Drug mergers above all are driven by a need to bolster product pipelines and increase research and development budgets. But the $76 billion merger of pharmaceutical powerhouses Glaxo Wellcome and SmithKline Beecham also was propelled by the desire to forge a potent marketing machine.
Glaxo has been one of the leaders in experimenting with direct-to-consumer advertising. It also brings with it insight into how to promote its drugs to physicians.
"OTC marketers have probably underestimated the value of physicians' influence in getting people to use certain products," said Michelle Mirchandani, VP-strategic services, Medical Broadcasting Co., Philadelphia.
On the other hand, the merger gives Glaxo the knowledge SmithKline already has about the front of the drugstore, where popular SmithKline products such as Tums and Aquafresh are sold.
In the past, Glaxo has opted not to dabble in over-the-counter products. When its top-selling ulcer medication Zantac 75 lost its patent, the company licensed the OTC version to Warner-Lambert Co. SmithKline has taken Tagamet HB, Nicorette and Nicoderm CQ from prescription-only to OTC successfully.
"Glaxo marries into a company that knows how to turn Rx products into OTC, which has a huge shelf life," said Beth Cariello, an analyst with Deutsche Bank/Alex Brown. "They have options now."
Until last year, SmithKline took to DTC advertising with baby steps. Then the company seemingly became an overnight convert, launching campaigns in the $20 million range for Lyme disease drug Lymerix, from Rubin Ehrenthal, New York, and the antidepressant Paxil, from McCann-Erickson Worldwide, New York. A national print campaign for diabetes drug Avandia from CommonHealth, New York, also took flight.
Glaxo was the second-biggest DTC spender through the first eight months of 1999 with $122 million, according to consultancy IMS Health.
Last fall, it launched an unbranded campaign for its antidepressant Wellbutrin and this winter, it used ex-"Seinfeld" actor Wayne Knight to personify influenza in a campaign for its new flu drug Relenza.
A major shake-up in Glaxo and SmithKline's agency roster isn't likely. In fact, the companies share both Jordan McGrath Case & Partners/Euro RSCG, New York, and Grey Advertising.
Jordan and Grey handle SmithKline's OTC products. Grey has Glaxo's central nervous system and respiratory DTC accounts, while Jordan has the DTC account for the yet-to-be-launched Lotronex irritable bowel syndrome drug.
There could be some movement in the companies' media buying accounts if Glaxo SmithKline decides a combined account gives it more buying power. Glaxo consolidated its business at the Media Edge, New York, last year; SmithKline does print buying through JordanMcGrath and broadcast buying out of Grey's Mediacom, New York.
SmithKline's market domination in the smoking cessation category opens up the possibility for a blitz of unbranded ads about kicking the habit. The company's combined portfolio includes Rx drug Zyban as well as Nicoderm CQ and Nicorette.
"When you own the magnitudes of the solution, it pays for you to hone in on finding ways to get people to make an emotional commitment to quit smoking," said Gil Bashe, former CEO of CommonHealth.
Combined, Glaxo and SmithKline spent some $420 million in measured media in 1998. That figure is likely to increase significantly as Glaxo's aggressive approach to advertising permeates the new company.
SmithKline almost certainly won't be the last major drug merger this winter.
Warner-Lambert recently announced it will begin merger discussions with Pfizer after resisting for several months. And last week, word spread that Procter & Gamble Co. may attempt to realize its goal of becoming a top player in pharmaceuticals by buying Warner-Lambert or American Home Products Corp., or both.
A P&G merger with either company would create a dynamic similar to Glaxo SmithKline, where the new entity would have a research-driven pharmaceutical business along with a consumer health line. Analysts were skeptical that P&G would want to enter into a bidding war with Pfizer. According to Ms. Cariello, "Why would P&G get into a match that they potentially might not win?"
Copyright January 2000, Crain Communications Inc.