Pharmaceutical marketers have cut back sharply on ad spending in medical journals in the first half of 1994. (chart) HEALTHCARE'S BITTER PILL MARKETERS, MEDIA AND AGENCIES ARE UNDER THE KNIFE

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While President Clinton and Congress dicker and debate, healthcare reform has already started with unparalleled consequences on marketing by pharmaceutical manufacturers.

In fact, this year's drug mergers between American Home Products Corp. and American Cyanamid Co., Eli Lilly & Co. and McKesson Corp.'s PCS Health Systems, SmithKline Beecham Corp. and Diversified Pharmaceutical Services, and Roche Holdings and Syntex are only the latest and most public reflections of the dramatic changes occurring in the sales and distribution of prescription drugs.

Also in the last year, pharmaceutical companies have:

Slashed sales forces up to 25%.

Redirected marketing efforts in terms of what they sell, how they sell and to whom they sell.

Cut ad spending in medical journals by about one-third.

A byproduct of the ad spending cut is a prediction that in the next couple years, one-third of the agencies that handle pharmaceutical manufacturers will disappear.

All of these changes are a result of a shift toward managed-healthcare groups or group purchasing organizations since the late '80s, and away from independent practitioners. Already, fully 45% of prescription drugs are sold to managed-care groups.

With predictions that all U.S. healthcare will be delivered through such groups by the year 2000, pharmaceutical companies are adjusting their marketing efforts.

Since mid-1993, pharmaceutical companies have cut about 37,000 jobs, about 10% coming from the ranks of sales and marketing, said Sander A. Flaum, CEO-president of Robert A. Becker Inc., a New York-based healthcare marketing communications company.

"What has changed is the people to whom drugs are marketed and their relative importance," said Arvind Desai, senior analyst at New York-based Mehta & Isaly Worldwide Drug Research. "Doctors are no longer the sole drivers of demand, but pharmacies, managed cares and pharmacy drug benefit management companies are. This is a market-driven change."

Sales reps now must face committees at health maintenance organizations, managed-care facilities and hospitals to convince those groups to place their companies' drugs on a formulary-the list of drugs from which that group's physicians are allowed to prescribe.

To get their drugs on the formularies, sales reps must provide clinical trials and outcome analyses to show how use of the drugs can cut costs.

Outcome orientation, said Mark Hurwich, VP with the Wilkerson Group, New York-based healthcare management consultants, means drug companies are "selling solutions instead of selling pills."

Mr. Desai added, however, that it's a two-prong attack.

"Even if a rep gets the drug on the formulary, he still needs to go to the physician to get him to prescribe the drug since there are probably three or four competing drugs on the formulary."

Mr. Desai expects more drug companies to follow the lead of Pfizer, New York, which earlier this year reorganized U.S. Pharmaceuticals, which includes Pfizer's marketing and sales groups, to expand its disease-management approach and managed-care focus.

With this restructuring, Pfizer is emphasizing one of three marketing strategies available to drug companies, said Michael D. Weintraub, a registered pharmacist and senior VP of disease management services at Avon, Conn.-based Value Health. In this strategy, a company becomes a partner with health providers in managing disease outcomes.

In May, Value Health contracted with Pfizer to help the drug company "rethink how they market and who they market to," he said. Value Health is helping Pfizer package and sell a program that helps a provider, like an HMO, more economically manage various diseases.

These radical changes in the way drug companies market their products have rippled throughout the ad community.

"Managed care doesn't respond to glossy marketing materials anymore," said Mr. Weintraub. Information about how to cut costs is, paradoxically, what sells. Healthcare ad agencies are reeling as a result.

Robert Huntington, managing director of AdMedia Corporate Advisors, New York, said one agency he knows reported a 44% drop in revenue to $4.5 million in two years-all due to a decline in ad spending, not a loss of clients.

The agencies that don't adjust won't make it, said Mr. Huntington. He predicts a surge of mergers and acquisitions of healthcare agencies, resulting in one-third disappearing in a couple of years.

Similarly, Mr. Huntington expects to see a consolidation of medical journals. Estimates of declines in ad spending in medical journals are anywhere from 30% to 50%-just since mid-1993.

"This is the biggest decline I think the industry has ever seen," Mr. Flaum said.

Medical Tribune is a case in point. It has had three owners in little more than three years.

When Berlin-based German media giant Axel Springer Verlag purchased the title from the estate of the Sackler family in 1991, Medical Tribune had revenue of close of $40 million a year. By the time it was sold to a management group in March, annual revenue had slid to about a quarter of that. In July, the title was sold again, this time to New York-based Jobson Publishing Corp.

The politicians may still be debating, but "the industry has already completed healthcare reform," Mr. Flaum said. "We've been undergoing healthcare reform since the advent of managed care in 1989-1990. Because of managed care, profits have been squeezed and when profits are squeezed, everything is going to be cut-R&D and advertising.

"Although all promotional spending has been cut, advertising has been cut the most."

Ms. Jaben is editor of Advertising Age's Business Marketing.

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