Call it "pharmageddon."
With a host of big-spending blockbuster medications about to lose patent protection and fewer new prescription remedies queued up to take their place, the ad industry clearly has a drug problem.
In a five-year period, ad spending in the category has plunged $1 billion, with eight of the 10 top-selling drugs now off patent or set to be there by 2016. This patent cycle is contributing to a generic-substitution rate as high as nearly 75%, said Edelman Vice Chair-Health Kym White, citing a CVS Caremark study.
"There are no new products to get behind to support and introduce and launch," said a communications executive at one of the world's top pharmaceutical companies. "If companies like mine and others had big new products, they'd be promoting them."
Moreover, new drugs in the pipeline are targeting people with niche diseases, which is less compatible with broad-scale advertising. "The kinds of drugs [the FDA is ] approving are for orphan diseases that are more specialized in nature for [categories like] oncology and hematology, as opposed to general primary-care diseases," said Nick Colucci, CEO of Publicis Healthcare Communications Group.
The effect has clearly been felt at agencies. The health-care sector, which accounts for 15% of Interpublic Group of Cos.' business, "continued to see industrywide softness, due to patent expirations [on pharmaceutical drugs] and regulatory uncertainty," said CEO Michael Roth during the company's most recent earnings call.
Pharma and health-care clients accounted for 10% of worldwide revenue at Omnicom in the second quarter, compared with 11% for the same quarter the prior year. Richard Edelman, CEO of PR giant Edelman, has said that some of its health-care clients are cutting budgets as much as 30%.
Also crimping spending are "payers," insurers and government systems, such as Medicaid, that exert great control over drug purchases. Now that consumers -- and arguably physicians -- have less power in choosing drugs because insurance companies mandate what they will pay for, there's a lot less need for big national direct-to-consumer and direct-to-professional marketing budgets.
But there are those who have a game plan to surviving pharmageddon, and it is as simple as diversifying the definition of pharmaceutical marketing -- no longer does it solely mean promotion and big TV budgets.
Today, agencies are focusing more on customer relationship management and data, direct marketing, mobile and digital communications to medical professionals. They are creating technologies for drug marketers to help consumers prevent and manage diseases, and seeking out clients in new areas such as hospitals and medical-device makers. Some are even developing practices to sway payers toward agreeing to cover brand-name drugs for patients.
No longer just big drugs
"Health care is pervasive, and we're seeing a need for our expertise in sectors such as electronics, food and nutrition, beverages, cosmeceuticals and public health," said an Interpublic spokesman. Translation: It's not all about big drugs anymore.
Edelman's Ms. White said that pharma clients are looking for more advance support in the "market access" category, meaning helping to determine whether there is an actual market for a drug makeup or type, "before taking a drug all the way through clinical development and FDA approval."
The PR agency is also increasingly working with pharma companies to persuade payers to get behind a particular drug. For example, most pharma RFPs now ask for agencies to demonstrate the ability to help payers see value or understand where therapy fits into the paradigm, she said. "Increasingly, we work with our clients to tell not just the scientific story but the value narrative of a [drug] compound, and payers are increasingly a primary focus of communications work," said Ms. White. "That involves a deep understanding of how payers work and typically calls on us to combine skills from our health and public-affairs practices."
The firm is also diversifying with health-care services and hospitals, nongovernmental organizations, life sciences, medical-device companies and more consumer-directed health programs aimed at preventing disease.
"My strategy has been to diversify [our] portfolio," said Becky Chidester, president of Wunderman World Health. "Having more clients is probably the way we have to approach it, so we've been working not just with pharma and consumer health but also with devices and health insurance."
A Diversification of clients
The WPP direct-marketing agency has experienced some growth from "going after more specialized populations," said Ms. Chidester, namely the brand-name drugs for specialized diseases and ailments, as opposed to the big blockbusters that market on a more national level. "That's clearly within our sweet spot," she said.
Agencies are also adapting to the shift away from traditional sales promotion with more CRM and direct-marketing models aimed at doctors. "That is where the opportunities now lie," said Publicis' Mr. Colucci.
"In the past, we did a lot of post-merger work focused on bringing together sales forces," said Josh McCall, chairman-CEO of experiential-marketing firm Jack Morton Worldwide. "More recently, we've helped companies on more [corporate social responsibility]-driven internal programs like one where we helped Pfizer engage employees around volunteerism."
Mr. McCall said the firm, like most agencies, is diversifying its client base with biotech, medical devices and the hospital networks that will need to ramp up marketing under President Barack Obama's new health-care system, which requires that most Americans purchase health insurance by 2014. The theory is that when more consumers have access to insurance, hospitals will have to negotiate for better rates from payers and compete, via marketing, for patients who previously had never sought treatment outside of the emergency room.
Mr. Colucci said that his firm is also looking to diversify its capabilities with technologies that can support treatments that are alternatives to drugs, such as a startup initiative that Akili Interactive Labs formed with PureTech Ventures. The joint venture produced a drug-free gaming therapy that could be approved as a treatment for attention deficit hyperactive disorder.
Glenn Chilton, CEO of Toronto-based CRM shop Kenna, said his agency has created an iPad algorithm for client Alcon to show opthamologists the potential ROI to their practice from prescribing contact lenses and related sales of lens-care kits. "We're breaking down silos between sales and marketing and promotion," he said.