Megan McArdle is now on the Pharma gravy train:
Today, I became a big beneficiary of the enormous marketing budgets of pharmaceutical companies. I know many of y’all suspected it all along. But sadly, there was no massive check waiting for me in the mail today. No, what happened is, I went to the pulmonologist for a lung function test, because my asthma has been steadily getting worse for months.The bad news is what I already knew — I am no longer well controlled enough with Singulair and a rescue inhaler, and I need to go on inhaled steroids. The good news is that I left with an armful of free samples, so that I can figure out which inhaled steroid works for me most cost-effectively. That’s courtesy of those bloated marketing budgets you hear so many complaints about, more than half of which go to free samples.
This isn’t such a great deal for the pharmaceutical industry, since otherwise I’d be paying full freight for one of their products. All it does for the pharma firms is buy them a seat at the table — a chance to win my business. But it’s a great deal for me, and millions of consumers like me who get a chance to try multiple products before we commit to one.
One of the things that bugs activists about this practice is that the pharmaceutical companies record the cost of the marketing as the full price of the product, not the cost of producing it. But this is actually the right accounting rule, precisely because of what I outlined above: the samples cost them a full price sale. One could argue that it should be slightly lower, because I might have insurance which would pay a discounted rate for the product. But whatever the exact right price is, it’s closer to the market price of the product than to the production cost. Keep that in mind the next time you hear someone complaining that pharma spends more on marketing than development; if it weren’t for all those free samples, and the reps who bring them to the doctors, they’d spend considerably less.
She makes some interesting points, but, no, I don’t think that is the right accounting rule. Commenter Tim H. explains:
If a customer has four competing products to choose from, all else being equal each firm is only losing a 25% chance of a full price sale. The value of a 25% chance at a sale is obviously not the same as an actual sale.