AD FEVER SWEEPS HEALTHCARE INDUSTRY: RX EFFORTS TARGETING CONSUMERS TO PASS HALF-BILLION MARK

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With healthcare one of the fastest-growing ad categories to come along in years, consumer and medical ad agencies enter 1997 in a heated contest to win their fair share of the booming business.

Although health-related advertising lacks the glamor of other leading consumer categories, the numbers alone are enough to leave agency executives feverish.

Direct-to-consumer advertising of prescription drugs hit $458.2 million for the first nine months of 1996, up 113% from the same period in '95, according to Competitive Media Reporting. And the 1995 number was a 40% increase over the full previous year. In 1995, DTC spending for the first time surpassed marketing to physicians and other professionals.

Managed care and an aging baby boomer population are among

Ask your doctor . . . or your ad agency. Spending on direct-to-consumer advertising has topped spending aimed at physicians.

Agencies look to healthcare

for `explosion' of ad growth

the factors combining to turn medical marketing on its head. With more consumers making decisions about their own healthcare-once entrusted almost exclusively to doctors-marketers of prescription drugs are spending more to reach the public directly.

An even larger wave of DTC advertising may soon be possible if a consortium of ad and professional organizations finds success in lobbying the Food & Drug Administration for simpler prescription-drug ad rules (see accompanying story below).

"The prescription-drug industry is clearly spending more, and when it comes to DTC, everybody is looking to compete for that dollar," said Tom Lom, co-managing director at Saatchi & Saatchi Advertising's Healthcare Connection.

OTC SPENDING ALSO UP

Ad spending also is up on the over-the-counter side, as drug switches from prescription to OTC have become more common and competition grows. Media spending behind OTC pharmaceuticals rose 33% from 1991 to '95, hitting $1.85 billion, with much of that growth coming from the pain reliever, vitamin and stomach remedy categories.

During that period, pain relievers were up 60% to $511.8 million and vitamins/supplements rocketed 154% to $111.8 million. Stomach remedies rose 86% to $300.7 million in 1995.

Stomach remedies were also a big growth area in OTC for 1996. Acid blocker megabrand cross-overs Pepcid AC, Zantac 75 and Tagamet HB logged total spending of about $300 million.

The ad boom has not gone unnoticed by mainstream agencies, which once paid little heed to DTC. One agency chief executive compared the healthcare ad growth to the rise of the athletic footwear category in the 1980s.

"This is the most exciting field now, it's coming in with such an explosion," said Bozell Worldwide CEO David Bell.

HOT ACQUISITION TARGETS

That excitement is also making healthcare ad agencies a hot item among acquisitive agency holding companies. In the most recent development, Omnicom Group is negotiating to acquire independent healthcare agency Cline, Davis & Mann, New York (AA, Dec. 23). Last June, Interpublic Group of Cos.' McCann-Erickson Worldwide acquired Torre Renta Lazur Healthcare Group. In April, Interpublic's Lowe & Partners/SMS acquired William Douglas McAdams Inc.

Most healthcare shops are at this point tied to global agency organizations, allowing them to tap into the marketing resources of sister agencies.

In addition to the acquisition of medical ad agencies and the formation of healthcare units by consumer agencies, medical ad agencies have formed DTC units themselves to keep pace.

These agency moves give prescription drug marketers more options than ever before. They often now weigh the pluses and minuses of going with traditional medical ad agencies vs. consumer shops. One med-ad agency president said as many as 16 of the approximately 80 DTC accounts are now handled by consumer agencies.

CONSUMER AGENCIES' EDGE

Consumer agencies-long used to marketing OTC drugs to consumers-seem to have an edge in pitches against medical shops for the burgeoning DTC accounts.

"We're competing against glitz. Consumer agencies wheel out every major department they have," said Sander Flaum, president-CEO at medical agency Robert A. Becker Inc., New York, which is affiliated with Euro RSCG. "For them, it's small potatoes; for us, it's our livelihood."

Consumer agencies wield media clout and have experience in making consumer-friendly, non-clinical ads. Medical agencies' strengths include a detailed understanding of drugs and expertise in reaching doctors and pharmacists.

"Five years ago, healthcare agencies were the primary contacts, but over the years the DTC business has been migrating to mainstream agencies," said Mel Sokotch, senior VP-group management director at Foote, Cone & Belding, New York.

The result is a more varied approach by agencies mining new business.

Despite the fact that it has an

Heading for TV:. Broadcast media are growing in importance for drug marketers.

FCB HealthCare sister unit in San Francisco, FCB has made it a "very high priority" to separately seek healthcare business for the past year and a half.

FCB handles Merck & Co.'s estimated $30 million DTC account for the osteoporosis prescription drug Fosamax. Though the agency is in the interesting position of seeking healthcare business independent of the FCB HealthCare unit, the two divisions work together when called for.

"When FCB approaches a client with multiple needs, the general agency would handle DTC, the healthcare unit would handle doctor communications and TN Technologies might handle online," Mr. Sokotch said. "It depends on the client-if they say the DTC part is most important, we want the general agency to be the lead agency."

Mr. Sokotch said he senses an advantage because "most healthcare agencies are really small and don't have media clout."

GAINING MEDIA CLOUT

But that clout can come from a global parent like Omnicom or Interpublic.

"We tried to start our own consumer group and started off doing well, but it became quickly apparent to us that we didn't have the strategic planners, media clout, etc.," said Win Gerson, president of what is now called Lowe McAdams Healthcare. "Instead of me trying to fabricate having media resources or Lowe having healthcare people, we got together."

Lowe McAdams now makes business pitches in a three-prong effort with its consumer parent and Lowe Direct. The Lowe shops recently won the $45 million account for Roche Laboratories' anti-obesity drug Xenical (not yet FDA approved), but suffered a potentially huge setback when a number of principal executives left Lowe Direct to form a competing agency. Roche reassessed but ended up keeping the account at Lowe.

CommonHealth USA, an affiliate of WPP Group and the largest-billing medical ad agency, formalized its pursuit of DTC by creating Quantum Consumer last August.

CLIENTS WANT `NEXT LEVEL'

Though the Parsippany, N.J.-based agency had created DTC advertising for years, "Clients wanted the next level [of advertising] but didn't want to go to consumer agencies," said Theodore Maurer, CommonHealth president. "They're afraid they wouldn't understand and didn't want to pay Madison Avenue prices."

Also, there was "missed potential opportunity under [parent company] Thomas Ferguson Associates due to client conflicts, a serious part of our business."

WPP now has 10 independent units working on competing healthcare business, but sometimes they cooperate.

CommonHealth handles Schering-Plough Corp.'s Claritin, one of several prescription brands leading the way into DTC TV advertising on a media budget of nearly $50 million in 1996. "This catapulted us into saying, `This is a real business,'*" Mr. Maurer said.

Saatchi, with med-ad agency Klemtner Advertising already in its stable, formed Healthcare Connection last February-transferring Johnson & Johnson megabrands such as Tylenol, Mylanta and Pepcid AC from Saatchi's Compton Partners-hoping to land more healthcare business.

"We are trying to bridge the two segments of agencies with creative production for the target audience and knowledge of the business side," said Healthcare Connection's Mr. Lom. "The healthcare industry is becoming multidimensional, where you can't succeed addressing just one segment."

For now, Johnson & Johnson remains its only client, though a hefty one, with 1996 spending of $602.9 million through September.

NO. 3 REMAINS INDEPENDENT

Among the few top medical agencies that remain independent is the No. 3 shop in U.S. billings: Girgenti, Hughes, Butler & McDowell, New York.

"If you're healthy enough, young enough and financially strong, there's very little reason to sell," said Steve Girgenti, chairman-CEO.

Through Healthworld, a global operating unit it formed, Girgenti has offices in 17 countries. It handles such American Home Products Corp. DTC brands as menopausal treatment Premarin, depression drug Effexor and the coming ad campaign for anti-obesity treatment Redux, expected to be the next DTC ad blockbuster.

"A lot of pharmaceutical companies feel DTC programs should be held by large consumer agencies, and we had to go head-to-head with one client's No. 1 consumer shop," Mr. Girgenti said, referring to 3M and Bozell for an angina product, Minitran. Girgenti kept the business.

Mr. Girgenti said: "The nuances in DTC are such that a consumer shop is at a disadvantage when it comes to understanding clinical data and `fair balance,'*" an FDA mandate that ads balance products' positive and negative attributes.

But he acknowledged concern that DTC ads from healthcare agencies frequently have ineffective or confusing creative, due to regulatory constraints or inexperience at addressing consumers.

"A lot of it is mediocre at best-they're cluttered, very factual and not very appealing," Mr. Girgenti said. "We're very critical of our peers, even appalled at times."

Mr. Lom attributed the quality of ads to the fact that "it's harder to attract creative talent to med ad agencies than it is attracting business talent to a consumer agency."

Mr. Sokotch said FCB hasn't hired any healthcare agency executives, adding, "The best DTC people take inspiration from many different areas. Their specialty isn't healthcare, it's reaching the consumer."

TOUTING CONSUMER SAVVY

Consumer experience, media clout and TV proficiency are advantages mainstream agencies are leveraging for business. This will become more crucial as brands such as Rogaine and Claritin shift spending from print into TV.

Mainstream agencies will also have the edge as newly consolidated healthcare providers-such as Columbia/HCA Healthcare Corp., whose $20 million account is handled by the Martin Agency, Richmond, Va.-launch their first national media efforts.

Overall, local and regional hospital ad spending rose 150% for the five years through 1995 to $277.9 million, according to CMR. Health insurance spending ballooned 187% to $358.4 million. Though some med agencies are less focused on healthcare providers, which have traditionally sought mainstream shops, others such as Becker are gearing up to serve them as well.

Drug marketers' desire to create global brands will increase the importance of worldwide capabilities for agencies. Holding companies have affiliated with multiple med- ad agencies-Euro RSCG and Bozell, Jacobs, Kenyon & Eckhardt both have several, while Omnicom has a record six relationships (Cline, Davis & Mann would raise that to seven).

"For the clients we work with, a worldwide banner is very important," said William Gibson, chairman-president-CEO at Sudler & Hennessey, the No. 2 medical ad agency by non-U.S. income and affiliated with Young & Rubicam.

THE NEXT STEP

The next marketing step some drug companies may consider is moving beyond mass media vehicles to more focused efforts.

"The big question is what media consumption do people with certain afflictions share?" asked Dave Mulryan, president of Mulryan/Nash, New York. "The HIV-positive market is easy-Poz magazine is revolutionary for reaching that group-but there is no such thing as Oncology Today."

Direct marketing through databases is one growing way to target consumers.

"In the prescription business, the name of the game is to pick up names and maintain the relationship," said Becker's Mr. Flaum.

By offering ailment-specific newsletters or other incentives, drug marketers are increasingly creating their own databases through free product samples given to patients.

The entire field of drug marketing "is so much in its infancy," said CommonHealth's Mr. Maurer. "This all starts with companies who are willing to spend, and some are still waffling."

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