The merger of SmithKline Beecham and Glaxo Wellcome to form the world’s largest pharmaceutical business is the starting pistol to a race for consolidation across the industry. Link-ups are now expected between all major pharmaceutical companies. Meanwhile, the marketing agencies which promote their products are involved in a similar process.
The world’s top advertising agencies have been swallowing smaller healthcare marketing specialists in preparation for this consolidation.
Last year, almost every major marketing services group made acquisitions in the sector. Omnicom’s Diversified Agency Services (DAS), the largest marketing services organisation, went on an acquisition spree in which it took an undisclosed stake in the SCIREX drug development firm; it purchased QED, a US healthcare management consultancy; and acquired healthcare marketing agency Adelphi in the UK. WPP Group bought Shire Hall, a prominent healthcare PR agency valued at &£10m, and set up OgilvyHealthcare a dedicated healthcare arm, while Interpublic formed Lowe Consumer Healthcare, adding to its portfolio of businesses which come under Lowe Healthcare Worldwide. Cordiant also joined the fray with its $200m (&£121m) acquisition of the world’s third largest healthcare marketing agency, Healthworld.
However, despite the consolidation that has been going on for the past decade in both client and marketing services organisations, few are able to identify a healthcare brand that has yet been able to call itself truly global. The cultural differences between markets are a major barrier to globalisation, as are the different development and regulation vetting times required in each market. Agency networks, as well as the clients, have only recently been able to tackle these complex issues.
DAS group operations director Brian Emsell says: “The true number of real global approaches bought by clients has been relatively small – most healthcare networks have not been particularly strong. But everyone is trying to improve and to gear up.”
The moves, part of the industry’s headlong rush towards consolidation, highlight the fact that, as healthcare deregulates and pharmaceutical clients call for more globally-applicable strategies, agencies do not want to be left behind.
Amanda Merron, marketing services analysts and partner at Willott Kingston Smith, says: “Healthcare has always been an appealing area for agencies. Whenever we have taken health companies to networks to sell them it is fair to say they have been extremely interested.
“Networks see the sector as a high margin area – because of its difficulties they are able to sell their services more effectively.”
Merron points to the complicated nature of health marketing. Rather than talking directly to a consumer or business, there is a complex chain of parties which have to be negotiated with before a drug can come to market. So these agencies have to work harder than in other areas of marketing communications. Some observers say that in exchange for hard work they are entitled to demand higher fees.
Agencies themselves are not willing to admit this, though they are keen to emphasise how different the marketing of pharmaceutical products can be from classic consumer and business-to-business industries.
Lowe Healthcare Worldwide communications director John Singer says: “It is very challenging. Not only from the perspective of how healthier products are delivered through the chain but also dealing with cultural differences. In Latin America, for example, you don’t need a prescription for most products: it is completely unregulated. You can rarely set an approach that works for all drugs and markets.”
However, as globalised pharmaceutical companies become even larger, clients are calling for agencies to tackle the complexity of local markets and develop strategic campaigns that can help create global healthcare brands.
Singer says: “There are few pharmaceutical brands which are currently global, but pharmaceutical companies are asking for it. Clients themselves demand that agencies have a global capability, and not only for the associated cost efficiencies. They want to develop global brands.”
Merron says: “The need of the global brand is as applicable in pharmaceuticals as anywhere. Companies want to create brands that people can go anywhere and be able to recognise and ask for. As long as the name isn’t something rude in Japanese this is entirely possible.”
In the past 18 months, there were 243 merger and acquisition deals in the pharmaceutical and biotechnology sectors totalling $87bn (&£53bn) worldwide, not including the Glaxo SmithKline deal. The consolidation is expected to continue, with Glaxo and SmithKline’s rivals being the subject of increased speculation. Glaxo chairman Sir Richard Sykes did little to prevent such speculation when, at the announcement of his own &£107bn deal, he said further consolidation was “inevitable”.
Procter & Gamble has refused to comment on reports that it has been in talks with Warner-Lambert, which itself is fighting a &£47bn takeover by Pfizer, the maker of Viagra. American Home Products, which was initially lined up to buy Warner, is now of interest to Swiss giant Novartis. Novartis is also believed to be interested in Pharmacia & Upjohn, which is attempting to merge with genetics modification company Monsanto in a deal worth &£30bn.
The sums are huge and behind it all, agency networks are fighting to keep abreast of clients growing at a mould-breaking rate.
Emsell says: “As pharmaceutical companies globalise it is becoming clear that a global capability on the part of agencies is the price of entry. As we go forward I think agencies without a global capacity will find themselves struggling.”