Pharmaceuticals The New Consumer Marketing Frontier Len Tacconi

Pharmaceuticals: The New Consumer Marketing Frontier Len Tacconi Executive Director Consumer Marketing Merck & Company May 8, 2001

Pharmaceuticals: New Frontier for Consumer Marketing? Frontier. 2 a: Region that forms the margin of settled or developed territory. 2 c: A new field that offers scope for exploitative or developmental activity Why? • Evolution Of Managed Care • • Demographic Changes in US Trend To Self Care Success of Industry R&D Competitive Pressures • Regulatory Changes by FDA • • PDUFA Funding Industry Business Model Limited Product Patent Life Because It Works!!!

Agenda • Evolution of consumer prescription drug promotion in the U. S. • Impact of consumer on Rx buying process • Overview of the emerging Consumer Self Care movement • Merck Challenge & Singulair Case Study • Words to the MIT Wise

Evolution of Consumer Promotion In The Pharmaceutical Industry

DTCA Trends -- Annual Expenditure • DTCA continues to be one of the largest and fastest growing categories in advertising…and will have exceeded the $2 Billion spending level in 2000. $1, 500 $1, 309 $1, 187 $864 $364 1995 1996 1997 1998 1999 IMS Data

DTC Spending by Advertising Type • 85% of Category spending is driven by Branded messaging split between Product Claim (82%) and Reminder activity (3%) 1999 Spending by Advertising Type $48 MM $26 MM $254 MM $1453 MM Source: Nielsen Ad. Views

Top 10 Spending Industries • Drugs & Remedies moved to #4 of top 10 spenders in 1999 from #5 in 1998, replacing Financial Services…it will be #3 after 2000 data. Category Total 1999 ($B) Automotive 15, 432. 5 Retail 11, 450. 3 Media & Entertainment 4, 492. 9 Drugs & Remedies 4, 240. 3 Financial 4, 135. 9 Telecommunications 3, 718. 2 Restaurants 3, 402. 6 Public Transportation/Hotels & Resorts 3, 086. 5 Direct Response Companies 2, 452. 1 • Merck was the 30 th leading consumer advertiser in the US for 1999 as measured by Ad Age; we’ll be in the top 25 for 2000 Source: CMR

DTC Advertising at Merck • Merck was the first pharmaceutical company to use DTC advertising. Merck’s DTC has evolved with changing regulations and our growing understanding of how to communicate effectively with consumers. Mevacor® Proscar® Timoptic XE® Pneumovax® ‘ 81 -’ 91 ‘ 92 Fosamax® Propecia® Singulair® Zocor® Vioxx® Crixivan® ‘ 93 ‘ 94 ‘ 95 ‘ 96 ‘ 97 ‘ 98 ‘ 99 ‘ 00

Merck’s Continued Partnership with DDMAC MERCK • Increased submissions due to expanding product line in 2000 • Utmost attention to regulatory issues and DDMAC’s comments and feedback • All consumer work is pre-cleared DDMAC • Issued a total of 78 regulatory letters to pharmaceutical companies in 2000 • 74 Notice of Violation • 4 Warning Letters • Most letters driven by: • Lack of adequate fair balance • Unsubstantiated efficacy • Unsubstantiated safety • Unsubstantiated comparative No regulatory letters to Merck in 2000!

Impact of Consumer Promotion On Buying Process • • Patient cannot prescribe 70% of patients don’t pay for product [above co-pay] All consumer promotion is pre-cleared by DDMAC Probably the most regulated form of consumer advertising for logical reasons

Today’s Healthcare Environment • Aging Baby Boomers are more self-reliant than their parents – As many as 30 -50% of patients are considered “communication-cravers”. [Source: 2000 DVC Active. Care Quantitative Research] • A Self-Care movement in healthcare has resulted from this trend – – 94% of patients will self-treat common illnesses 80% use OTC medicines 78% or 140 MM Americans take vitamin and mineral supplements 45% or almost 84 MM use herbal treatments; many without a physician’s advice despite very little clear scientific data on safety or efficacy and potentially harmful consequences [Source: 2000 -2001 Prevention Magazine Study in consultation with FDA] • Managed Care has changed health care – 47% of Americans are worried that their health plan is more concerned about saving money than providing the best care [Source: The Prevention Study] – The physician sees 130 patients and works a 55 -hour week. [Source: AMA Socioeconomic Statistics, 2000 -2002]

DTC Facts Creates awareness about diseases, the availability of diagnostic tests and treatment options Public Health DTC Consumer Physician Pharmaceutical Company Examples: BMD testing program, cholesterol screening, HIV awareness health fairs, and the promotion of newer pain relief options • 169 MM American adults are aware of DTC (91% of total) • 54 MM patients were motivated to see a doctor due to DTC (32% of DTC aware) • 14 MM (one in four) people asked about an advertised drug during an office visit: • 9. 94 MM were prescribed the product asked about (6% of DTC aware) • 1. 40 MM were prescribed a different drug • 2. 66 MM were not prescribed anything [Source: 2000 -2001 Prevention Magazine Study in consultation with FDA]

Overview of the emerging Consumer Self Care movement • Brief Environmental Scan • Key Drivers Of Change • Emerging Challenges

Evidence of Consumer Interest in Health Care Health & Medical Internet Usage Growing Self. Care Movement l 90% of Consumers trust their own judgment on health issues l 85% like to know all options, decide for selves l 76% think people should take primary responsibility for their own health l l Ease of access to information l $27 billion on alternative medicine (1997) l 30 million people use Web for health info (2000) l l Over 15, 000 Web health sites Herbal supplements growing faster than ethical pharmaceuticals (4 years) l Alternative solutions often cost Consumer more l Will be source of data for new medications 46% will self treat before seeing doctor Health Care Press Coverage l l Growing Sales of Nutraceuticals All Consumer media cover health care routinely (New York Times, tabloids, CNN) Health care issues receive intense scrutiny by news organizations Success of DTC l 54 million doctor discussions and 14 million prescriptions in 2000 Health Care. Related Mail l High volume l High level of sophistication Every one of these factors is on a rising curve 14

Key Drivers Political Climate Institutional Changes l l Growth of Managed Care and rationing of treatment Politicians responding to outcry about MCOs denying choice Easy Access to Information l Internet creates wide availability and easy access to health and medical information l Interactive technologies on Internet platform – Patient Bill of Rights – Lower satisfaction with quality of care – Drug Coverage legislation – Declining confidence in medical authority Increasing Role of Consumer in Medical Choice Demographics and Psychographics l DTC Patient Economics (Emerging) Baby Boomer generation approaching retirement – More medically oriented phase of life – Driving self- care movement l l Corporate America shifting more of health care cost to employees FDA regulatory change made product claim DTC more probable l Pharmaceutical DTC spending quadrupled from 1995 -2000 – E. g. , Tiered copay 15

Patient Economics Corporate America is Shifting More Health Care Cost to Consumers Phase Implications for Patients Ø Self-Pay System l No third party payment for pharmaceuticals Ø Old “Cost Plus” System (pre 1980 s) l Full choice of health care options l Third party payment (corporate benefit) contributed to large increases in pharmaceutical volume Rise of Managed Care (1980 s - 1990 s) l Treatment rationing / limited choice l Minimal, uniform patient co-pays Consumerist Era (2000 and beyond) l Return to broader health care choice for consumer l Patient bears significant share of medical expenses (e. g. , tiered co-pay) Ø Ø – Formularies / treatment guidelines 16

Changing Value Proposition for Consumer Current Message “Intrinsic Worth” l Future Message “Intrinsic Worth” + “Fair Exchange” Selling to Consumers focuses on describing value of products according to their “intrinsic worth” – Positioning statements and specific messages describe product characteristics and merit l l l Positioning statements and specific messages continue l The increase of tiered co-pay will add the issue of “fair exchange” (price) to Consumer decisionmaking “Fair exchange” approach dominates Managed Care, with limited attention to “intrinsic worth” Consumer will be very motivated by both concerns; emergence of this first true hybrid customer will generate debate about: – Consumer price sensitivity in environment of material co-pay – Appropriate messaging about price – Potential for direct financial interaction with Consumers – Role and importance of brand awareness and brand satisfaction 17

Technology Tools Real Time Interactivity and Integrated Communications Key Technology Tools (Existing and Emerging) Supporting Infrastructur e l Consumer database – Permission-based and completely integrated with all channels of Consumer communication l Customization technologies (e. g. , personal web pages) l Streaming video – Allows the Consumer to double click on high quality video presentations on any subject and any length l Interactive Internet technologies – Low speed access (e. g. , email and email fulfillment) – Broadband high speed access (e. g. , integrated 2 -way Internet and television) l Internet-based customer service (e. g. , e-rep stations in call centers) l Physician automated Rx writing systems l Internet-based personal medical records 18

Merck Challenge & Singulair Case Study

Summary Of DTC Marketing Challenges Demonstrate the viability of DTC for the brand Develop an effective DTC campaign Measure the success of the DTC campaign • Role of the consumer in the buying process • Key consumer insight from the buying process • Targeting • Rationale for allocating resources to DTC Vs. traditional promotion to physicians • FDA supervised advertising standards • Media • Marketing objectives • Branded Vs. unbranded • Go/no go decision • Messaging • Marketing objectives • Targeted messages • Look and feel • Media plan • Incremental prescribing • Financial return • Ideas for improvement

Singulair Case Study of DTC Decision-Making at Merck

Symptoms of Asthma Symptoms Airway inflammation Wheeze, cough, chest tightness Nighttime awakenings Recurrent attacks related to triggers Asthma triggers: Allergens like pollen, mold and dust Irritants including smoke, perfumes, air pollution and latex Physical conditions such as exercise, weather changes, very cold air, medication and stress

Impact of Asthma Airway inflammation Afflicts 1 in 20 adults and 1 in 10 children Growing prevalence, especially in children Has a dramatic impact on society 1. 9 million ER visits (in 1995) and 466, 000 hospitalizations (in 1993) Third-ranking cause of hospitalization in children <15 years old 3 per 10, 000 asthmatic patients die (1994) and the life of the sufferer · The most common chronic illness of childhood · 3 x more school absences in asthmatic children · 23% of adults missed work in prior year due to asthma

Managing Asthma • Avoiding and controlling asthma triggers • Medications to relieve symptoms and keep asthma under control – Quick-relief medications (rescue medications) act to quickly relieve bronchoconstriction and other asthma symptoms – Long-term controllers are used on a regular basis to keep asthma under control and reduce asthma symptoms before they occur

Product Overview SINGULAIR is a leukotriene receptor antagonist – Leukotrienes are chemicals produced by cells which cause inflammation. – SINGULAIR blocks leukotrienes and improves asthma symptoms. SINGULAIR is indicated for the prophylaxis and chronic treatment of asthma in adults and children 2 years of age and older – SINGULAIR is always to be prescribed in addition to “as needed” rescue medication – SINGULAIR is not indicated for the treatment of asthma induced by exercise

Singulair Case Study of DTC Decision-Making at Merck

Product Overview Safety Profile – SINGULAIR is generally well tolerated. – In clinical studies, side effects were usually mild and did not stop patients from taking SINGULAIR. – The most common side effects included headache, flu, runny nose and ear infection. Dosage and dosing – SINGULAIR is available in: • 10 mg tablets for adults • 5 mg cherry chewable tablets for children 6 -14 • 4 mg cherry chewable tablets for children 2 -5 – SINGULAIR is taken once-a-day in the evening.

Key Consumer Messages for Singulair • Adult Patients – – – Help control your asthma with once-a-day Singulair® is not a steroid Singulair® helps keep airways open, making breathing easier Safety similar to a sugar pill Cherry chewable tablet available for children 6 -14 • Parents – – – Help control your child's asthma even when you can't be there Singulair® is not a steroid Singulair® helps keep airways open, making breathing easier Safety similar to a sugar pill Cherry chewable tablet for children 6 -14

New DTC Campaign for Singulair • Launch campaign was highly successful – – Brand ad awareness New patient starts Adherence among existing patients Physicians becoming aware of product from advertising • Yet, we needed to develop a greater understanding of target’s mind set and the impact asthma has on their lives • We incorporated research learning to refine ad messaging to strengthen the emotional benefits of using Singulair

Print Ad Female Patient

Print Ad Mothers

Active Merck Programs Male Pattern Hair Loss Unbranded “help seeking” ads educate patients about product options that are not reimbursed Osteoporosis Unbranded ads to motivate women over age 60 to seek a Bone Mineral Density Test to assess whether they have osteoporosis Osteoarthritis Branded ads to inform patients about a breakthrough product that offers excellent tolerability with efficacy comparable to NSAIDs Cholesterol Branded ads to promotes the use of a cholesterol lowering medicine which is proven to reduce death and heart attacks among patients with elevated cholesterol and heart disease Asthma Branded ads to inform patients about Singulair that helps kids as young as 2 to breathe easier. HIV Branded ads that inform HIV positive patients and offers a life saving treatment option that just 4 years ago was unavailable Chicken Pox Unbranded ads that inform parents about the risks and benefits of immunization to prevent this disease

Words to the MIT Wise • Advice on company selection • Suggested interview techniques • One guy’s successful approach to Marketing Management

Company Search Suggestions • Marketing Driven Company – Balanced Use of “ 4 Ps” – Commitment to building brands • Markets products that you can believe in • Make a difference in the world if you can • Make certain that integrity is ingrained in the company culture • Follow your passion MERCK

During the Interview Process • Probe for the company attributes just described • Prepare as employee • Provide company specific observations, examples, and solutions • Primary sales drivers should be known • Provide an understanding of the margin structure of the business • Provide ideas that generate sales, and can maintain margins

As a Brand Manager • Know thy customer and all segmentation differences – that includes every shred of information you can get your hands on • Share your brand vision constantly – look at your competition in a “rear view” mirror • Don’t be afraid to get your “hands dirty” – new parent analogy • Learn how to implement tactics • Leverage the many talents of those around you – agencies, marketing services, researchers, telemarketers • Use metrics for everything; if they don’t exist create them