The social, demographic and economic context in which the pharmaceutical industry operates is changing dramatically, as was noted in Pharma 2020: The vision, published by PricewaterhouseCoopers (PWC) in June 2007. All of these challenges have major ramifications for the way in which pharmaceutical companies market and sell the medicines they develop.
The industry has traditionally relied on aggressive marketing to promote its products. For example, one recent study estimates that between 1996 and 2005, total real spending on pharmaceutical promotions rose from $11.4bn to $29.9bn in the US. Much of this increase in spending was on the expansion of the salesforce. Between 1996 and 2005, the number of US sales representatives nearly doubled to 100,000, although the number of practising doctors rose by just 26 per cent.
One in five doctors now refuses to see any sales representatives, and returns on sales visits to doctors have declined in the developed world. There is increasing resistance from doctors and regulators and growing public scrutiny over the interaction between pharma companies and healthcare professionals.
In short, aggressive marketing – whether to doctors or patients – is becoming increasingly ineffective as a means of stimulating demand for new therapies and overcoming reluctance to pay premium prices for products that are deemed to offer only minor clinical improvements. Industry critics are also becoming increasingly vociferous in their complaints that it is wasteful or even unethical.
Pharmaceutical manufacturers responded with various cost-cutting measures, and by the end of 2008, big pharma had announced plans to shed over 60,000 jobs globally, many of them in sales and marketing. However, both industry executives and commentators recognise that the failings of the current marketing and sales model cannot be addressed by simply reducing the size of the salesforce; the problems go much deeper.
It is likely that the current role of the pharmaceutical industry's sales and marketing workforce will be replaced by a new model over the next ten years. The salesforce of the future will be dramatically smaller, more agile and will require new skills, including an education in science or health, a greater understanding of specific complex diseases and the ability to negotiate with powerful payers and medical specialists. Its focus will no longer be on just selling products, but on better managing health outcomes through a full complement of health management services, including health screenings, compliance programmes and nutritional advice. Understanding the demands of the payer in a changing healthcare environment will be critical in determining the shape of the industry's future sales and marketing model.
The balance of power is shifting to payers. For years, pharmaceutical companies decided what their products were worth and priced them accordingly, investing little effort in understanding the payer's perspective or what the market was willing to buy. With healthcare costs rising, payers, including governments and private insurers, are becoming the ultimate arbiters of pricing and value, reimbursement and prescribing decisions. With the onset of the current global economic crisis the challenges for payers are now even more acute.
To address these demands there will have to be a stronger link between marketing and R&D. Pharmaceutical companies will have to start thinking about product pricing earlier in the development phase, commercially de-risking their portfolios in phase II by terminating any drug candidate that looks unlikely to generate commercial demand. The industry has already been forced to take the first steps down the path to pay-for-performance. For example, reimbursement of Velcade, Johnson & Johnson's new cancer treatment, is contingent on proof of a measurable reduction in the size of a patient's tumour.
The often contentious relationship and competing agendas that have long existed among pharmaceutical companies, healthcare payers and providers will end as pay-for-performance and comparative effectiveness analysis force them to work together for the common goal of improving health outcomes for the patient, as well as to demonstrate value for money. Pharma will have to collaborate with payers (be they governments, health insurers, employers or patients) to ensure that it develops medicines that have real social and economic value.
The current blockbuster model was designed to promote mass-market treatment of common diseases such as hypertension, diabetes and high cholesterol to primary care physicians. Of these, 65 per cent are now sold generically in the US and 70 per cent in Central and Eastern Europe. In the next ten years, only drugs considered truly innovative will be financially rewarded with a premium price. Pharmaceutical companies that choose to focus on specialised medicines will gradually shift their product mix to include more biologics and medicines that are targeted to specific and more complex disease states. It is no longer solely about the product.
Science is leading the pharma industry towards specialist medicine – highly effective therapies developed for specific complex conditions, typically administered by a specialist as opposed to a general practitioner, developed in small doses and in need of refrigerated handling and storage. Specialised drugs are significantly more expensive, in some cases costing thousands for a single dose or treatment. The global market for specialised medicines, which accounted for 44 per cent of worldwide prescription drug spending in 2008, could be twice the size of the current market for all prescription drugs by 2020.
The US Food and Drug Administration and other leading regulatory agencies are exploring various new methods for assessing, approving and monitoring innovative medicines. While a single global regulatory body is unlikely, global regulatory harmony will make simultaneous multi-country launches routine. By 2020, the launch of a new drug will be much slower and more incremental. The big bang, big budget blockbuster launch will be replaced by a process in which clinical outcomes information is continuously disseminated in a series of much smaller waves. New medicines will be launched with 'live licences', conditional to further in-life testing aimed at substantiating their safety and efficacy in larger or different populations.
The future sales and marketing process must master each of these dynamics and synthesise them into a new system. In the past, the sales and marketing function shouted loud and jumped high to sell products. Soon the imperative will be to add the most value, not to sell the most pills. The pharmaceutical companies that succeed in demonstrating value will be rewarded with a longer period of exclusivity, stronger financial health and greater loyalty to their brands.
Pharmaceutical companies will need to restructure their marketing functions accordingly, with the appointment of key account managers who will be responsible for collaborating with healthcare payers to shape the information doctors receive and provide hard proof that a product really is safer, more effective or more economical than its rivals.
If pharma succeeds in bringing bold, brave changes to the current model it will be in a much better position to ensure that the billions it invests in R&D are wisely spent, and eliminate the need to spend massive sums persuading increasingly sceptical doctors to prescribe medicines with clinical superiority that may be questionable.
The pharmaceutical industry will be able to slash its expenditure on sales and marketing by selling products and services for which the market will pay a premium price.
Steve Arlington and Simon Friend are from PricewaterhouseCoopers' global pharmaceutical and life sciences practice.
The PricewaterhouseCoopers report was certainly detailed and raised many pertinent issues. However, though there is a need for structural changes to address the new market model of more centralised prescribing, and greater payer influence, I do not believe that the direct sales push model is doomed, or at least not yet. Conversely, I believe it will remain the dominant tool for several years to come and will work alongside new approaches like e-detailing and technology-led detailing, as these become more important. As a result, I believe the report missed other and more significant challenges.
The issue within pharma marketing is far more basic. The pharmaceutical sector is an increasingly crowded marketplace. with the result that treatments are poorly differentiated and there is little 'true innovation'. Thus, the real challenge for organisations is how to define and establish a relevance and value to their treatments, and in particular, develop a relevance to the patient population in the eyes of payers and physicians.
If companies are to survive and maintain market share, marketing departments need to apply deeper thinking on where the real point of difference lies and ensure compelling brands stand out from the crowd.
Obviously, at some point, the direct sales approach will be cut back. When this happens, if brands have not learnt to be independent and discovered how to communicate with their target audience like consumer brands have, they may fail. Therefore, pharma should be looking more to the commodity sectors such as fast moving consumer goods (FMCG) to understand how they have made better use of branding and brand positioning to establish the relevance and value of their products.
To do this effectively, marketing departments should, at the very least, focus on: understanding their markets and defining their treatments' positioning in terms of how they add value by meeting the functional and emotional needs of patients as opposed to the 'technical data', such as mode of action, efficacy and safety measures; investing in establishing the positioning of their treatments as early as possible in their development, and ensuring consistency throughout the business and every communications channel by adopting an approach that focuses on developing single-minded ideas and captures them in a way that means they can be communicated and used throughout the business.
So, while the report is interesting in many ways, there are many more challenges pharmaceutical companies need to consider. Once they have understood how to stand out, the next challenge will be how to invest in the development of medicines that the market wants to buy. Ultimately, this will involve marketing departments taking a greater lead in identifying treatment development opportunities and creating a framework for R&D.