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GLAXO MARKETING AND PROMOTION ARE "HIGH ON LIST" OF SPENDING REEVALUATION; MMD’s LYONS SAYS MARKETING BUDGETS WILL DROP TO 15%- 20% OF SALES BY 2000

Executive Summary

Glaxo's expenditures for marketing and promotional activities are "high on the list" of spending areas to be reevaluated as part of an overall reassessment of the company's cost structures, company exec VP Robert Ingram told an April 16 meeting of the Pharmaceutical Advertising Council. Glaxo is acutely aware "that our resources are finite and we must extract every penny of value from our business," Ingram said. The company is "certainly going to look at our investments [and] promotion and marketing are high on the list." Ingram warned the advertising community that Glaxo and other drug companies will be demanding more proof of the value of promotional expenditures. The stricter demands on promotional activities to produce results are analogous to the new pressures being put on the drug industry to show that its products add value, Ingram explained. "Just as the [drug] industry has had to prove the value of its products, I am sure the advertising and promotion industry will be called upon to do the same," he said. "We are going to try to be more efficient in everything we do and ask for a partnership with our partners to increase their efficiency and productivity." Ingram said the industry is beginning to plan for more limited growth projections: "It's been very common to see 20% or greater growth in revenue...I think we will look ahead and see the mid-teens are pretty good." To maintain revenue growth, he continued, "something in the earnings equation will have to change" and "it is equally clear to me that at Glaxo it is going to be the expenditure line [that will be changed]." The Glaxo budget reanalysis and the predictions of leaner times through the rest of the decade are typical of a process going on throughout the industry. At an April 15 meeting with wholesalers, for example, Marion Merrell Dow President Fred Lyons forecast similar changes in pharmaceutical industry budgets for the rest of this decade. Lyons estimated that by the end of the decade, marketing expenditures will decline to about 15%-20% of sales compared to a current ratio of 25%-30% of sales. "You will see new marketing approaches versus such things as the heavy advertising and promotion and toe-to-toe things that are going on today," Lyons predicted. While marketing budgets will be trimmed, R&D costs will go up, Lyons added. Overall, profitability in the drug industry will be "cut in half" from 20% after-tax margins to about 10% by the end of the decade, Lyons told the wholesalers. He pointed out that even at the reduced levels, the drug industry will be "significantly ahead of other alternatives outside the drug industry." The pressure to develop meaningful new products will continue to force up R&D budgets as will the change to peptide and genome- based products, Lyons said. MMD projects that R&D expenses as a percentage of sales will continue to climb throughout the decade to about 20%-25% compared with the current 15%. FDA Commissioner Kessler also continues to keep up the pressure for reduced promotional and marketing activities. At an April 15 meeting with health reporters, Kessler commented that "if you cut [industry] promotion in half, you won't lose anything, I can assure you. Perhaps the quality of care would actually increase."
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