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Deborah Ruriani

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Blockbuster drugs are sexy, exciting, and they generate widespread attention. They monopolize the advertising budgets of their marketers and developers, who work to ensure that their attributes are seen by millions of consumers via television and in magazines. As a result of the Herculean promotional efforts of marketing powerhouses such as Pfizer, Merck & Co., AstraZeneca, and GlaxoSmithKline, there is a new yardstick by which blockbusters are measured — those that generate sales between $700 million and $4 bil lion. About 100 brands fall into this category. Consequently, brands that gener ate sales of $200 million to $500 million are generally put on the backburner by marketers. In some cases, these brands are outlicensed or sold to upandcoming specialty companies that can nurture and devote the necessary resources to maintaining, sometimes growing, market share for these castoff products. Big pharma’s bread crumbs have become a feast for specialty pharmaceutical companies. Highmargin drug product acquisitions have become a major growth driver for this group. “Companies would all like to have a family of billiondollar drugs under the Christmas tree, but if they don’t they have to learn how to become excellent marketers with a portfolio of smaller brands,” says Chris Bogan, presi dent and CEO of Best Practices LLC. “Major pharmaceutical companies aspire to have highpotential drugs that could achieve bil liondollar plus sales, but the reality is devel oping these drugs and bringing them to mar ket — especially in the U.S. — is difficult.” Mr. Bogan maintains, however, that compa nies can not only survive without billiondollar brands, but prosper, and he envisions two types of pharmaceutical models for the future. Those companies that continue to funnel resources into creating the big blockbusters, and enhanc ing the compounds they have; and those com panies that have built themselves up without megabrands. The future looks bright for both strategies, providing companies are adept at marketing their products. As one industry analyst says, specialty pharmaceutical companies are the anti800 pound gorillas, they don’t have $100 billion market capitalizations, they don’t produce bil liondollar blockbuster drugs, and many don’t even try to discover new therapies. Instead, they have $1 billion to $5 billion market caps. They focus on niches, such as neurology or car diology, and they often license and market compounds that would be chump change to the drug giants. David Winigrad, president of The Hal Lewis Group, says some of the big pharma companies are almost pressured into block buster mentality. “The very large companies, to deliver the growth to Wall Street, are going to have to continue to look to that next blockbuster,” Mr. Winigrad says. “Smaller companies have lee way to create a more franchiseddriven 42 N o v e m b e r / D e c e m b e r 20 01 PharmaVOICE MARKETS MIDDLE With the primary goal of acquiring nonstrategic products from big pharma, specialty pharmaceutical companies are growing these products through the use of concentrated promotion, advertising, and selling activities. BYDEBORAHRURIANI Smaller companies have leeway to create a more franchiseddriven approach to their growth. DAVIDWINIGRAD,The Hal Lewis Group BRAND portfolio approach to their growth that focuses on small er or specialty markets. And a number of com panies are delivering on these compounds and doing this well, particularly companies that are building strong franchises, which gives them a greater identity in the marketplace.” Smaller, nichefocused companies, such King Pharmaceuticals Inc., Allergan Inc., Reliant Pharmaceuticals LLC, and Bradley Pharmaceuticals Inc. are implementing an aggressive but disciplined strategy to grow through the acquisition of branded pharma ceutical products or developing niche prod ucts, and increasing the sales of those products through focused promotion, marketing, and lifecycle management. “There are plenty of products in the $100 million to $300 million range that most com panies would kill to have in their portfolio,” says Rich Levy, president and chief operating officer of AdairGreene Inc. If a company has several of these types of products, there are clear advantages, Mr. Levy says. One is that the compa ny doesn’t have all of its eggs in one basket. “There are plenty of opportunities for pharmaceutical companies to sur vive that have a pipeline of good strong new products in the severalhundred million to halfabilliondollar range,” he says. For companies to flourish without the ben efit of a billiondollar drug, however, they need marketing savvy. “In great marketing and sales excellence, there are critical factors that should be execut ed on small as well as large products,” Mr. Bogan says. “The problem with the lesserrev enue producing drugs is that sometimes they get ignored especially by companies that are focusing on their megabrands.” According to analysts at Friedman, Billings, Ramsey &Co., the successful business model that has built most specialty pharma ceutical companies is a “triangle offense” with origins of drug delivery, generics, niche mar keting, or often a bit of all three. On a macro level, analysts say there has been a migration toward the fully integrated pharmaceutical company model, which has provided a major source of earnings growth in the past few years and will likely become more prominent in the years ahead. Specialty pharmaceutical companies have successfully built marketing organizations by targeting the highest prescribing physicians, most often in a particular therapeutic catego ry. Despite the size of specialty pharmaceutical salesforces versus those of the larger drug com panies, these underdogs can sometimes pene trate the top four levels of the physician pre scriber base, which can account for up to 70% of all prescriptions written. Mr. Winigrad says smaller pharmaceutical companies are looking to his agency for inno vative ideas to reach the smaller, specialty markets through nontraditional means. “Smaller specialty products drive innova tion and allow our agency to present pilot ideas that are not typically a part of a block buster or sledgehammer approach to market ing,” he says. Mr. Levy says creating niche marketing solutions is a challenge for agencies. “We have done this kind of sophisticated and targeted marketing because we have had to,” he says. “Smaller companies don’t have the same kind of budgets that big companies have for megabrands, so we’ve had to become more creative in the strategic and tactical approach. “We are definitely seeing a new business model for the market, such as King and Reliant,” Mr. Levy says. “There are a lot of good products — a lot of products that are $50 million or $75 million brands that are being bought up by upstart pharmaceutical companies that are putting salesforces togeth er. These are really good, established brands that companies are not promoting anymore and there is still a market for them.” Marketers of smaller brands need to under stand thoughtleader development, market issues, and target audiences — just as much as the big pharmaceutical companies that con centrate on their megabrands. “There are great examples of small compa nies that have learned to do segmentation well because they have had to be savvy and agile to survive,” Mr. Bogan says. A look at the players King Pharmaceuticals began operations in January 1994 after the founders, the Gregory family, purchased a facility in Bristol, Tenn. and assumed contracts to manufacture phar maceutical products for such companies as SmithKline Beecham, predecessor to Glaxo SmithKline, and Novartis. With 90 employees, King opened its doors as a contract manufacturer of prescription medicines for other leading pharmaceutical companies. Soon after, the company adopted its present strategy of selectively acquiring branded prescription pharmaceutical products being divested by large global pharmaceutical companies. Having successfully acquired more than 40 branded prescription product lines and introduced several productline exten sions, King has become one of the most active and skillful acquirers of branded prescription products in the emerging pharmaceutical industry. King’s branded prescription products span a broad range of therapeutic categories, includ ing cardiovascular, antiinfectives, endocrinol ogy, women’s health, and critical care. As each new acquisition increased the size of the company, King expanded its national salesforce, raising the total number of dedicat ed marketing professionals from 24 to more than 500 sales representatives throughout the U.S. and Puerto Rico. The company plans to further expand its national salesforce to more than 750 by the end of 2001. King markets wellrecognized prescription pharmaceutical products such as Altace, Lev oxyl, ThrombinJMI, Lorabid, Cortisporin, Neosporin, Menest, Pitocin, and Anusol HC. The company acquired the ace inhibitor Altace from Hoechst Marion Roussel in 1998 and developed new indications to grow the brand. Today, Altace is the only ace inhibitor indicated to reduce the risk of stroke, heart 43 PharmaVOICE N o v e mb e r / D e c e mb e r 2001 Companies have to learn how to become excellent marketers with a portfolio of smaller brands. CHRIS BOGEN,Best Practices attack, and cardiovascular death in patients older than 55 who have a cardiorisk factor. At the time King purchased the brand, Altace was generating sales less than $100 million for Hoechst. Today, King estimates that the brand makes more than $273 million. “We knew Altace had a patent life through 2008, while most of the other ace inhibitors would go off patent by 2001 to 2003,” says James Green, senior director of public affairs for King Pharmaceuticals. “We saw a tremen dous opportunity and then received the results of the `Hope Trial,’ which demonstrated that Altace reduced the risk for heart attack, stroke, and death in a specific patient population. That gave us the impetus to go after the new indication.” Altace competes headtohead against AstraZeneca’s billiondollar product Zestril, in a crowded market of ace inhibitors. King, with a salesforce of 520, enlisted the services of American Home Products to gain 2,000 sales people to detail Altace’s new indication. It is unlikely that Altace will overtake Zestril, but as the big branded ace inhibitors go off patent, Mr. Green expects some compa nies to cease or limit promoting their products BRAND portfolio 44 N o v e m b e r / D e c e m b e r 20 01 PharmaVOICE A s a result of industry consolidation, large pharmaceutical companies have high revenue and earnings hurdles that require focus on potential blockbuster products. The incremental therapeutic value for new drugs however has fallen, according to analysts at Friedman, Billings, Ramsey &Co., an institutional brokerage, research, and banking company, creating a new era of marketing blockbusters. A record 61 million details were made in 2000 plus the drug industry supported the push with $2.5 billion in directtoconsumer advertising. Analysts believe that this method of overselling pharmaceuticals will not last, and companies that continue to use research dollars for marketing purposes maywin some battles, but ultimately will lose the war. That pressure to produce blockbuster products has analysts pre dicting more mergers that mirror those of GlaxoWellcome and SmithKline Beecham,Pfizer andWarnerLambert,and Pharmacia and Searle will take place. IMS Global Services estimates that it costs compa nies $1.5 million in marketing for blockbuster drugs. That alone underscores the need for companies to pool strengths and resources. Pfizer, Eli Lilly, BristolMyers Squibb, and AstraZeneca are hoping that their pipelines yield megabrands. According to FRB, the average cost to commercialize a single compound today is $600 mil lion. As high as the development costs are so are the odds that the drug will make it to the market. Only one in 5,000 to 10,000 compounds screened can be expected to make it to market. Additionally, it takes about 12 to 15 years on average to advance a new chemical compound from discovery to market. Chris Bogan, president and CEO of Best Practices LLC, says the industry is wrestling with anold wive’s tale:companies first to market, prevail and succeed. “We found that not to be the case,” Mr. Brogan says.“Now, the real High Hurdles Big Returns mantra is the first company to achieve market penetration is success ful.And market penetration implies a whole new set of marketing fac tors that were not part of the success formula as it was written.” According to Mr. Bogan, marketing spending levels for block buster products exhibit a consistent pattern: Marketing executives generally allocate between$100and$500million to marketing activ ities to ensure the success of a new product; 20% is spent for pre launch market research and thoughtleader development; 80% is spent for launch and postlaunch media advertising, scientific meet ings, and promotional campaigns. The global piece of the puzzle Big pharmaceutical companies will need to penetrate the market at a global level to create blockbuster sales,according to analysts,and if the past is any indication, they will look to the big agencies to pro vide that global branding. Lynn O’Connor Vos, CEO of Grey Healthcare Group, says Grey has had an opportunity to work on several blockbusters such as Advair, Nexium,Crestor,and now Celebrex. “If a companywants to quickly get to ablockbuster level andbuild the brand up to generate billions, it has to have Europe and other parts of the world on board to generate that kind of money,” Ms. O’ConnorVos says.“It is difficult to build ablockbuster on the U.S.mar ket alone.” Just as Wall Street is demanding the megabrand, so is the phar maceutical company demanding more from its commu nications partners to deliver on the brand’s promise. “Demands haveexpanded tremendously over the last few years,” Ms.O’Connor Vos says.“These companies are look ing for global strength and the ability to do global brand ing in the major markets.” Global healthcare agencies, such as Grey are being tapped well before the launch of a potential blockbuster product. Ideally, Ms. O’Connor Vos, says agencies should be called in at the Phase II stage to help with thoughtleader strategy, publication strategy, medical and scientific and clinical strategy, as well as branding. “Early strategizing is crucial for marketing a blockbuster, because the industry understanding is that a product’s sixmonth sales are highly predictable about the long term,”Ms. O’Connor Vos says. It is difficult to build a blockbuster on the U.S.market alone. LYNN O’CONNORVOS,Grey Healthcare Group BRAND portfolio and anticipates that King will have a greater voice in the marketplace. Today, King has its own research and development company and through a late stage development acquisition could launch a new product in the field of estrogen replace ment therapy this spring. In January 2002, King will have a new management structure. Jefferson J. Gregory, president of King, also will become CEO. John M. Gregory, presently chairman and CEO, will continue in the position of chair man of King. “King has experienced extraordinary growth by embracing principles of hard work, persistence, patience, integrity and faith, and by executing an aggressive but disciplined strategy to grow through the acquisition of branded pharmaceutical products and increas ing the sales of those products through focused promotion, marketing, and lifecycle manage ment,” Mr. Gregory says. Bradley Pharmaceuticals, which was founded in 1985, also has the primary goal of acquiring nonstrategic products from big pharma. By using its expertise in pharmaceu tical promotion, advertising, and selling activ ities, the company has been able to grow these products and use them within its specific medical fields. “This has proven to be an ideal strategy,” says Daniel Glassman, chairman, CEO, and president of Bradley. “The large pharmaceuti cal companies have begun an evaluation of their product offerings and have determined that many products, as well as certain areas of their offerings, are ripe for divestiture. Over the years, in separate transactions, we have acquired many products that today are the pri mary backbone of the company. This strategy of `Acquire, Enhance, Grow’ has proven very, very positive for the company.” 45 PharmaVOICE N o v e mb e r / D e c e mb e r 2001 There are plenty of products in the $100 million to $300 million range that most companies would kill to have in their portfolio. I f there is one company that seems to have a successful blueprint for developing and marketing megabrands, that company is Pfiz er.With seven billiondollarplus drugs on the market and several potential blockbusters in the pipeline, the company is poised to cre ate new blockbusters and drugs for unmet medical needs. “The irony is Pfizer didn’t discover all those drugs,” says Chris Bogan, president and CEO of Best Practices LLC.“Pfizer was ahead of the curve in understanding the potential of being a great marketing and sales organization and their drugs are the beneficiary of that knowledge.” “We have oneof the highest rated salesforces in the industry,”says Mariann Caprino, director of media relations at Pfizer. “And that is largely a result of the tremendous training that we provide to them.” She says the company does not outsource its sales function nor does it segregate brands in terms of size, but aligns its sales focus according to therapeutic areas, such as cardiovascular or central ner vous system.With regard to the company’s strategy toward building blockbuster drugs,she says Pfizer’s strategy is research goaloriented. “Our product portfolio has 20 pharmaceutical products, and yes we are very,very successful in that area,but clearly our goal is to seek innovative medical solutions to unmet medical needs,” Ms. Caprino says. “People can describe it any way they want, but our strategy is research.This is virtually the situation for all our medicines.” As Pfizer continues to produce its blockbusters, it also seems to provide a vision of what the megabrand builder will look like in the The Pfizer Market Model future.Those companies that gain financial strength from huge suc cesses can funnel dollars into R&D and then into the marketing of drugs that provide innovative medical solutions in areas that are cur rently unmet,but do not have a billiondollar potential. Ms.Caprino says Pfizer does not neglect smaller revenue produc ing drugs, and in fact, looks at these compounds with the same amount of importance. “We sell Aricept in the U.S., which generates $120 million in sales worldwide,”she says.“Aricept is the only treatment currently indicat ed for treating Alzheimer’s disease. Aricept is not a blockbuster, but there is a tremendous unmet medical need,and this is a product that we support and highly value.” Ms. Caprino says another example of an important smaller brand is Viracept, which the company gained through the acquisition of Agouron Pharmaceuticals.Viracept is one of the topselling protease inhibitors for the treatment of HIV/AIDS, generating $436 million in U.S. sales last year. “Viracept does not meet the $1 billion blockbuster definition; however, again, this is a critical area for medicine and medical treat ment options and this is very, very important to us,”Ms. Caprino says. Even big pharmaceutical companies need to tap into niche mar kets as a way to extend the life of their blockbuster products. “Once brands realize their giant size, their marketers have to continue their growth one niche segment at a time,”Ms.Caprino says.“Pharma must now become effective segment marketers to grow the brand.” RICH LEVY,AdairGreene Inc. BRAND portfolio Because specialty companies focus on niche markets, they may have only one or two com petitors in each market for each product. “Our direction is usually to target the smaller sales markets — the $150 million to $300 million markets — as opposed to going after the larger markets that are dominated by the larger companies,” Mr. Glassman says. “This has proven to be very successful.” One of the biggest competitive advan tages of a small com pany is the ability to move faster than a large one. “We watch the moves of our competi tion, as well as those of the large pharma com panies, and quickly take advantage of cer tain opportunities that present themselves,” Mr. Glassman says. “For example, the Lotronex withdrawal by Glaxo and the curtailment of Sebizon by Scher ingPlough removed competitive products from our sphere, and our salesforce and mar keting efforts were able to react immediately. Roche’s weightreduction drugs necessitate vitamin supplementation, which is an oppor tunity to increase the sales of our nutritional brand. Furthermore, we train our sales people on a oneonone basis, so that they are proper ly trained and very knowledgeable.” Reliant Pharmaceuticals, which was start ed two years ago, has a similar philosophy (see related story on page 56). Reliant acquires, develops, and markets products that have been under promoted by their pharmaceutical originators, thus giving up market share to heavily promoted products. “Reliant believes these products, based upon their safety and efficacy profiles, have the opportunity to grow with renewed promotion,” says Joe Krivulka, president and cofounder of the company. Allergan has grown to become a billion dollar company pro moting its drugs in niche markets. Allergan is a leader in the oph thalmic business, and distributes Botox, a neuromuscular drug. “In all these instances, there is a playbook for success in the realm of niche marketing,” Mr. Bogan says. Because specialty pharmaceutical compa nies are adding value by developing, market ing, and distributing products that in most cases were invented by someone else, most companies in the sector can develop a product in less than half the time it takes for large pharmaceutical companies. According to Friedman, Billings, Ramsey, the success rate of line extensions for drugs developed by special ty pharmaceutical companies is relatively high, with up to 80% of the compounds that enter clinical testing reaching the market. Development costs directly correlate with length of development, which means that these costs are lower for specialty pharmaceu ticalproduced drugs. The shorter develop ment timeline also lowers the cost of capital for these development programs, with capital investments tied up for only seven to eight years compared with 12 to 15 years for big pharma or biotech companies.# PharmaVoice welcomes comments about this article. Email us at feedback@pharmalinx.com. 46 N o v e m b e r / D e c e m b e r 20 01 PharmaVOICE CHRIS BOGAN.President and CEO,Best Practices LLC,Chapel Hill, N.C.; Best Prac tices offers experience in the application of bestpractice benchmarking strategies MARIANNCAPRINO. Director of media relations, Pfizer Inc., NewYork;Pfizer is a global pharmaceutical company FRIEDMAN,BILLINGS,RAMSEY &CO. Arlington,Va.; FRB is an institutional brokerage, research, and investment banking company DANIEL GLASSMAN.Chairman,CEO, and president, Bradley Pharmaceuticals Inc., Fairfield, N.J.; Bradley markets pre scription and ethically promoted non prescription drugs JAMESGREEN.Senior director,public affairs, King Pharmaceuticals Inc., Bristol, Tenn.;King is a vertically integrated phar maceutical company that manufactures, and markets primarily branded prescrip tion pharmaceutical products JEFFERSON J. GREGORY.President, King Pharmaceuticals Inc., Bristol,Tenn.; King is a vertically integrated pharma ceutical company that manufactures and markets primarily branded pre scription pharmaceutical products JOHNM.GREGORY.Chairman and CEO, King Pharmaceuticals Inc., Bristol,Tenn.; King is a vertically integrated pharma ceutical company that manufactures and markets primarily branded prescrip tion pharmaceutical products JOE KRIVULKA. President, Reliant Pharmaceuticals LLC, Liberty Corner, N.J.; Reliant is an emerging specialty pharmaceutical company RICH LEVY.President and chief operating officer, AdairGreene Inc., Atlanta; AdairGreene is a fullservice marketing communications agency LYNN O’CONNORVOS.CEO,Grey Healthcare Group,NewYork;Grey is a global healthcare advertising agency DAVIDWINIGRAD.President,The Hal Lewis Group,Philadelphia; Hal Lewis is an independent healthcare advertising agency Experts on this topic This strategy of `Acquire, Enhance, Grow’has proven very, very positive for the company. DANIEL GLASSMAN,Bradley Pharmaceuticals King has a disciplined strategy to grow through the acquisition of branded pharmaceutical products. JOHNGREGORY,King Pharmaceuticals

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