C&EN Northeast News Bureau

Faced with demanding but exhilarating challenges--everything from accelerating product pipelines to keeping pace with Wall Street's expectations for double-digit annual earnings growth--pharmaceutical industry leaders are rethinking the role of the Internet in business. The focused players are becoming orchestrators, reshaping the industry's concept of electronic commerce practices.

Companies cannot afford to ignore the Internet. "The Internet is a powerful channel," says Rajesh K. Garg, principal at consulting firm McKinsey & Co. , New York City. "If drug companies ignore it, they'll do so at their own peril."

The Internet is the fastest growing communication medium in history. Some analysts say it's the ultimate marketplace, allowing for interactive communications and negotiations. Perhaps this is why pharmaceutical companies say the Internet is moving from the periphery of business strategies to the front line of today's consumer marketing wars.

The targets of these wars are physicians and patients. E-commerce increasingly is shifting the power to these consumers of pharmaceuticals, who are faced with more and more product choices as drug firms race to bring new products to market.

Like their cousins in the chemical industry, drug firms historically used a means of e-commerce called electronic data interchange (EDI) to procure materials and supplies or to fulfill their role as suppliers. But they did not use EDI to drive consumer demand. The Internet is changing that paradigm as it opens new doors of communication directly with consumers.

Today, companies use the Internet mostly for nonfinancial transactions--generating brand loyalty, understanding customer needs and behavior, raising product awareness, and influencing consumer behavior--because they cannot sell prescription drugs directly to consumers. However, companies say these nonfinancial transactions are valuable and ultimately help drive top-line product growth.

"The web is part of the marketing mix," says Ray Jordan, a Pfizer spokesman. "In some cases, it's offered up as a service without a direct expectation for a monetary return."

It is difficult to measure the direct financial impact that this type of pharmaceutical e-commerce has on filling cash register drawers. McKinsey's Garg says companies increasingly are working on precise mechanisms to calculate the specific return on investment for consumer-directed e-commerce, but he declined to provide specific details.

In the meantime, the Internet allows companies to collect some useful metrics, which is the biggest draw for pharmaceutical companies to sponsor web sites. For example, companies can track the number of visitors to a site, what visitors are interested in based on the information they access, and to some extent how consumers changed their behavior.

Historically, U.S. drug companies relied on direct-to-consumer prescription drug advertising to reach patients and physicians. IMS Health, London, reports that direct-to-consumer spending (print and television) reached $1.53 billion for the 12 months through March 1999, representing a growth rate of 16%. IMS says the top spending brands are allocating the majority of those dollars to reach patients.

In comparison, drug firms spend relatively few dollars on online e-commerce to reach consumers. McKinsey & Co. estimates the drug industry will spend between $30 million and $50 million on consumer-targeted e-commerce in 1999. Most of that spending will go toward sponsorship of branded product web sites, general health information web sites, and advertising banners.

Spending on the Internet is likely to grow as drug companies struggle to feed consumers' insatiable appetite for information. Consumer activism is being driven by patients' desires to become better educated and more involved in their diagnosis and treatment. Moreover, many consumers like using the Internet because they can easily access information, experts, and others with similar health problems in the convenience of their homes.

"Consumer activism is not a trend--it's a new era," says Jim Montgomery, vice president of global strategy for Electronic Data Services Health Care, Plano, Texas. Activism is being significantly aided by the Internet. By early 1997, the Internet had more than 5,000 health-related web sites offering medical advice, according to Boston Consulting Group, a Boston-based management consulting firm.

"Patients are becoming more comfortable and more confident with the Internet," Montgomery adds. "Internet-based health services will dramatically increase."

Table: Product sites offer services to consumers

Cyber Dialogue, a New York City-based online market research firm, estimates that of the 40 million adults who regularly use the Internet, more than 22 million use it to retrieve health information, and a third of these people look for specific information on medications. Consultants at Deloitte & Touche, New York City, report that among consumers who use the Internet to gather health information, 81% say they consider the information to be useful or very useful.

"What companies do to influence the consumer's attitude toward them and their choice of drug can be quite powerful in capturing market share," Garg says. He adds that, at a minimum, pharmaceutical e-commerce is a marketing tool. However, how companies use e-commerce varies by customer segment--general practitioner versus specialist versus patient.

E-commerce aimed at modifying consumer behavior seems a sound strategy given the rise in consumer activism. Consumers who flock to web sites are self-seekers of information and thus are more likely to be involved in their personal health care decisions. "Physicians can't stem the free flow of information to patients," Garg notes. "Physicians must be more willing to work with patients. Ultimately, consumers can sway physician adoption of e-commerce applications."

As the Internet drives consumer activism, it is changing the way consumers and companies interact, and companies are being pressured to deploy Internet-based strategies. Analysts say those that are successful will increase revenues at the expense of their less advanced competitors. For example, McKinsey surveys estimate that more than one-third of consumers exposed to consumer advertising actually speak to their physicians about the advertised brand. Furthermore, more than 25% of physicians are willing to switch drugs most of the time, with another 40% willing to switch drugs some of the time.

The business-to-consumer e-commerce models being deployed vary widely among firms, mostly because e-commerce is new, having sprung up in the mid-1990s. Successful companies are leveraging e-commerce strategies by going beyond posting a drug's package insert and listing contact information on the Internet.

Instead, they are aggressively developing marketing strategies based on a traditional consumer-goods approach where value-added services are the rule, not the exception. Beyond improving the value proposition, pharmaceutical companies also are enhancing their position relative to other health care players, like pharmacy benefit managers and health plans, that also are trying to build relations and capture valuable information.

One of the most popular models today is the branded product web site that communicates product benefits and collects customer information. Examples include Merck's http://www.vioxx.com, Pfizer's http://viagra.com, Searle's http://www.celebrex.com, and Schering-Plough's http://claritin.com.

It's unclear how many pharmaceutical product web sites exist, but the number reaches well into the hundreds. According to McKinsey & Co., the top 15 drug companies sponsor 300 to 400 web sites, including branded product sites and general health care sites. Pfizer, for example, is estimated to support more than 40 web sites, which include both branded and unbranded sites.

It is more difficult to determine how many unbranded health care web sites are sponsored by drug firms. Depending on the company's objectives, it may or may not choose to disclose its sponsorship. Regardless of whether they disclose sponsorship, companies hope to raise consumers' awareness of diseases and create product demand, while learning about consumers' needs.

The Arthritis Foundation, Atlanta, is an example of an unbranded web site with corporate backing. The foundation actively solicits corporate sponsors for its http://www.arthritis.org web site, which, according to the foundation, averages 1 million hits per month. One corporate sponsor is McNeil Consumer Products Co., the maker of Tylenol.

Sponsorship of unbranded web sites gives companies such as McNeil the ability to tie their products with a particular health cause. Sponsors of the Arthritis Foundation's web site receive their own dedicated "Product News and Offers from our Sponsors" web page, a hyperlink to the sponsor's web site, and a customized page of arthritis-related tips to fit with sponsor's product. Despite these benefits, corporate sponsorship of unbranded web sites, including the Arthritis Foundation's, remains largely inconspicuous.

Another popular tactic being employed by pharmaceutical firms is to create "communities of interest" centered around diseases and treatment options. WebMD's Internet site (http://www.webmd.com) is an example of a community of interest.

WebMD offers subscription services for physicians, including a medical information library; a virtual office with real-time insurance verification and referral authorizations, unified messaging and telephone-based patient test results; customized web sites for physician practices; and continuing medical education courses.

The site also offers patients a range of free content and services to help them manage their health. Consumers can find information on disease conditions, treatments, and drugs; participate in discussions with medical experts; share their experiences with other patients; and customize a news service that provides articles on health topics of interest.

Hoping to tap into WebMD's community, DuPont announced a $220 million, five-year alliance with WebMD in April (C&EN, April 12, page 15).

"This is an important step in DuPont's integrated life sciences strategy," states Kurt M. Landgraf, DuPont executive vice president. "DuPont's alliance with WebMD is targeted toward addressing each individual's need for credible information, products, and services."

Under the terms of the agreement, DuPont is the sole provider of life sciences content--including information about prescription products, over-the-counter medicines, food, nutritional supplements, and medical foods--to WebMD's paid physician services, as well as the free consumer pages. In return, DuPont is underwriting 6 million months' worth of subscriptions to WebMD--enough for about 10,000 physicians, according to McKinsey & Co.

"We intend to deliver the information in a consumer-friendly manner," says Elizabeth A. Browning, vice president for DuPont Pharmaceuticals and head of DuPont Digital Consumer Health. "We expect WebMD to be the preeminent personal health and lifestyle destination on the Internet."

Using another model, Pfizer is building relationships with its consumers through its recently launched Pfizer for Living Internet community (http://www.pfizerforliving.com). The community is geared for people in the 50-plus age bracket. However, the company says anyone with diabetes, high cholesterol, high blood pressure, or heart disease is welcome to sign up for membership.

"Pfizer for Living is a community of people who are Pfizer product users," Jordan says. "It's a back-and-forth information exchange."

The biggest hurdle for sites like WebMD and Pfizer for Living is gaining customers' trust. For example, visitors to pfizerforliving.com are asked to hand over personal information such as name and contact information (home address, e-mail address, phone, fax), demographics (age, income, education, race), and medical history (diseases, medications taken, behaviors).

In order to persuade customers to give up personal information, Pfizer provides new members with a personalized web page containing facts and information specific to their illness, exercise, and eating; access to "The Clinic" which answers commonly asked health questions; and access to the "Pfizer Health Library," which contains Pfizer publications that provide additional health information.

"The goal is to build a relationship between Pfizer and its customers," Jordan adds. "Members who join absolutely get something in return."

To preserve confidentiality, Pfizer sends members--via postal mail--a personal identification number (PIN) to access their personal web page. The firm also says it protects the privacy of information it collects, and the information is only used for its own legitimate business interests.

A third way companies are trying to ring the register is by luring customers with rebate coupons available online. A nice benefit of online coupons is that companies can measure the impact they have on sales by counting the number of coupons redeemed.

In the war to market allergy medications, Schering-Plough uses its web site to offer a rebate coupon for its best-selling allergy drug, Claritin. Hoechst Marion Roussel, the pharmaceutical arm of Hoechst, uses a similar online tactic to market its allergy drug, Allegra. In both cases, customers must download and complete a health questionnaire, and mail it back to the company with a pharmacy receipt as proof of purchase. Six to eight weeks later, customers receive a $5 check in the mail.

As evolutionary changes of e-commerce play out over time, they will continually challenge companies' fundamental beliefs about how the Internet can add value to the bottom line. It will force companies to explore a broader set of opportunities in electronic space, and new models of pharmaceutical e-commerce will continually emerge. The successful firms will be those that provide products and services to attract and keep consumers.

McKinsey's Garg summarizes the future this way: "Pharmaceutical companies must move from a tactical approach to a coherent strategy across all their web sites. They must find meaningful value adds that attract users and repeat usage, and ensure that web sites incorporate interactive tools."

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Copyright © 1999 American Chemical Society