Arun Sudhaman 04 Jun 2012 // 11:00PM GMT
Popcorn profits, box-office brands and an unquenchable production pipeline; the era of blockbuster drugs has been good for the public relations industry. But as its demise becomes clear, healthcare PR firms are actively seeking a sustainable sequel.
Stretching the analogy towards breaking point, it is tempting to borrow the title of blockbuster movie Perfect Storm to describe the unique set of circumstances facing the pharma industry.
Put simply, the business model that underpinned the rise of big pharma has begun grinding to halt. In the US alone, a number of blockbuster brands are coming off patent in the next few years (Lipitor, Zyprexa, Plavix, Humira and Seroquel), to the tune of $120bn in revenues.
Replacing those earnings is, to all intents and purposes, impossible. There are fewer unaddressed drug categories, and regulators like the FDA want new drugs to represent a specific advance on existing ones. Just this month, Roche’s dalcetrapib (a Burson client) became the latest medication to fall at the final hurdle, following in the footsteps of high-profile late-stage failures from GSK, AstraZeneca and Eli Lilly.
At the same time, the average cost of bringing a drug to market has surged by more than 25 percent, according to Deloitte, forcing the big pharma players to reduce their R&D budgets.
Purchasers, whether employers, managed care organizations or national health bodies, are slashing prescription drug spend and reimbursement in line with current economic conditions. To little surprise, generics are proving increasingly appealing to consumers in emerging and developed markets. And a wave of mergers and acquisition is gripping an industry that appears unsure of where to place its bets.
For public relations people, the stakes are high. Much of the PR industry’s healthcare growth has been powered by the pipeline of patented drugs. The looming patent cliff has many wondering whether the descent will be too steep to handle.
“Many in the PR industry have built practices around drugs that have lost patent and there is no replacement in the company pipeline,” admits Weber Shandwick healthcare chief Laura Schoen.
The impact on budgets should not be understated, and may help explain why the likes of GSK, Pfizer and AstraZeneca have all conducted far-reaching reviews of their communications spend in recent months. For many firms, the biggest changes will be structural.
“We’ve seen a move towards smaller client teams, smaller budgets with greater focus on hard end ROI metrics, as well as a change in mindset from long-term communication programmes to a short-term project by project approach,” adds Chandler Chicco MD Anne-Marie Rodriguez de Killeen.
The rise of reverse auctions, so beloved of pharma giants, is probably not a coincidence. Rodriguez de Killeen notes that the cost pressures felt by clients have “undoubtedly been magnified for those companies' suppliers.” The net effect is a scenario where staff resourcing and financial forecasting become much more difficult, and communications risks being viewed as another cost that needs to be pressured downwards.
“The rise of reverse auctions and budget ceiling demands are attempting to ‘genericise’ many services and threatening the creative, strategic and insightful elements that our industry provides,” adds Rodriguez de Killeen.
Unsurprisingly, many firms claim that they have been planning for this eventuality for years; the truth, as one global agency CEO notes on condition of anonymity, is that the situation will “hurt a lot of agencies.”
“It should be more like a ‘gentle slope’ because these companies, and the PR agencies supporting them, know years in advance that a patent project is going away, and they should in theory be able to plan for it,” explains Tonic Life CEO Scott Clark.
Instead, as W2O chairman and CEO Jim Weiss contends, the margins available on blockbuster projects have diverted interest away from less profitable areas such as biologicals and devices/diagnostics.
“It’s one of the reasons we diversified,” says Weiss. “As the macroeconomic climate puts healthcare companies under more budget pressure, that gets passed on. There’s a confluence of factors.”
Adds Clark: “Sadly, most experience the cliff, and unless you have a proverbial parachute, there is only way that is going to end.”
Thankfully, the script is not uniformly bleak. Indeed, there is enough evidence to suggest that the changes wracking the healthcare sector may eventually spur the development of a more vibrant, multi-faceted PR industry.
Traditionally, PR professionals have struggled to convince big pharma that corporate reputation has any impact on profits. Its value, instead, has typically been viewed in terms of the ability to sell branded products. However, Schoen notes that today’s “generic environment” has put expensive pharma offerings on the backfoot with a range of stakeholders.
“Differentiating the corporate brand and improving its reputation among professionals, patients and government agencies is a critical need for pharma, and the PR industry that serves it must prepare their teams to help move brand support forward.”
That approach, adds Killeen de Rodriguez, only becomes more important if “companies are to protect their strong reputations in the disease fields in which they operate.”
Neither should it be assumed that pharma budgets are disappearing. Some companies (notably GSK, Roche, BMS and Merck) claim secure blockbuster pipelines. Last year, the FDA had a seven-year high on new approvals. If the blockbuster era is waning, it is being replaced by an environment in which drugs target smaller patient groups with more specific needs.
“Pharmaceutical companies will aim to replace their blockbusters with new, more targeted drugs to set them apart from the competition,” says MSLGroup Germany CEO Wigan Salazar. “This also means that communications will play a large role in highlighting new companies strategies, restructuring and growing portfolios.”
That may call on skills which are not traditionally associated with healthcare communications. Schoen, for example, believes that the wave of consolidation offers opportunities to savvy firms. “Typically, healthcare communications professionals understand little about the financial markets and they will have to learn or partner with other agency experts to support clients through financial or corporate events.”
Weiss prefers to describe the patent cliff as a “rebalancing”, pointing out that macroeconomic indicators for healthcare, particularly the proportion of GNP for which it accounts, remain robust. “From a pure economic standpoint, healthcare PR remains a healthy business.”
That much is reflected, for example, in the opportunities available in such areas as consumer and public healthcare. In the US, for example, the implementation of ‘Obamacare’ has already reaped lucrative public sector assignments for Ogilvy PR and Porter-Novelli, while companies require support to explain the dramatic policy shifts to their employee base.
Weiss also sees potential in areas that are often viewed as less fashionable than big pharma: health IT, which has seen major investments from such companies as Qualcomm, GE and Intel; healthcare education; biosimilars and branded generics. He also notes that “you will see more work in policy, in access and public health education that increases adherence to medications.”
That shift illustrates the new mindset that the healthcare PR industry needs to embrace. Historically, explains APCO director Joe Bullen, pharma PR has focused on a broad range of stakeholders. But now that new drugs need to make a much stronger case for approval, taking into account existing medications, PR strategies need to narrow their focus to more specific decision-makers.
“Anyone in purchasing and prescribing is looking for a much bigger focus on outcomes,” says Bullen. “That changes how we need to communicate and who we are communicating with. You have to talk more about the benefits of a medication.”
“We need to understand that our clients will need to focus on more targeted therapies that will contribute to revenue, but at the same time, apply to smaller patient groups, thereby making it more difficult to justify the high costs, especially with payers,” agrees Salazar. “Improving communications between payers and pharmaceutical companies will be key to ensuring targeted therapies can be marketed effectively.”
In a similar vein, the last couple of years has seen clients investing in existing medications that previously attracted minimal marketing spend. At the same time, digital healthcare communication - despite the FDA’s best efforts to stymie its development - has steadily increased in importance.
“All of these changes have developed PR executives with broader experience, with new skills and a flexibility to respond quickly to the challenges their clients face,” notes Killeen de Rodriquez.
The slow fade of the blockbuster era will be sad for some, but others, as Clark puts it, spy an opportunity to develop an industry that is “more focused on measurable campaigns, new services, and a bit more hungry.”
“The post-blockbuster world will not be apocalyptic,” adds Killen de Rodriguez. “It should be one where pharmaceutical revenues will be more stable and less reliant on or two major brands; at the same time they should be supported by a lean, flexible, focussed PR industry.”