've probably heard of Hims & Hers. From hair loss to erectile dysfunction, this company advertises directly to consumers and then connects patients through digital platforms with healthcare providers who can diagnose symptoms and prescribe medications without ever meeting the patient in person. In May, the company announced that its first-quarter revenue rose 46% year over year, about $10 million higher than Wall Street analysts had forecast.

Why is Hims & Hers so successful? In part, it's because the company focuses on problems like hair loss and erectile dysfunction – problems that most patients would rather not discuss with anyone in person, not even a doctor they trust.

With demand for GLP-1 weight loss drugs soaring, online vendors with direct-to-consumer sales and relationships with pharmacies are now trying to get a piece of the pie. Specifically, online vendors have been prescribing drugs, and pharmacies with relationships with these vendors have been mixing and matching these drugs at a lower price than the established manufacturers.

Are you beginning to get an idea of ​​why pharmaceutical companies are willing to make the move from direct marketing to direct-to-consumer sales? With these new entrants and competition, the pharmaceutical giants are eager to reclaim their territory.

The drivers behind pharmaceutical companies’ pricing strategies

To fully understand the reasons behind this move by pharmaceutical companies, it is important to consider the driving forces behind drug pricing strategies.

Pharmaceutical companies often justify high prices by citing the significant investment required to bring a new drug to market. For example, the Pharmaceutical Research and Manufacturers of America (PhRMA), the pharmaceutical companies' main lobbying organization, argued that over the past decade, its member companies have “more than doubled their annual investment in the search for new treatments and cures.”

There is no doubt that these investments are valuable, but companies set their prices largely without market pressures due to a lack of competition due to exclusivity and patent circumvention. As explained in a forthcoming paper from the University of North Carolina's Center for the Business of Health, marketing expenditures (including direct-to-consumer advertising) contribute to the high drug prices passed on to consumers, as do complex supply chain dynamics, the involvement of pharmacy benefit managers (PBMs), and charity prescription programs.

The document also shows that drug prices in the U.S. are higher than in other countries because a large and complex network of actors – from insurers to regulators to the pharmaceutical companies themselves – seek to influence the process. Direct-to-consumer models eliminate at least some of the actors in this ecosystem. They also respond to a societal demand: consumers and members of Congress are fed up with high drug prices. In fact, 80% of Americans think drug prices in the U.S. are unreasonable.

Pharmaceutical giants are responding to this sentiment, but can patients actually save money by selling directly to consumers?

The business strategy behind the direct-to-consumer game

Big pharmaceutical companies argue that their new direct-to-consumer offerings will improve price transparency for patients, reduce costs by eliminating much-maligned middlemen like PBMs, and improve access to life-improving medicines.

On the surface, this seems like a great success for patients. But of course, there is more to it than that. In fact, this development could result in just one type of drug: GLP-1.

A 2023 analysis by JP Morgan estimated that the GLP-1 market would exceed $100 billion by 2030. About 10% of type 2 diabetes patients used GLP-1 last year, the report said, but that number could rise to over 35% within the next 6 years. Overall, the total number of GLP-1 users in the U.S. could exceed 30 million by 2030, about 9% of the country's population.

As pharmacies and digital health companies have begun offering lower-cost alternatives to the expensive GLP-1 drugs, demand for the original, more expensive drugs has declined. By selling directly to the consumer, pharmaceutical companies can bypass traditional distribution channels, better control pricing, and prevent patients from switching to lower-cost alternatives. Essentially, they can create a new revenue stream that allows them to retain as much market share as possible, even as competition gets tougher.

For pharmaceutical manufacturers, it is almost always about securing their profits.

Lower prices, but will patients become victims?

Lower drug prices are undoubtedly good for patients. Most importantly, however, medication adherence improves as costs are reduced. Anything that reduces the financial burden on patients and improves access to necessary medications should be seen as a positive development. But the key word in this sentence is “necessary.”

The rise of direct-to-consumer marketing has not proven to be beneficial for patients. According to a study published last year by researchers at Johns Hopkins University (JHU), it has increased pressure on doctors to prescribe drugs that may not be the best option for patients. Perhaps the most surprising finding from JHU is this: pharmaceutical companies spent almost 15% more on direct-to-consumer marketing for treatments that had less added value for patients. It seems that the closer pharmaceutical companies get to consumers, the more aggressive they become.

By moving to a direct-to-consumer model, some pharmaceutical companies risk pushing drugs on patients who may not need them or who may be better served by other treatments, including drug-free ones. If not carefully monitored, the digital health platforms that help patients access medicines could lead to overprescribing.

The trend of pharmaceutical companies moving into direct-to-consumer sales represents a significant shift. While this could bring benefits, including lower drug prices and greater availability, it also raises important questions about the motives of these companies. As this trend continues to develop, it will be critical for regulators and healthcare providers to ensure that these new models are used responsibly.