DTC Spending Down! A Temporary Blip or Troubling Trend?
Is DTC is in a recession? One might conclude that from the latest Nielsen summary for the second quarter that shows a 9% decline versus year ago. The first half 2008 is down about 5%. This decline was not unexpected given the general cuts in promotional expenses across all categories. Drug companies are hurting so all spending categories are under scrutiny.
The key issue for DTC is whether the second quarter 9% decline is the start of a long term drug company reassessment of DTC. On a macro basis I see no evidence that DTC is losing its effectiveness as a promotional tactic. I know of no data that would reflect declining ROI. The Canadian study I discussed last week is one, but it is not representative of the many studies that show DTC still averages 2 to 1 ROI.
When one looks into the 9% decline there are reasons to still be optimistic. Much of the decline was in one major category. The sleep aid Rozarem decided that DTC did not work. Lunesta also decided their business results did not support their massive spending. Those two brands alone explain much of the first half declines. First half spending declined for 30 big brands and was up for 22 brands defined as brands spending at least $20 million a year.
Big declines for established brands were seen in Nexium down from $69 million to $21, Requip from $84 to $5, Imitrex from $35 to less than $1, Astellin $26 to 3, and Boniva $65 to $45. Established brands that were up significantly were Viagra from $28 to $74, Lyrica $30 to $94, $34 to $56, Advair $71 to $95, Cialis $60 to $80 and Crestor $44 to $65.
The good news for DTC was that there were a number of new brands or relaunched brands heavily using DTC. Those new brands were Januvia, Reclast, Chantix, Vyvanse,Lybrel, Veraymst, Mirapex, Orencia, Aciphex and Symbicort. The new brands added $340 million in spending, which was 13% of total spending.
The net from the analysis was that there is no indication of a long term decline. The declines among established brands were balanced by spending increases from other established brands or new products. It is easy for those critics predicting the end of DTC to look at the 5% first half decline and predict a long term trend. The closer analysis reveals a much more favorable picture of brands both entering and leaving DTC.
Remove the sleep aid category and DTC would be up 3% first half instead of down 5%. The fact that Lipitor and Evista came back strong with DTC, after a hiatus , is a good indication that it is still a key marketing tactic. The real health of the DTC market depends on the number of new brands approved for marketing. Any major new brand entry means $30-80 million in spending. It also means established competitors need to ramp up their spending to maintain share of voice. I do not expect significant increases or declines in DTC for 2009. My guess is the 2009 DTC market will be up slightly, maybe 3%. The double digit growth days are over for now, and will only reappear with a renewed R&D golden period of product launches. One day that may happen as the genomics revolution bears fruit, but not likely for the next few years. That means most brands will be trying to find more efficient ways to spend their limited budgets which will require more analysis and experimentation.
So, I would come down on the side of calling the latest decline a blip. Of course if the financial services meltdown continues who knows how badly that will affect drug industry sales? Certainly as main street gets more affected by bank failures and tight credit, consumers will use less branded Rx drugs. Then that blip could become a trend.