Advertising in the Pharmaceutical Industry Carolina Fieldcamp, Charlotte Laville, Arnaud Louiset & Kristin White

Agenda Industry Background Competition Advertising Strategies Industry Advertising Trends Raw Data Analysis Recommendations: Investment and Advertising

Industry Background

Advertising Strategies Industry Overview ACTIVITY: 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) R&D (20% of revenues) Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Strategies Industry Overview KEY FIGURES: Revenue: $158.7b Profit: $31.1b Businesses: 2,400 Industry growth: 1.5% Exports: $46.5b Imports/Demand = 38% KEY DEMAND DRIVERS: Median age of population Private health insurance Federal funding (Medicare/Medicaid) Regulations R&D expenditures Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Demand will increase, as number of older customers is increasing http://www.census.gov/prod/1/pop/p25-1130/p251130.pdf SOURCE: US CENSUS DATA Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Strategies Exports/Imports EXPORTS IMPORTS $46.5B $71.1B Exports: high and increasing Import: high and steady Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Pharmaceutical Manufacturing Stages TWO MAJOR STAGES: Primary Processing: Production of the active ingredients or drug Secondary Processing: Conversion into product suitable for administration PRODUCT FORM: Tablets, capsules, liquid, creams, ointment, aerosols… Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Suppliers and Distributors 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 drugstores Supermarkets and grocery stores Drug, cosmetics and toiletry wholesaling Hospitals Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Supply Chain PATIENTS RAW MATERIALS SUPPLIERS FINISHED PRODUCT HOSPITALS CLINICS PHARMACIES PACKAGING DISTRIBUTOR PATIENTS Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Strategies Product Segmentation Brand name vs. generic OTC (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 product Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Competition

Industry Analysis: Competition Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Strategies Major Competitors YEAR EST. 1887 1888 1849 REVENUES ($M) $17,432 $11,329 $10,958 MARKET SHARE 11.1% 7% 6.9% EMPLOYEES 128,000 21,000 78,300,000 2014 NI GROWTH RATE 18.02% -57.03% -20.15% PROFIT MARGIN 27.7% 8.9% 18.4% BRAND EQUITY $7.72B $4.15B Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Low Market Concentration No. of companies in industry: 2,410 HHI = 538.18 HHI = 10,000 x Σwi2 10 largest companies represent 70.2% of the market CR4 = 36.9 C4 = w1+ w2+ w3+ w4 Source: IBISWorld Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Competitive Landscape Barriers to Entry: HIGH (Government, R&D, capital, patents) Barriers to Exit: HIGH (Fixed, Sunk, contracts, liquidity) Degree of Rivalry: HIGH (Product innovation, prices, marketing) Product differentiation: HIGH (Generic vs. patented, drug form, brand differentiation) Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Strategies

The 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. Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Regulations Non-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. Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Promotional Strategies Direct-to-Consumer Professional Promotion Product claim ads Detailing Reminder ads Samples Help-seeking ads Educational and Promotional Meetings Promotional materials (brochures, mailings) Journal and Web Advertisements Clinical 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. Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Professional 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.pdf Left 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 Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Professional Promotion Detailing Samples Meetings Journals 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. Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Direct to Consumer Advertising (DTCA) Product Claim Reminder Help-Seeking Promotional Materials Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Strategies DTCA: Content Story structure of advertisements: 44.7% of ads showed characters both before and after use 39.5% of ads showed characters only after use 7.9% of ads showed characters only before use Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Message Appeal: Informative Rational appeals  risk disclosure required by the FDA Risks and benefits Prescribing information Reminder ads: not informative Product claim ads: 100% presented factual information Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

40-55

Message Appeal: Emotional 95% of ads use emotional appeals 69% of ads target negative emotions, such as fear 95% of product claim ads & 100% of reminder ads target positive emotions, such as motivation Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Strategies Message Appeal: Fear Scares viewers into thinking certain “normal” symptoms may be indicative of a significant medical issue Encourages viewers to speak to their doctor if symptoms are exhibited Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising Trends

Companies are spending more on advertising and sales than on R&D 8.2B 6.6B 5.5B 17.5B 11.4B 5.7B 7.5B 2.9B R&D spend 9.5B 4.3B Sales & Marketing Spend http://www.washingtonpost.com/blogs/wonkblog/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/ Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Relatively High Ad-to-Sales Ratios Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

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.pdf Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Steady increase in online ad spend http://www.askingsmarterquestions.com/pharmaceutical-advertising-spending-shifts-to-digital/ Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Raw Data Analysis

Industry uses particularly long advertisements Industry Median Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Seasonality: Ex. Seasonal Illnesses Seasonal illnesses (higher in the winter). Adjustment of advertising with the time when people need the product Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Industry advertises predominantly during drama shows Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Raw Data: Case Study Analysis

Pfizer: two competing drugs CASE STUDY 1 Pfizer: two competing drugs Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Pfizer: two competing drugs CASE STUDY 1 Pfizer: two competing drugs Ask the teacher for explanations. Maybe Celebrex is usually giving more information so it need more time Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Pfizer: two competing drugs CASE STUDY 1 Pfizer: two competing drugs Pfizer use a similar methodology to advertise similar products Celebrex advertise more overall than Zeljanz Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Pfizer: two competing drugs CASE STUDY 1 Pfizer: two competing drugs 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 that’s why they don’t advertise on those shows. Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Pfizer: two competing drugs CASE STUDY 1 Pfizer: two competing drugs Networks (some channels are more expensive to advertise on) Celebrex advertises more (more frequently) but on shows with a lower CPM They 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) Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Pfizer: two competing drugs CASE STUDY 1 Pfizer: two competing drugs Complementary type of advertising. Both drugs are also advertised less in the Fall (people suffer more when it’s humide and it rains usually more in the spring) Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Same drug advertised by two competitors CASE STUDY 2 Same drug advertised by two competitors Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Same drug advertised by two competitors CASE STUDY 2 Same drug advertised by two competitors Humira may be more advertised than Stelara overall. Same patern and trend Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Same drug advertised by two competitors CASE STUDY 2 Same drug advertised by two competitors Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Same drug advertised by two competitors COST PER AD $227,615 $194,208

Advertising to different target audiences CASE STUDY 3 Advertising to different target audiences Testosterone gel Target audience: older men Menopause symptom relief Target audience: older women Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising to different target audiences CASE STUDY 3 Advertising to different target audiences 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 concentrated Brisdelle 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? Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising to different target audiences CASE STUDY 3 Advertising to different target audiences Brisdelle advertised later in the night: trouble sleeping ? Lol Brisdelle: women busy until 8pm? (different activities) Androgel  advertised when sports are on Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising to different target audiences CASE STUDY 3 Advertising to different target audiences Male-targeted drug (androgel) – sports & news Female-targeted drug (brisdelle) – comedy & reality Similar for drama, for aforementioned reasons Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising to different target audiences CASE STUDY 3 Advertising to different target audiences Maybe guys watch tv more on the weekends? Check for data No new episodes of original content targeted towards women on the weekend Saturdays and Sundays tends to be sports Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Advertising to different target audiences CASE STUDY 3 Advertising to different target audiences Graph 1 Why does Brisdelle advertise on ABC but androgel doesn’t? 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 Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations

Recommendations

Investment Advertising High level of competition But growth potential with median population age increasing (more need for product) Severe limitations from regulation Move more towards mobile and online advertising More celebrity endorsements Industry Background Competition Advertising Strategies Advertising Trends Raw Data Analysis Recommendations