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Tax reform could change the business of drug advertising





The pharmaceutical industry has enriched the tapestry of American TV characters with amorous bees, jaunty bowels, and a family of mucasoid “Honeymooners,” all of them cheerily pushing prescription drugs.

But amid growing concern over the cost of medicines and a scramble to reform the tax code, consultants are warning the industry that lawmakers from both parties could turn their swords on Gut Guy.

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A recent drug advertising conference in Boston was packed with self-congratulatory sessions celebrating inspiring campaigns. But there was an undercurrent of unease about the prospect of a federal crackdown on pharma commercials.

The United States and New Zealand are the only two developed countries to allow television ads for prescription drugs. The United States is unlikely to ban ads outright, but the economics for pharma could change: Democrats in Congress are proposing to strip drug companies of their right to write off advertising expenses, and there’s a newfound worry that Republicans might join the cause as part of an ambitious tax overhaul.

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“Anything that moves in tax reform — and I do believe there will be a substantial effort to move it — always means that the deduction for pharmaceutical advertising is at risk,” said Jim Davidson, an attorney at the national corporate law firm Polsinelli.

The drug industry spends about $5 billion a year on direct-to-consumer advertising, or DTC. And forcing pharma to pay taxes on that expense could raise $50 billion in federal revenue over 10 years, Davidson said. That could be tempting for Republicans, who are scrambling for ways to pay for a large corporate tax cut.

It could also score a political victory against an industry finding little quarter in Washington of late. Pharma has been derided as “getting away with murder” by President Trump and dubbed “the biggest bunch of crooks in this country” by Senator Bernie Sanders.

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Last week, nearly two dozen lawmakers — all of them Democrats except for Sanders, an independent — introduced identical bills in the House and Senate aimed at curbing drug prices. Among the provisions: killing the tax deduction.

The idea has been pushed “almost exclusively by liberal Democrats who want to punish pharma for being profitable,” said John Kamp, head of the Coalition for Healthcare Communication, a group of ad firms and medical publishers.

But when they failed to repeal Obamacare, Republicans gave up billions in savings that they had planned on using to offset the budgetary impact of big tax cuts. So they need new sources of revenue.

There’s a risk, Kamp said, that both parties might come together around across-the-board changes to tax breaks for marketing costs, affecting more than just pharma.

The fight over DTC drug ads is hardly a new one. For years, pharma was all but kept off of TV by a wary Food and Drug Administration, which required any ad to list all of a drug’s risks alongside its benefits, making a 30-second clip virtually impossible.

But in 1997, the FDA softened its stance, allowing commercials to summarize side effects and then refer viewers to a website or long-form print ad. And that opened the door for the likes of Viagra, Vioxx, and Lipitor to blanket the big games and the nightly news on the way to becoming household names.

In the years since, pharma’s DTC efforts have blossomed well beyond TV. The industry now pushes drugs through games, celebrity Instagram accounts, and apps.

Synergy Pharmaceuticals, maker of a treatment for constipation, just unveiled a fleet of scatalogical emojis with names like Runny Ron and Plugged-Up Paulie, promising to change forever how patients communicate about bowel movements.

Opposition to DTC has risen as TV advertising has become ever more aggressive. The American Medical Association has long criticized the practice and in 2015 called for an outright ban. Democrats in Congress have tried and failed to get pharma off TV numerous times over the past two decades.

The most recent effort, from Representative Rosa DeLauro, sought to force companies to wait three years after getting approval to sell a new drug before marketing it to patients.

Critics say putting drugs on TV contributes to escalating health care costs, stuffing patients’ heads with questionable ideas and leading to diagnoses of diseases that in some cases don’t really exist.

But pharma says its rush to the airwaves has benefited society. “We’ve always said proposals to prohibit the tax deductibility of advertising expenses ignores the value of informing patients of new, innovative therapies,” said a spokesman for PhRMA, the drug industry trade group.

Before the dawn of DTC, conditions like depression, incontinence, and erectile dysfunction were taboo topics, the industry argues. Putting them on TV helped reduce the shame factor, empowering patients who might otherwise have gone untreated.

And there’s some truth to that, said Dr. David Kessler, who fought to keep drug ads away from television in his time as FDA commissioner. But it doesn’t absolve pharma of its other sins, he said at the conference.

“The problem is you’re not just changing social norms, you’re also selling more drugs, and we have drug-price issues,” Kessler said. “ . . . That’s why the promotional budgets are sitting there as a target, and they’re going to continue to be a target until we get drug pricing under control.”

Damian Garde can be reached at damian.garde@statnews.com. Follow him on Twitter @damiangarde. Follow Stat on Twitter @statnews.


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