Advertising in the Pharmaceutical IndustryCarolina Fieldcamp, Charlotte Laville, Arnaud Louiset & Kristin White+1AgendaIndustry BackgroundCompetitionAdvertising StrategiesIndustry Advertising TrendsRaw Data AnalysisRecommendations: Investment and Advertising

+Industry Background+3ACTIVITY:Develop and produce pharmaceutical products and medications

TECHNOLOGY:Capital intensity: HIGH (facilities, research laboratories, machinery, technology equipment)Technology change: HIGH (keep renewing equipment as innovative technologies are introduced)

Industry Overview

+R&D (20% of revenues)

4Industry OverviewKEY FIGURES:Revenue: $158.7bProfit: $31.1bBusinesses: 2,400Industry growth: 1.5%Exports: $46.5bImports/Demand = 38%

KEY DEMAND DRIVERS:Median age of populationPrivate health insuranceFederal funding (Medicare/Medicaid)RegulationsR&D expenditures

+5Demand will increase, as number of older customers is increasing

SOURCE: US CENSUS DATA

+http://www.census.gov/prod/1/pop/p25-1130/p251130.pdf6Exports/Imports

EXPORTS$46.5B$71.1BIMPORTS+Exports: high and increasingImport: high and steady

7Pharmaceutical Manufacturing StagesTWO MAJOR STAGES:Primary Processing: Production of the active ingredients or drug Secondary Processing: Conversion into product suitable for administrationPRODUCT FORM: Tablets, capsules, liquid, creams, ointment, aerosols

+Suppliers and DistributorsSUPPLIERS: Chemicals from: Biotechnology/bioinformatics firms Equipment from: Medical device and instrument manufacturing firms Cleaning products from: Soap and cleaning compound manufacturing firms

DISTRIBUTORS:Pharmacies and drugstoresSupermarkets and grocery storesDrug, cosmetics and toiletry wholesalingHospitals

+Supply Chain

RAW MATERIALS SUPPLIERSFINISHED PRODUCTPACKAGINGDISTRIBUTORHOSPITALS CLINICS PHARMACIES

PATIENTS+10Product SegmentationBrand name vs. genericOTC (over-the-counter) vs. POM (prescription only medicines)

+Brand name: discovered and developed by the company, patent protected (20 years)Generics: after patent expiration, cheaper copies, same exact product11Competition+12Industry Analysis: Competition

+13Major CompetitorsYEAR EST.188718881849REVENUES ($M)$17,432$11,329$10,958MARKET SHARE11.1%7%6.9%EMPLOYEES128,00021,00078,300,0002014 NI GROWTH RATE18.02%-57.03%-20.15%PROFIT MARGIN27.7%8.9%18.4%BRAND EQUITY$7.72B$4.15B

+Low Market Concentration

HHI = 538.18HHI = 10,000 x wi210 largest companies represent 70.2% of the marketCR4 = 36.9C4 = w1+ w2+ w3+ w4

No. of companies in industry: 2,410+Source: IBISWorld15Competitive Landscape

+Advertising Strategies+17The Food and Drug Administration (FDA)Concern: public health Products: Assures the safety, effectiveness and security of products, including human prescription drugs

Promotion: Helps consumers get accurate, science-based information needed to use medicines appropriately and improve health

+http://www.fda.gov/Drugs/ResourcesForYou/Consumers/PrescriptionDrugAdvertising/ucm071964.htm

The FDA oversees both the approval and marketing of prescription drugs in the United States.18Advertising RegulationsNon-prescription (OTC): sold directly to the consumer.Regulated by the FTC

Prescription: medical professionals supervise its use. Regulated by the FDA

+Federal regulation of drugs began in 1906 and was expanded in three major pieces of legislation between 1938 and 1962. The most recent amendments in the late 1990s created the DTCA market for pharmaceutical products.19Promotional StrategiesDirect-to-ConsumerProfessional PromotionProduct claim adsDetailingReminder adsSamplesHelp-seeking adsEducational and Promotional MeetingsPromotional materials (brochures, mailings)Journal and Web AdvertisementsClinical Trials

+Data from:http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2013/11/11/persuading-the-prescribers-pharmaceutical-industry-marketing-and-its-influence-on-physicians-and-patients

DTCA and other forms of pharmaceutical promotion are heavily regulated by the FDA, as its authority to regulate advertising is closely related to its authority to approve prescription drugs, the primary means through which the FDA ensures public health and safety in the use of pharmaceuticals. The FDA has different requirements for different types of DTC ads, of which there are four: product claim ads, reminder ads, help-seeking ads and other promotional materials.

20Professional promotion dominates ad budgets

+http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2013/11/11/persuading-the-prescribers-pharmaceutical-industry-marketing-and-its-influence-on-physicians-and-patients

http://www.imshealth.com/deployedfiles/imshealth/Global/Content/Corporate/Press%20Room/Top_line_data/Promo_Spend_By_Type.pdfLeft graph: influence of professionals, they are the one writing prescriptions - illustrates the extent to which advertising is aimed at influencing doctors prescribing practices.

DTCA of prescription drugs has increased from $166M in 1993 to $4.2B in 2005.

The industry average spent on DTC is 13% of total ad spending

21Professional Promotion

+Data from:http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2013/11/11/persuading-the-prescribers-pharmaceutical-industry-marketing-and-its-influence-on-physicians-and-patients

DTCA and other forms of pharmaceutical promotion are heavily regulated by the FDA, as its authority to regulate advertising is closely related to its authority to approve prescription drugs, the primary means through which the FDA ensures public health and safety in the use of pharmaceuticals. The FDA has different requirements for different types of DTC ads, of which there are four: product claim ads, reminder ads, help-seeking ads and other promotional materials.

22Direct to Consumer Advertising (DTCA)

+DTCA: ContentStory structure of advertisements: 44.7% of ads showed characters both before and after use39.5% of ads showed characters only after use7.9% of ads showed characters only before use

+Message Appeal: Informative

Rational appeals risk disclosure required by the FDARisks and benefits Prescribing informationReminder ads: not informativeProduct claim ads: 100% presented factual information+

+40-5526Message Appeal: Emotional95% of ads use emotional appeals69% of ads target negative emotions, such as fear95% of product claim ads & 100% of reminder ads target positive emotions, such as motivation

+Message Appeal: FearScares viewers into thinking certain normal symptoms may be indicative of a significant medical issueEncourages viewers to speak to their doctor if symptoms are exhibited

+Advertising Trends+29Companies are spending more on advertising and sales than on R&D

17.5B11.4B5.7B9.5B4.3B8.2B6.6B5.5B7.5B2.9BR&D spendSales & Marketing Spend

+http://www.washingtonpost.com/blogs/wonkblog/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/

30Relatively High Ad-to-Sales Ratios

+Significant decrease in print advertising

+In 2012 we saw a greater overall drop in promotional spending than we observed the previous year, with 90% of decline attributable to detailing, sampling, and DTC. Spending in nearly every channel saw decline year over year in 2012, the only exception being mailings, which continued an upward trend.

http://www.skainfo.com/health_care_market_reports/2012_promotional_spending.pdf32Steady increase in online ad spend

+http://www.askingsmarterquestions.com/pharmaceutical-advertising-spending-shifts-to-digital/33Raw Data Analysis+34Industry uses particularly long advertisementsIndustry Median

+Seasonality: Ex. Seasonal Illnesses

+Seasonal illnesses (higher in the winter). Adjustment of advertising with the time when people need the product36Industry advertises predominantly during drama shows

+Raw Data: Case Study Analysis+38Pfizer: two competing drugs

CASE STUDY 1+Pfizer: two competing drugs

CASE STUDY 1+Ask the teacher for explanations. Maybe Celebrex is usually giving more information so it need more time40Pfizer: two competing drugs

CASE STUDY 1+Pfizer use a similar methodology to advertise similar productsCelebrex advertise more overall than Zeljanz41Pfizer: two competing drugs

CASE STUDY 1+Both drugs are advertised on the same kind of shows. It targets older people (arthritis) and usually sport or movie are watched by kids or young adults, so thats why they dont advertise on those shows.42Pfizer: two competing drugs

CASE STUDY 1+Networks (some channels are more expensive to advertise on)Celebrex advertises more (more frequently) but on shows with a lower CPMThey advertise Xeljanz on higher CPM shows as the drugs is more expensive than Celebrex, so they want to target the right people. Besides, as the products are almost, people would logically buy the less expensive (Celebrex), so they need to advertise Xeljanz when and where it will have a higher impact. (so they spend more)43Pfizer: two competing drugs

CASE STUDY 1+Complementary type of advertising. Both drugs are also advertised less in the Fall (people suffer more when its humide and it rains usually more in the spring)44Same drug advertised by two competitors

CASE STUDY 2+45Same drug advertised by two competitors

CASE STUDY 2+Humira may be more advertised than Stelara overall. Same patern and trend46Same drug advertised by two competitors

CASE STUDY 2+Same drug advertised by two competitorsCOST PER AD$227,615$194,208

+

Advertising to different target audiences

Testosterone gelTarget audience: older men

Menopause symptom reliefTarget audience: older women

CASE STUDY 3+49Advertising to different target audiences

CASE STUDY 3+Flighting strategy

Brisdelle: Sept November (does menopause onset more here?)Androgel: April May

Both have a break in the campaign; brisdelle advertises more sparsely; androgel advertising is very concentratedBrisdelle is advertised in longer chunks maybe because it is harder for women to adjust, whereas men see the advertisement and want to act on their problem

PULSE?50Advertising to different target audiences

CASE STUDY 3+Brisdelle advertised later in the night: trouble sleeping ? LolBrisdelle: women busy until 8pm? (different activities)Androgel advertised when sports are on

51Advertising to different target audiences

CASE STUDY 3+Male-targeted drug (androgel) sports & newsFemale-targeted drug (brisdelle) comedy & realitySimilar for drama, for aforementioned reasons

52Advertising to different target audiences

CASE STUDY 3+Maybe guys watch tv more on the weekends? Check for dataNo new episodes of original content targeted towards women on the weekendSaturdays and Sundays tends to be sports53Advertising to different target audiences

CASE STUDY 3+Graph 1Why does Brisdelle advertise on ABC but androgel doesnt? Different demographics?Androgel more focused on one network touching same consumer several times, whereas Brisdelle tries to touch several different consumers (through different networks)- ABC: More female-oriented drama and programming in general, while CBS has more variety

54Recommendations+55 Investment AdvertisingHigh level of competitionBut growth potential with median population age increasing (more need for product)

Severe limitations from regulationMove more towards mobile and online advertisingMore celebrity endorsements+56