The Industry Veteran, who’s opening the year on quite the tear, has been pondering the latest “trend” in the pharma marketing chatter — the idea that Pharma needs to follow the Hollywood model. Here are his thoughts:
Here’s an interesting article from John Mack’s Pharma Marketing Blog that appeared last summer. In drawing an analogy between Big Pharma and Hollywood, Mack claimed the drug industry should learn from the Hollywood studios and substantially alter their distribution strategy. According to Mack and a few other industry strategists, the studios understood that their largest revenue segment doesn’t come from movie theaters, but instead from DVDs. In response they started pushing movies onto DVDs within a matter of weeks after the open in theaters. More important than the revenue from theater distribution, movie appearance in those outlets, and the supporting TV ads, function to build word-of-mouth for DVD sales.
Mack and others in the industry develop some useful insights, although John is actually a bit outdated in his description of movie industry dynamics. The share growth of home sales/DVDs has slowed in favor of view-on-demand. Both Comcast and the dish-satellite companies have tried to sign deals with the studios to show movies in their view-on-demand services within a few weeks after theater openings. The studios want to make these deals but they have hesitated for fear of antagonizing Wal-Mart. Nevertheless, Mack argues that just as Hollywood creates greater revenue through an alternative distribution strategy, Big Pharma could do the same by pushing its drugs to move more quickly into generic and OTC status while the Pharmas acquire ownership of the generic and OTC companies.
This altered distribution scheme is another approach to a demand sensitivity argument by which higher volume and lower prices will net out at a larger total revenue for the industry. The idea of enhanced compliance is the New Year’s buzz in Big Pharma. Brad Sheares, the president of Merck’s US Human Health division, told his reps that he would ask them to support DTC promotions stressing the importance of filling prescriptions and finishing the entire package. In the current era of fewer new molecular entities, Pharma finds that too many written scripts fail to generate revenue because uninsured and underinsured patients can’t afford the high cost. In this scheme of things, Big Pharma’s push for generics won’t compete with the high-priced, branded products that will make their generous returns on investment within their first several years after launch. Instead the older, unconscionably priced brandeds that scream for price controls will give way to affordable generic versions.
Mack’s use of the Hollywood model for distribution dovetails neatly with Larry Ellison’s notion of a Hollywood analogy for product development. Ellison is the CEO of Oracle and he claims that Hollywood provided a precedent for Big Pharma decades ago when it decimated the big studio approach to producing movies that it used from the 1920s through the 50s. The studios since that time have become the financing, marketing and distribution infrastructures for independent producers. Ellison suggests that Big Pharma should learn from its elders.
I suppose the Big Pharma company that has most definitively gone Hollywood in both product development and distribution is Novartis, which is now the largest generic company in the world. Of course all the Big Pharmas have signed scores of drug development deals in the past few years with the counterparts of independent movie producers: biotechs and startups. It’s probably no accident that Novartis, a Swiss company, has adopted a banker’s/financier’s model for Pharma. Its crosstown rival in Basel, Hoffmann-LaRoche, has even truncated the marketing portion of this financing-marketing-distribution model by decimating the marketing function. Unwilling to sustain the fixed SG&A expenses of other Big Pharmas that employ tens of thousand of reps, Roche partners out the marketing-selling activity for any primary care product that falls its way.
If Big Pharma does go Hollywood and contracts out most of its present functions, a new type of personality would have to prevail in the industry. The sort of imperious, arrogant ignoramus who now runs the Big Pharmas (McKinnell at Pfizer, Hassan at Schering-Plough, Miles White at Abbott, J.P. Garnier at GlaxoSmithKline) would have to be replaced by far more anonymous, benign bean counters, much the way that Hollywood’s Louis B. Mayers and Harry Cohens yielded in favor of their forgettable successors. The mid-level managers in Big Pharma are currently small, politics-playing, risk reducing, follow-the-leader types who can barely do their jobs and seek to avoid any original thoughts for the duration of their careers. That would have to change and they would need to be replaced by fast-moving sharks along the lines of the Ari Gold character on HBO’s Entourage.
Yes, I can see it now, on the bottles of blood pressure medication…Eli Lilly and The Ligand Company, in Association with Amgen and American Pharmaceutical Partners, bring you an Anadys discovery of a Cleveland Clinic renin inhibitor: Epericel…”and the vasculature was renewed.”
Coming soon to a drugstore near you, or call your MCO’s mail order house.