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Ad agencies’ drug interest
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November 29, 1999: 5:40 p.m. ET
Omnicom buys into clinical testing firm in latest move into pharmaceuticals
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - In another sign of the advertising industry’s growing interest in pharmaceutical companies, Omnicom Group Inc. said Monday it has bought a significant minority stake in Scirex Corp., a company that conducts clinical trials of new drugs.
Omnicom is investing $20 million in Scirex, much of which will go for expansion of the four-year old Horsham, Pa., company. How much of a stake that Omnicom bought was not disclosed. The deal was consummated in October, but not announced until Monday.
Interpublic Group of Companies Inc. (IPG), the world’s second largest advertising holding company behind Omnicom, purchased International Pharmaceutical Research on Nov. 9 for an undisclosed sum to be part of its Lowe McAdams Healthcare unit, and other leading agencies are reportedly in similar discussions.
The stake in Scirex will be part of the Diversified Agency Services division of Omnicom (OMC). Even if it was a wholly owned subsidiary, it would be a rather small component of Omnicom, which operates three global agencies, BBDO Worldwide, DDB Worldwide and TBWA Worldwide, as well as a number of other smaller agencies. Omnicom had net income of $285 million on revenue of $4.1 billion in 1998.
Still, company officials said the investment would help both companies.
"The disciplines of clinical drug development and strategic drug commercialization are converging at an astonishingly fast pace,” said a statement from Thomas Harrison, chief executive of the DAS. "With the goal today being faster, smarter and more efficient commercialization of new drugs, we felt that we needed to be closer to the test tube - to actually work with clinical scientists to develop drugs with a keen eye toward the needs of the marketplace that will exist at the time of the product’s launch.”
First in line for advertising
While medical ethicists may worry about the new marriage, Harrison said decisions on how to conduct the trials will be independent of Omnicom.
He said a key reason for Omnicom’s purchase was that it wants to have the first shot, and perhaps the only shot, at the advertising and marketing of the drug that is being tested.
”If we’re there and looked upon as a consultant long before an agency is brought on board, there’s really no reason to get anyone else involved,” he said. "It should be a natural transition” to Omnicom.
More purchases to come
Harrison said Omnicom is interested in investing in or purchasing other clinical testing firms as well. Even if it does not, this is probably not the last purchase of a pharmaceutical testing firm by an advertising agency, said Jim Dougherty, an analyst at Prudential Securities.
"Obviously health care advertising is red hot. It’s going to be a significant growth business for as far ahead as I can see,” he said. "The companies that can bring more knowledge to new business presentation will get more business. Those that don’t own a testing company will be disadvantaged. They won’t be locked out of the business, but they’ll be disadvantaged.”
Discussions going on right now about other investments or acquisitions in testing firms, said Gil Bashe, the outgoing group chief executive of Commonhealth, the health-care arm of WPP Group Plc, the London-based advertising agency that is the third largest company in the field.
"Does the sense of marketing begin at brand positioning or molecule development? There’s a lot of talk going on,” Bashe said. But he is convinced that even if an agency-owned testing firm handles a drug’s clinical trials, other leading advertising agencies will get a chance to bid for the business.
"Just because one company has an expertise on clinical side doesn’t mean they’ll have the expertise on the marketing side,” he said. "I think that when it comes to making sure the molecule can become a brand, clients will seek out the best in class.”
Until recently drug manufacturers marketed their products only to physicians, but a change in Food and Drug Administration rules in 1997 has led to a boom in consumer advertising. Dougherty estimates that health care advertising, mostly for prescription drugs, is expected to rise to $1.9 billion this year from $1.57 billion in 1998, and is likely to continue to grow next year.
Omnicom’s stock closed Monday at 93-3/16, up 5/16 from Friday’s close, after getting as high as 93-13/16 earlier in the day, which was just 1/8 less than its 52-week high. 
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