Cut Marketing, Raise Sales

As pharmaceutical companies post their quarterly earnings, I see that some major pharma companies have done better than others at increasing their sales and profits. Take Novartis, for example:

Novartis, based in Basel, Switzerland, said net profit rose to $1.67 billion, or 71 cents a share, from $1.47 billion, or 62 cents a share, a year earlier. Sales increased 19% to $8.42 billion from $7.06 billion. Sales of prescription drugs rose 9.6% to $5.09 billion. (WSJ: "Novartis's Net Profit Rises 13%, Driven by a 19% Sales Increase")

So Novartis had a nice increase in sales. What could have contributed to this?

Usually, marketing would claim credit for an increase in sales. After all, without marketing there would be no sales. It's common knowledge that for every dollar spent on marketing (e.g., DTC advertising or eDetailing; see, for example, "eDetailing ROI Better Than DTC?"), two to four dollars are made in sales. Marketers are careful to suggest a direct correlation and take credit.

Novartis, however, seems to have achieved the impossible: it increased sales while decreasing costs, including cutting back on marketing!

"Marketing and sales costs [for Novartis] came down, this is certainly a result of the Vioxx debacle and of Pfizer's announcement to cut marketing spending," said Karl Heinz Koch, analyst in Zurich at private bank Lombard Odier Darier Hentsch. (WSJ)

So you might say, in this case, decreasing marketing has led to increased sales. I don't know how to calculate ROI in such a situation -- it's a little like dividing by zero -- ROI would be infinite!

NOTE: It's interesting that Koch mentioned Pfizer, which vowed back in February to cut its sales and marketing staff (see "Pfizer to Slash 30% of its Sales & Marketing Staff") and which recently dropped out of the top ten advertisers in the US (see "Pfizer No Longer Top 10 Advertiser"). This cut in marketing coincided with a net drop in revenue of 52% for Pfizer (WSJ: see "Pfizer's Net Drops 52%"). I am sure marketers will claim that there was a correlation, but you also have to take other factors into consideration, including a limp ED drug market.

Some Novartis drugs did better than others. Could marketing have been a factor? Zelnorm, which had a 36% increase in sales, and Elidel, which decreased 36%, both seem to have been equally heavily marketed (I have no numbers to support this, only my personal experience). In this case, there seems to be no correlation.

[It should be noted that Elidel is having unique problems affecting it sales. In March 2005 the FDA issued a public health advisory about a potential cancer risk from the topical use of Elidel cream. According to Dr. Alan Greene (drgreene.com), "aggressive advertising, both to health care providers and to consumers, has created the false impression that these drugs are safe enough to use without a second thought. Not so. Perhaps the combination of the warmth of the ads and the chill of the FDA warning will create a more balanced impression."]

Anyway, the jury is out regarding whether all pharma companies can cut back on marketing and yet improve sales overall. It seems like a contradiction, but Novartis may be succeeding.