Pill chill

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After three years of unprecedented growth, the $1.8 billion direct-to-consumer advertising marketplace faces a major hurdle as patents on some of the best-selling brands of prescription drugs begin to expire.

On Aug. 9, Eli Lilly Co.'s stock plunged some 30% when word got out its antidepressant Prozac could see its patent expire a year from now. Other heavily advertised drugs such as Schering-Plough's Claritin, AstraZeneca's Prilosec and Bristol-Myers Squibb's Glucophage and BuSpar are expected to lose their patents over the next two years.

Together, the drugs represented some $10 billion in U.S. retail sales last year, according to consultancy IMS Health. They were backed by more than $485 million in ad spending for 1998 and 1999 combined, Competitive Media Reporting figures show.

Generic competition, sure to be rushed to market on the heels of any patent expiration, will almost certainly curtail DTC spending on these drugs, which could have a ripple effect for ad agencies, media buyers and ad sellers.

"In a nutshell, when a drug goes generic, virtually all promotion stops," said Corey Davis, an analyst with Chase H&Q. "That's every form of direct-to-consumer advertising, sales force promotion, clinical trials. Literally, a company's spending on a particular drug will go to zero."

Eli Lilly wasn't the only company depressed by the Aug. 9 Prozac announcement; it also was a sad day for Leo Burnett Co., Chicago. The agency not only crafts the direct-to-consumer advertising for Prozac but was preparing a DTC effort for Sarafem, a version of Prozac newly approved to treat a severe form of premenstrual syndrome.

The impending Prozac patent loss means Prozac's DTC efforts could soon wind down and imperil the Sarafem campaign. As the first approved product for severe PMS, Sarafem would have been a prime DTC candidate had Prozac been allowed three more years of patent life.


"It would have been a slam dunk," an executive familiar with the situation said. "Now, there's a big question as to what happens next."

Once a much-less-expensive generic version of a product is released, promotions behind the branded version nearly always cease. Drug marketing grows increasingly difficult as products that can cost significantly less than a third of the "real thing" become available, especially since HMOs so aggressively balk at higher prices.

The recent boom in DTC advertising was unleashed in August 1997 when the U.S. Food & Drug Administration lessened its restrictions on broadcast ads. Overall, the category has nearly doubled from $1 billion in 1997 to $1.8 billion last year. TV spending rocketed from $309.6 million in 1997 to $1.1 billion in 1999, according to IMS Health. The coffers of magazines, newspapers and TV networks have all been fattened.

"We've found value in the older demographic," said Joe Abruzzese, president of sales at CBS. "A lot of that is due to DTC."

But since August 1997, no major DTC spender has lost patent protection on its product, and the question remains whether the extraordinary growth rate of the category will slow once patents expire.

"The pool doesn't get any smaller," said a spokesman for Turner Broadcasting System, whose CNN network does a considerable DTC business. "One brand may have to get out. But another may get aggressive in order to get its head above the clutter."

Ad agency executives agree new drugs coming on the market will generate significant spending even as old reliables die.

"We have learned what direct-to-consumer advertising can do," said Sander Flaum, CEO of Robert A. Becker/Euro RSCG. "We have learned the right products, the right categories."

Those categories certainly include allergy relief, antidepressants and heartburn relief, currently led by Claritin, Prozac and Prilosec.

Creatively, they've given rise to some of the most dominant images in DTC, from Claritin's blue skies and Joan Lunden testimonials to Prilosec's raining purple pills.

Even though generic competition can bring an end to massive DTC efforts, it could spur new ads from fierce competitors emboldened as rivals move out of the way. A generic entry generally has a stronger impact on an individual brand, not a category at-large. For example, a generic Claritin could empower competitors Allegra and Zyrtec.

"Drugs are more promotion-sensitive than they are price-sensitive," said Chase H&Q's Mr. Davis. "Allegra and Zyrtec, through promotions, will in effect end up gaining market share without the competitive promotions of Schering-Plough."

Branded drugs could also survive and continue to advertise, because some doctors and consumers -- especially those with good insurance plans -- may distrust generics. And marketers may feel they've built such a potent brand it can outcompete a generic, much like private-label products sometimes do in the over-the-counter arena.

"The people who have found DTC advertising the most helpful to them before patent expiration would be the people most likely to look at something afterwards," said the executive who asked not to be named. "That would put Claritin as an absolutely prime contender. But there's the son of Claritin out there."

The so-called son of Claritin is the next-generation version of Claritin, expected to be called Clarinex when it hits the market as soon as this fall. The challenge for marketers such as Schering-Plough, Bristol-Myers Squibb and AstraZeneca is to switch consumers from their current Claritin, Glucophage and Prilosec brands to the successor drugs Clarinex, Glucovance and Nexium. Prilosec also could go OTC, which could bring in revenues, though not at the level of the more-expensive prescription version.


"They'll do aggressive switch campaigns to see if they can get the majority of patients switched over," said Beth Cariello, an analyst with Deutsche Bank Alex Brown. "People who want to use Claritin or are very price-sensitive may still use the generic version, but the enhanced better formulations that are available will be the first choice for doctors."

In the process, marketers will get an early look at how effectively they can build not just brands but franchises. Industry observers believe a major challenge in drug marketing is blunting the effects of patent expiration.

"It puts more of an emphasis on building stronger loyalty before patent expiration," said Michael Guarini, managing director of Ogilvy & Mather Healthcare.

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