Pharmaceutical Promotional Alliances: co-promotion v co-marketing

With blockbuster drug sales growth forecast to slow considerably past 2005, pharmaceutical companies are under increasing pressure to find revenue growth. Companies are therefore expected to expand their use of licensing strategies to supplement product pipelines. But with Datamonitor research indicating that 60% of co-promotion alliances fail within five years, drug makers may need to review their marketing policies.

Optimizing Promotional Alliances: Benchmarking co-promotion and co-marketing strategies within the pharmaceutical industry provides an in-depth profile of co-commercialization deals signed and announced between July 2001 and July 2003. Co-promotion is defined as two companies promoting a product under a single brand name and co-marketing as promotion of a product under two different brand names, both irrespective of geographical presence.

Strategic rethink

The pharmaceutical industry greatly favors two partnering sales forces to co-promote a product under a single brand name because of the increased share of voice, while co-marketing a drug under two different brands in an unregulated priced market, is deemed detrimental to launch success.

Competition between two brands launched into a highly priced market would be driven largely by pre-emptive or extinction pricing strategies, both based on under-cutting potential competitors. Consequently, this alone has made co-promotion agreements very popular in the US. However, with industry estimates indicating that about 60% co-promotion alliances fail within five years, the bias towards co-promotion may be ultimately decreasing promotional effectiveness.

Co-marketing creates two brands potentially competing for the same market share if the one indication is sought. Consequently, co-marketing has been chosen primarily for launching into the out-licenser’s non-domestic markets and for non-competing indications. However, recent studies indicated competition in co-marketing had less of an impact than previously thought. Clearly, with credibility being highlighted as a key persuasive factor, companies cannot ignore the impact of co-marketing alliances on product uptake within domestic markets as well.

Two sides of the Atlantic

Between July 2001 and July 2003, co-promotion deals out numbered co-marketing agreements by about 3:1. There was also a major geographical bias towards the practice of co-promotion between the US and non-US markets.

Nearly 60% of co-promotion agreements had a US focus, while Europe was the focus of just one of the 53 co-promotion deals publicized over the 24-month period. However, the situation is reversed with co-marketing, where Europe accounted for most (32%) of the 19 co-marketing agreements, while the US and Canada were the geographical focus of just 11% of these alliances.

The choice of co-promotion or co-marketing was less of an issue in Japan and Latin America, where co-marketing was used mainly for global access. Clearly, non-US markets indicate, either no greater preference for co-promotion or simply favor co-marketing. Companies typically chose a co-marketing partner with an international sales and marketing infrastructure since 26% of these deals specifically sought global presence (excluding the out-licenser’s respective domestic market).

Pressure to promote

With a projected decline in the number of future blockbuster products, licensing activity is expected to escalate substantially over the next five years. This will in turn increase the costs for securing marketing rights to such drugs. Companies positioning themselves, as ‘partners of choice’ will be forced to realign and reallocate resources according to which products are deemed key licensing opportunities.

Resource decisions must therefore take into account projects seen as financially viable and those that are not. Lifecycle management policies must identify products with minimal contributions to ethical revenue streams but also increasing costs. Divestment of such products (from large companies) would essentially free up resources, such as promotional spend better allocated to more profitable projects.

On the other hand, divested products could raise the essential revenue streams sought by smaller companies, since acquisition of such products provides access to instant sales developed by the respective drug from an established customer base during its marketed lifecycle. For example, a top tier company could choose to divest a product to another company if opting to shift promotional focus onto newer products. The acquirer of such a drug has the opportunity to engage its sales force and promotional capability to support the product’s market share without incurring the high upfront costs associated with a new launch program.

Consequently, the balance between licensing or acquisition and divestment will force companies to seek the right products offering the optimal franchise offering at the right time for that particular disease market.

If you found this week's Expert View useful, you may be interested in Datamonitor's reports:

• Optimizing Promotional Alliances: Benchmarking Co-marketing and Co-promotion Strategies in the Pharmaceutical Industry - $8,000.00

• Pharmaceutical Campaign Management: Synchronizing online and offline consumer marketing strategies - $3,200.00
  
• Benchmarking Blockbusters: Identifying winning products and therapy areas to 2008 - $6,400.00

To order these reports contact peter.barfoot@bioportfolio.com or telephone +44 1300 321501 or +1 415 680 2472 and a representative will get back to you.

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