February 1st, 2009

Drug Companies Shun Promotional Products

By Patricia Odell
PROMO Magazine

Drug companies shun branded giveaways, draining $1 billion from the promotional products industry

The pharmaceutical industry has decided to stop handing out giveaways to doctors. There’ll be no more pens, mugs, tote bags, soap dispensers and note pads. The cost to promotional product makers? Up to $1 billion.

The voluntary moratorium took effect on Jan. 1, much to the chagrin of the Promotional Products Association International and the Advertising Specialty Institute. Both groups had pled their case about the importance of the giveaways as marketing tools.

“Obviously, we’re not excited about this,” says Tim Andrews, president of ASI. “It’s not good for our industry. And we don’t think this gets to the matter at hand — and that’s whether a doctor who gets a pen can be moved to write a prescription. I don’t believe that’s the case.”

Drug makers, including giants like Johnson & Johnson, GlaxoSmithKline, Merck and Pfizer, spent about $630 million, or 3% of the overall $19.6 billion in ad specialty sales, in 2007, according to ASI.

The Pharmaceutical Research and Manufacturers of America (PHRMA) asked all of its 32 members to apply the code, and all have signed on, as have nine nonmembers. Combined with the economy, this is having a devastating effect on some suppliers and distributors, most which are small, entrepreneurial firms. Layoffs have begun, and some companies are likely to go out of business.

“It’s a swift punch to the gut,” says Danny Rosin, president, Brand Fuel, Inc., a promotional products distributor, which ranked No. 88 on the 2008 Promo 100 with $2.6 million in 2007 revenue. “It’s impactful for us, but it’s not putting us out of business like other distributors or suppliers that focus solely on pharma-related business.”

Rosin says about 8% of his business had been with pharmaceutical companies.

“It’s significant,” says Bonni Shevin-Sandy, president of Dard Design, a supplier that rang up 25% of its $50 million in annual sales by developing branded products for U.S. drug makers.

Dard is making up the shortfall by beefing up its international sales. The firm has exhibited in Hong Kong for four years, which helped establish a base of international customers.

“As the U.S. market started to fall, I put a lot more attention toward the international marketplace,” Shevin-Sandy says. “I had to figure out a way to pick up the business to make sure we still had the revenue coming in.”

If there is a silver lining, it is that PHRMA left a small window of opportunity open in its 31-page “Code on Interactions with Healthcare Professionals.”

Suppliers and distributors can offer items designed primarily for the education of patients or healthcare professionals if the items are valued at $100 or less. The products must also not have value to those professionals outside of their professions. As an example of the latter, PHRMA cited a DVD or CD player that could be used to educate patients, but could also be used to play movies or music CDs at someone’s home.

“Business is going on, [but] not to the degree that it was, and in some product categories, like pens, it’s not going on at all,” PPAI President Steve Slagle says. “It’s a very narrow window to fit through.”

The industry is trying to adapt by developing new products, incorporating existing products into educational materials, and keeping in touch with pharma customers, even if they’re not buying.

“We need to get a slice of that pie that’s still on the table before it goes someplace else,” Rosin says. “It was effective for them before, so we need to find educational products and new concepts to get in front of these customers.”

On the product side, Dard Design hired a medical illustrator to ensure that its new products are anatomically correct. The firm has developed electronic touch screens and 3D anatomical models for doctors to use with patients to explain certain diseases and how certain drugs can help, such as Diovan, made by Novartis Pharmaceuticals, for high blood pressure, and Botox, made by Allergan.

“These products are more expensive, orders are few and far between, but they are there and they are high-value dollars,” Shevin-Sandy says.

The company is also finding new ways to use inexpensive items like pens and pedometers. For example, a branded patient kit for diabetics could include a journal and pen to record dietary requirements and a pedometer to track steps walked.

“You have to put them together and package them so they fit the guidelines,” she says. “You have to figure out how it can benefit the patient who’s taking the drug.”

“One attribute of our industry is that [companies] can move on a dime,” ASI’s Andrews says. “They are very good at product design and very good at sales, and suppliers are very nimble in finding sources.”

Legal Intervention
The drug companies agreed to implement the guidelines to stave off more aggressive legislation being sought by lawmakers in both parties, or possible intervention from a new Democratic President with health-care overhaul a top priority.

The prospect of federal legislation is very real. Sen. Charles Grassley (R-Iowa) plans to reintroduce the Physician Payments Sunshine Act of 2007. The bill would provide for transparency in the relationship between physicians and manufacturers of drugs, devices or medical supplies. And there are other similar bills being considered.

A growing number of states are also considering or have already passed legislation requiring drug makers to disclose payments to doctors.

Minnesota has banned gifts to doctors valued at more than $50. The Massachusetts Department of Health is considering implementing a new code of marketing to ban the use of promotional products by the state.

“Massachusetts wants the state law to be tougher than the PHRMA code,” Slagle says. “It could snowball, and we’re seeing the first coating of that right now in Massachusetts. The fear is that whatever happens there could be mimicked in other states.”

Much of the resistance to gifts from drug companies — which have included items much costlier than promotional products, like tickets to sporting events and speaking fees — has been pushed by consumer activists who publicly and frequently vocalize concerns that doctors may be swayed to prescribe medications based on the giveaways and not necessarily on the most appropriate medication for the patient.

“There’s a good lesson here for suppliers and distributors: Don’t have too many eggs in one basket,” Andrews says. “It’s a good lesson for all of us in this economy.”

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