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A New Rx for Drug Pitches

By Amy Barrett Bristol-Myers Squibb (BMY) is taking its foot off the pedal when it comes to consumer drug ads. On June 13, it announced a new policy on advertising. The biggest surprise: Bristol says it will wait at least one year to start pitching newly launched drugs directly to consumers through TV, print, and radio.

The move is part of an industrywide retrenchment following the seemingly endless legal and PR problems that have hit drugmakers in recent years. Companies like Merck (MRK) have come under fire in the courtroom and in the court of public opinion because of their mass marketing of drugs -- like the withdrawn painkiller Vioxx -- despite having evidence of significant side-effect problems.

RAISING THE BAR. The fallout from cases like those as well as charges that companies have suppressed other negative clinical-trial data have brought on lawsuits and sullied the industry's reputation. Now with Bristol and perhaps others pulling back on consumer ads, that may improve the industry's image and possibly expose drugmakers to less legal liability should future products run into safety problems.

"The hurdle is increasingly higher for a company to make the decision to go out with a giant consumer campaign at the beginning [of a launch]," says Beth L. Miller, senior vice-president of Campbell Mithun, a unit of ad agency Interpublic Group of Companies. Bristol's move, she says, "will makes others think maybe three times," before they do a big ad push. Mark S. Graham, managing director of Graygraham, a health-care advertising firm, says "legal cautiousness" is driving Bristol's move. He believes others may follow suit.

Many drug companies are rethinking their approach as well. A spokesman for Pfizer (PFE) says it has been talking to patients groups, physicians, and others about how it can make its own consumer ad campaigns more effective at, among other things, communicating information about the side effects of its products.

COSTLY SCANDAL. But if Bristol's action seems bold, consider that the pharma has less to lose these days from moving away from broad consumer pitches. It has seen a number of blockbuster, mass-market products lose patent protection or other forms of market exclusivity in recent years. And Richard T. Evans, an analyst at Sanford Bernstein, says Bristol's new-product pipeline contains more targeted therapies for diseases like cancer and hepatitis B. Those products don't lend themselves as well to big TV ad campaigns.

No doubt Bristol management is looking for ways to boost its corporate image. On June 15, the U.S. Attorney in New Jersey charged the company with conspiring to commit securities fraud related to a major accounting scandal. The complaint stems from restatements Bristol took for $2.5 billion in revenue and $900 million in earnings booked from 1999 to the first half of 2002.

The restatements derived from so-called "channel stuffing," a practice under which Bristol improperly enticed wholesalers to buy its drugs in amounts that exceeded demand. Bristol struck a deal with the feds to avoid prosecution and agreed to make certain reforms.

RESTRAINT AND RESPONSIBILITY. As part of the deal, Bristol said it would pay an additional $300 million in restitution to shareholders who lost money because the scandal drove down stock prices. (That brings the total the company will pay out -- as a result of the scandal -- to shareholders to $839 million.) The government also indicted two former Bristol executives, Frederick Schiff and Richard Lane, on securities fraud. An attorney for Lane says the exec is innocent of the charges, while Schiff's attorney says his client denies any wrongdoing.

Bristol's new consumer-ad policy certainly won't undo the damage done to its name by this scandal. But in an industry that has come to be seen as something of a corporate villain, more responsible advertising is a must if companies like Bristol are to recover any of their lost luster. Barrett is BusinessWeek's Philadelphia bureau chief

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