What has raised tremendous concern lately for DTC practitioners is the Rangel comments on cutting the advertising tax deductions. Charlie Rangel, the powerful Congressman from New York, said ending deductibility of ad spending is on the table to help fund the health care reform bill.

Rangel used a $37 billion savings figure which no one in the trade press can make sense of. The real spending on DTC is about 65-70% of the reported numbers by TNS and Nielsen. Since drug companies do not spend Nielsen or TNS dollars but instead pay in U.S. dollars the annual true spending is about $3 billion versus the $4.8 reported. So where does the other $34 billion in savings come from? It could be Rangel is taking a multi-year saving or it could be he means all pharma promotional spending in a full year. Whatever he means, singling out one industry for punitive advertising tax treatment is unfair and probably unconstitutional.

Making commercial free speech more costly seems to be something the Supreme Court would be interested in agreeing to adjudicate if a first amendment case was filed. The drug industry has the right to advertise lawful products and therefore putting tax barriers in the way would likely be challenged by the advertising agencies and media outlets. Obama and the Democratic Congress certainly have a view that the drug companies are the bad guys. The punishment mentality may lead to irrevocably hurting one of our most vital domestic industries.

I can understand Congress wanting to negotiate prices of drugs it pays for or even re-importing cheaper foreign sourced drugs. The $80 billion just announced by Obama “donated” from the drug companies is evidence that prices are being negotiated down. I cannot understand, however, deciding to choose which businesses will be allowed business expense deductions for a lawful purpose. It is a slippery slope when government decides to put barriers on commercial speech. Maybe luxury items should lose their advertising deductions because not all Americans can afford them? Do we end tax deductions for liquor ads because of alcoholism? Or, how about casino hotel ads because gambling hurts the poor? Where does it stop?

My guess and hope is this will not be in the final bill. For a program that costs over $1 trillion, why face court challenges over $3 billion a year? Rangel also needs to understand that if he did remove the deduction, drug companies may not spend anything on DTC and shift it to investments that are still deductible. The government may get no additional revenue. The $37 billion “re-captured” from the drug companies would end up being $0. I think cooler and wiser heads will prevail over this tax deductibility issue, especially when every ad agency and media outlet contact their Congressman in outrage.

Health care reform is clearly needed and everything needs to be on the table to lead to a better system. Knee jerk punishment funding, however, is not the way to get a good system in place. A good system is one that has broad consensus and a lot of public discussion. Ramming a bill through before it can be fully vetted by the American public is a recipe for fiscal and political disaster. I know Obama has the right intentions, but his current plan is not as viable as he makes it out to be. All Americans want better and cheaper coverage. Most agree we need universal coverage. Americans love theoretical improvements. Of course then tell them they will have to pay higher income taxes, miscellaneous service fees, rationing of services, and nuisance taxes and suddenly they are not so enthusiastic.

We can cover the uninsured in many ways that are cheaper and easier to administer than a government alternative plan. We can create disaster illness coverage so no one need go bankrupt from massive health bills. We can give the uninsured tax credits or grants to buy coverage. We can create subsidies for people with pre-existing conditions. We can set up free government clinics in inner cities to replace emergency room use. If we are going to make a once in a generation change, is it critical it be done by August? Slow down Mr. President and you can get more widespread support for what is widely agreed is an essential reform. Ram it through and you will face bitter partisan fights and a potential deficit disaster if cost savings do not appear as you hoped.

A very interesting DTC campaign started this month that shows that marketing and positioning can revive an old concept. That campaign is Abbot’s Trilipix, a new drug for raising HDL cholesterol and lowering triglycerides. The new drug is part of an old class of drugs popular before statins were introduced. Statins primary benefit is lowering bad cholesterol with some minor raising of good cholesterol. Trilipix is the first of this class of drug to be approved with use with statins.

The new DTC campaign tries to re-educate Americans that they need to think as much about the other components measured in cholesterol tests; good cholesterol and triglycerides. Abbott is trying to raise the awareness that all three elements are important to heart health, not just lowering bad LDL’s. Americans have been hammered with lower is better advertising from statins the past 10 years. While doctors know the benefits of raising HDL, consumers associate cholesterol more with LDL.

Abbott is also working on getting a combo statin and Trilipix approved in partnership with Crestor. Clinicals released this year showed excellent results in combination. Once Lipitor loses its patent, Crestor will be the big brand left. Based on the number of ads I have seen Trilipix is spending heavily to establish the importance of HDL and triglycerides. That will make it easier to launch a combo drug. Combo drugs have had limited success in the past because it limits doctor flexibility to vary the proportions of each drug.

As an ad Abbott has chosen a meat and potatoes approach of the standard chart and voice over approach. They clearly do not want to obscure the facts with an overpowering creative device. The name is a bit hard to spell and pronounce. As long as consumers remember Tri, however, the doctor will know what they mean when they ask about it. It is nice to see a major brand launched using a full DTC media plan. After all, restarting growth in overall DTC spending requires the major new launches to use full mass media DTC.

It is nice to see some new action in the largest DTC category. I expect much more as drug companies scramble to find new entries in what will remain a critical health preventative area, especially as we get older and fatter as a society.

First quarter 2009 DTC spending numbers, just released by Nielsen, show a total DTC decline of 11.5% versus year ago. These declines are large but expected and in line with the 12% decline for the total of all ad categories. No DTC media type escaped decline, also expected. Television declined less at 8.3%, with magazines taking a big hit at 16.8%. So we now have annual spending at a running rate of about $4.3 billion for 2009, down from $ 4.8 in 2008.

Media gurus who annually predict the death of network television will be surprised to hear that of all mass media types, network declined the least in 1Q at only 1.1%. It was local and syndicated television that took the biggest declines. The big problem area in magazines was in Sunday supplements down 60%.

The 11.5% decline in the height of a near depression does not look so bad. It shows that drug companies still believe in DTC and one would expect that as the recession ends ad spending should grow. The big question, unique to health care, is the effect of the Obama reform plan on promotion spending. Clearly, the reform plan is designed to cut spending on health care or at least cap growth. This will be done through more public involvement in offering insurance and more hardball tactics in controlling drug prices. Medicare price negotiation and re-importation will put pressure on drug companies to lower prices.

The advertising industry is worried about some serious discussion in Washington that would limit deductions for DTC advertising.  They are also concerned about an advertising moratorium for new drugs being proposed by leading Democrats. My prediction is that DTC will emerge intact, albeit more closely controlled by a more vigilant FDA.

This spending decline in 1Q may not be as large as it looks. If we could have access to look within drug company ad plans, it is probable that media rate declines are allowing for more bang for the buck. That 11.5% decline in dollars may mean less decline in GRPS. Clearly media bargains are there and what matters to advertisers is what consumers see not what companies pay media outlets.

I will go out on a limb and say full year 2009 will be down about 8-10%. My call for 2010 is a decline of less than 5% with 2011 being an up year in the 5% range. DTC is still being used by almost all new brands and that is a good signal that it will still be a vital part of launch plans. Of course if Congress gets a moratorium passed, then media spending will decline at a higher rate. Stay tuned this summer as the future of health care America is decided.

Planning DTC efforts for the next few years has become an exercise in multiple scenarios. First, we have the massive health care reform we are promised by President Obama. Next, the expectation of declining media rates makes the decision to buy upfront or wait for spot prices a tough one. Third, the FDA is tinkering with risk disclosure requirements making creative ads more difficult. Finally, promotional budgets are getting cut as drug companies look to protect the profit line.

These four major uncertainties have an infinite number of offshoot issues. So, how does one deal with developing and executing a DTC plan? For 2009 the job is a bit easier than the out years. The health care reform plan may be passed later this year but will not be implemented until 2011 or 2012. The media rate declines are real as long as the economy stays weak, but premium media properties will maintain their pricing power. Therefore do not expect bargains by waiting for highly viewed shows. The FDA draft risk guidance makes it imperative to start copy development way in advance of launch but DTC as we know it will still be acceptable to FDA. Budget cuts will be a fact of life but not draconian for 2009. As long as ROI is good, drug companies will keep spending.

Uncertainty breeds opportunity. The best marketing departments will use these tough times to be ready for a promotional world that is more restrictive, if not in 2010, then likely in 2011 or 2012. That means testing of how to reach consumers with more detailed and more targeted ads. It also means exploring a new type of risk heavy television ad that may be required in a few years. Marketers should be ready to deal with media budgets that will be 10-20% less in 2 years. I am not saying budgets will be cut that much but smart marketers will test plans with those levels.

Drug companies should all be spending a lot more time and manpower considering the “what if” scenarios. In fact I would dedicate a senior DTC marketer at each company to write an uncertainty plan for each brand. The best drug companies will be the fastest to react to change. That will take the top talent thinking about it well in advance. DTC will be here when the reform dust clears but in what shape needs to be discussed, debated and dealt with at the DTC marketing companies this year. I guarantee it will be a frustrating exercise requiring lots of assumptions but if done right will provide competitive advantage. There has never been a more interesting time to be a DTC marketer.