Spending Hits a Wall

September 1, 2002
Joanna Breitstein

Joanna Breitstein is a contributor to Pharmaceutical Executive.

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-09-01-2002,

Pharma companies invested a hefty $12 billion in promoting to physicians and consumers in 2001, according to Scott-Levin. But after the highs of 2000, spending in 2001 seemed stunted-a growth rate of 9 versus 13 percent.

Pharma companies invested a hefty $12 billion in promoting to physicians and consumers in 2001, according to Scott-Levin. But after the highs of 2000, spending in 2001 seemed stunted-a growth rate of 9 versus 13 percent. Although industry observers point out that pharma spent promotional dollars at a time when most sectors didn't, the macroeconomic downturn and September 11th affected companies' fourth quarter spending much like other sectors and proved that pharma is not "recession-proof" as many analysts once thought.

Wall Street's speculations as to when advertising will increase vary widely. However, with squeezed pipelines resulting in fewer blockbusters, indeed, fewer launches of any kind-promotional spending across the board will be affected for several years. Much more nebulous is the long-term effect on industry's promotional spend as a result of the media spotlight on increasing prescription costs and consumer groups' accusations that pharma spends more on marketing than on R&D.

Total promo spending

"Will pharma marketing people change their strategies because of the attention?" asks Robert Coen, senior vice-president, director of forecasting for Universal McCann and a leading ad industry prognosticator. "Unless it's terribly depressing and destructive to their business or has political consequences, most marketers won't give a damn-they want results."

"Pharma still wants to maximize opportunities and treat as many patients as it can, and it needs to use a mix of promotional vehicles," says Kathleen Blankenhorn, IMS' director of marketing research/IT. "Although there has been considerable attention paid to the industry's promotional practices, it will not keep companies from using these methods to reach the right patients with the right product information, while at the same time creating a positive return."

Physician Promotion

Pharma companies continued to rely on detailing, meetings and events, and sampling to both introduce and augment product sales. In 2001, journal advertising, once the cornerstone of prescription launches, decreased after staying flat for the last few years.

Pharma spent more than $6.5 billion for detailing in 2001, an increase of 4.6 percent over 2000, which in turn followed a year of 7 percent growth, according to Scott-Levin. Sales force sizes continued to expand, increasing 8.6 percent in 2001 to 81,500 reps. That growth was also slower than 2000, when the number of reps increased 19 percent.

A Look back-and to the future

"Sales force sizes aren't getting cut, even as of July 2002," says David Johnson, Scott-Levin's executive director of product management. "Merger and acquisition activity are creating really large field forces like those of GlaxoSmithKline (GSK) and what you'll see with Pfizer/Pharmacia."

Pfizer led the industry in detail spending for the second year in a row with $696 million, up 5.3 percent from 2000. GSK, which overtook Pfizer as the largest sales force for Q4 2001, spent $616 million. Other top detail spenders included Merck ($480 million) and AstraZeneca ($370 million).

Scott-Levin's data also show that most of the sales force growth is aimed at detailing office-based physicians, while promotion to hospital-staff physicians, hospital residents, nurse practitioners, and physicians' assistants stayed essentially the same.

Top Ten Spenders

"Over the next five years, clients will allocate more of the rep's time to other areas such as managed care and PBMs," says Blankenhorn. "As the difficulty in getting face time with physicians increases, companies will look for other influencers."

Another important part of the detailing spend equation is sampling. IMS Health reported that between March 2001 and March 2002, reps gave away $10.8 billion in samples, a 20 percent increase over the same period the previous year-repeating the growth seen in 2000. Blankenhorn predicts that branded sampling will continue and that generics companies may soon follow suit to entice patients to switch.

Meetings and events (M/E) continued to be a strong part of pharma's promotional budget, growing 12 percent in 2001 to $2.1 billion. The number of events climbed 18 percent. Pfizer and Pharmacia hosted a combined 9,000 events for their co-marketed arthritis treatment Celebrex (celecoxib), up 40 percent from 2000. Forest Laboratories followed with 7,996 activities for its depression therapy Celexa (citalopram), up 44 percent. Merck sponsored 7,607 events for osteoarthritis treatment Vioxx (rofecoxib), an increase of 17.1 percent. AZ hosted 4,739 gatherings for its second-generation proton-pump inhibitor Nexium (esomeprazole), a new product in 2001. And GSK increased its spending for asthma therapy Advair Diskus (fluticasone) 223 percent, with 4,635 events.

CRM: IT or DTC?

"Meetings and events are the most interesting piece of the puzzle. Spending increased quite a bit in 2001 and has been escalating for the last ten years," says Johnson. "However, the self-imposed [PhRMA] guidelines, effective as of July of 2002, may cause a decline. Much of the increased spending included rep-involved activities, such as dinner meetings with speakers, which is not allowed under the new code."

Journal advertising is the only promotional line item that decreased. Scott-Levin reports that companies reduced spending in 2001 by 20 percent to $400 million. Because journal ads are considered a staple in raising awareness of new products, some media spenders blame slower FDA approvals and decreased launch activity for the reduction. Others note the Association of Medical Publications' ROI Analysis of Pharmaceutical Promotion (RAPP) study's failure to convince the industry to increase journal advertising spend.

"People were blown away by how much journal advertising was down last year," says Linda Cicarelli, media director for Sudler & Hennessey and former president of the Association of Healthcare Media Directors. "This year, things will be down even more, although some products are coming out that will keep specialty journals afloat. For 2003, it might stabilize, but it won't be better.

"The big launches that we saw three or four years ago are now few and far between. But it's more than just the lack of big launches. Healthcare practitioner dollars are diminishing and going toward DTC-and that's not news. That's been happening over the last few years, and it will continue to happen." (See PE, "Flexing Their Budgets," September 2001.)

Consumer Promotion

"In 2001, there were a lot of questions about whether DTC works or if it is good for consumers. And there were people on both sides of the fence," says Blankenhorn. "In a recent national DTC meeting, David Kessler, former FDA administrator, admitted publicly that DTC is here to stay and will be part of the mix because it works and has educational value for the patient population. It is now more mainstream and will be accepted just like detailing and sampling."

Companies spent $2.8 billion on DTC advertising in 2001, continuing marketers' DTC spending plateau. Consumer promotion grew 36 percent from 1998 to 1999, 32 percent from 1999 to 2000, but only 12 percent from 2000 to 2001, according to Scott Levin.

"DTC growth has been so strong and dramatic for the last few years, there is no way it could continue to escalate at that rate," says Johnson. "It had to peak at some point. The growth in 2001 was all during the first half of the year, while spending in the last half of 2001 was below or equal to that of the previous year."

Consumer spending for the first half of 2002, calculated across 15 mediums by Nielsen Monitor-Plus, show that advertising is up only one percentage point compared with the same period last year. Network television continued to receive the most dollars-almost $634 million-but grew only 1 percent from the first half of 2001.

National magazines were the next highest spend, growing 18 percent from the first half of 2001 to the first half of 2002. National newspapers also did well in comparison, increasing 25 percent in the first half of 2002. However, local newspapers and magazines suffered a blow, with companies decreasing their spend in those media by 81 and 73 percent, respectively.

One surprise came from an often overlooked category, outdoor spending, which received the biggest percentage increase for pharma's dollars in the first half of 2002 compared with that same time the previous year. Companies spent $1.9 million, an increase of 350 percent. Spending for network radio, also generally considered a low priority for pharma campaigns, grew 185 percent to $12.4 million.

"There is a relative uptick through the first half of 2002, but it's certainly not like the games of a few years ago," says Mary Morgan, publisher of health magazine. "Pharma's profits are only one piece of the equation. For the first time, the industry's DTC advertisers have enough experience to readjust advertising expenditures and look at how they are allocating their dollars in the marketing and promotional mix."

According to Blankenhorn, part of that reallocation can be traced to industry's collective move to one-to-one marketing, which includes directing product messages to consumers based on demographics and disease states. That makes the internet the wild card in the marketing mix because of its ability to do just that.

Online Promotion

Marketers of the top 15 pharma brands spent $14.6 million online in 2000 but decreased their spending 14 percent to $12.5 million in 2001, according to CMR. However, those numbers are set to rebound and possibly exceed dot-com era spending, with the top 15 companies already putting $8.9 million to internet promotion during the first five months of 2002. AZ is the top spender so far this year, with online campaigns using the latest in streaming media in support of Nexium, allergy medicine Rhinocort Aqua (budesonide), and Zomig (zolmitriptan), a migraine therapy. Other top spenders include Aventis for Allegra (fexofenadine) and Schering-Plough for Clarinex (desloratadine), both allergy medications.

Mary Furlong, founder and CEO of ThirdAge, a community site for baby boomers, says the internet is the best way for pharma to target the "platinum niche" because the 50+ market is one of the fastest growing groups online, is very interested in health, and purchases 77 percent of all prescription drugs. She believes the web will receive a larger chunk of pharma's promotional pie in the coming years because companies will realize that they should offer information to consumers when they are searching for it and because, once they have a prescription, patients can buy medications over the web.

"Total dollars spent on digital promotion may increase from previous years, but the manner in which those dollars are spent has changed," says Jessica Hewitt DeVliegier, senior director of business development for ThirdAge. "Pharma brands are now taking a more ROI-based approach to online marketing. For example, companies seem much more inclined to 'test' across a larger number of sites instead of investing in deep partnerships with just a few sites. More brands are advertising but with fewer long-term deals. Most cases of long-term partnerships resulted from companies for whom we have delivered successfully against specific metrics."

Pharma marketers, who smiled on the sidelines during most of 2001's recession, are no longer insulated from the economic downturn in the post-Enron era. As such, they may be surprised when their budgets are slashed to maintain profits, manage costs, and deliver as promised to investors. In addition, pharma may find it must choose between promoting to maximize profits and to please constituents, (See PE, "Time To Power Down," March 2002.)

"Pharma companies came out of 2001 doing well, compared with everyone else," says Coen. "It's going to be the reverse this year. If the market slide is over, the 2002 ending quota can look good-but this is a hold-your-breath kind of year."

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