Pharma 2020: Marketing the future Which path will you take?
Pharmaceuticals and Life SciencesPharma 2020: Marketing the futureWhich path will you take?
Table of contentsPrevious publications in this series include: Pharmaceuticals Pharmaceuticals and Life Sciences Pharma 2020: The vision Pharma 2020: Virtual R&D Which path will you take?* Which path will you take? *connectedthinking Pharma 2020: The vision # Pharma 2020: Virtual R&D 1Published in June 2007 this paper highlights a number of This report published in June 2008 explores opportunitiesissues that will have a major bearing on the industry over to improve the R&D process. It proposed that newthe next 11 years. The publication outlines the changes we technologies will enable the adoption of virtual R&D; andbelieve will best help pharmaceutical companies realise the by operating in a more connected world the industry, inpotential the future holds to enhance the value they provide collaboration with researchers, governments, healthcareto shareholders and society alike. payers and providers, can address the changing needs of society more effectively.“Pharma 2020: Marketing the future” is the third in this series of papers on the future of the pharmaceutical industry published byPricewaterhouseCoopers. It discusses the key forces reshaping the pharmaceutical marketplace, including the growing power of healthcare payers,providers and patients, and the changes required to create a marketing and sales model that is fit for the 21st century. These changes will enablethe industry to market and sell its products more cost-effectively, to create new opportunities and to generate greater customer loyalty across thehealthcare spectrum.
Table of contentsIntroduction 2 What will the healthcare landscape look like in 2020? 4Recognising the interdependence of the pharmaceutical andhealthcare value chains 8Investing in the development of medicines the market wants to buy 10Forming a web of alliances to offer supporting services 12Developing a plan for marketing and selling specialist therapies 13Creating a culture that is suitable for marketing specialist healthcare packages 15Managing multi-country launches and live licensing 18Adopting a much more flexible approach to pricing 18Creating a marketing and sales function that is fit for the future 19Conclusion 22 Pharma 2020: Marketing the future
Introduction trends reshaping the pharmaceutical that, between 1996 and 2005, total marketplace).1 All these challenges real spending on pharmaceuticalThe social, demographic and economic have major ramifications for the way in promotions rose from US$11.4 billion which Pharma markets and sells the to US$29.9 billion in the US (the onlycontext in which the pharmaceutical medicines it develops – the subject on country for which expenditure on allindustry (Pharma) operates is changing which we shall focus here. major marketing and sales activitiesdramatically, as we noted in “Pharma is available).2 Another study suggests2020: The vision”, the White Paper The industry has traditionally relied on that the true figure (including meetingsPricewaterhouseCoopers* published in aggressive marketing to promote its and e-promotions) is closer to US$57.5June 2007 (see sidebar, Seven major products. One recent study estimates billion in real terms.3Seven major trends reshaping the pharmaceutical marketplaceThe pharmaceutical marketplace is changing dramatically, with huge implications for the industry as a whole. We have identifiedseven major socio-economic trends.The burden of chronic disease is performance of different medicines. where demand for medicines is likelysoaring. The prevalence of chronic Widespread adoption of electronic to grow most rapidly over the next 13diseases like diabetes is growing medical records will give them the years, are highly varied. Developingeverywhere. As greater longevity forces outcomes data they need to determine countries have very different clinical andmany countries to lift the retirement age, best medical practice, discontinue economic characteristics, healthcaremore people will still be working at the products that are more expensive or less systems and attitudes towards thepoint at which these diseases start. The effective than comparable therapies and protection of intellectual property. Anysocial and economic value of treatments pay for treatments based on the outcomes company that wants to serve thesefor chronic diseases will rise accordingly, they deliver. So Pharma will have to prove markets successfully will therefore havebut Pharma will have to reduce its that its medicines really work, provide to devise strategies that are tailored toprices and rely on volume sales of such value for money and are better than their individual needs.products because many countries will alternative forms of intervention. Many governments are beginningotherwise be unable to afford them. The boundaries between different to focus on prevention rather thanHealthcare policy-makers and forms of healthcare are blurring. The treatment, although they are not yetpayers are increasingly mandating primary-care sector is expanding as investing very much in pre-emptiveor influencing what doctors can clinical advances render previously fatal measures. This change of emphasisprescribe. As treatment protocols diseases chronic. The self-medication will enable Pharma to enter the realmreplace individual prescribing decisions, sector is also increasing as more of health management. But if it is to doPharma’s target audience is also prescription products are switched to so, it will have to rebuild its image, sincebecoming more consolidated and more over-the-counter status. The needs healthcare professionals and patientspowerful, with profound implications of patients are changing accordingly. will not trust the industry to providefor its sales and marketing model. Where treatment is migrating from the such services unless they are sure it hasThe industry will have to work much doctor to ancillary care or self-care, their best interests at heart.harder for its dollars, collaborate with patients will require more comprehensive The regulators are becoming morehealthcare payers and providers, and information. Where treatment is risk-averse. The leading national andimprove patient compliance. migrating from the hospital to the multinational agencies have become primary-care sector, patients will requirePay-for-performance is on the rise. much more cautious about approving new services such as home delivery.A growing number of healthcare payers truly innovative medicines, in the wakeare measuring the pharmacoeconomic The markets of the developing world, of problems with medicines like Vioxx.*‘PricewaterhouseCoopers’ refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate andindependent legal entity.2 PricewaterhouseCoopers
Much of this increase in spending has Too many cooks spoil the brothgone on the expansion of the salesforce. However, many of the industry’s Between 1996 and 2005, the number of US sales representatives nearly doubledbiggest markets are now saturated with to 100,000, although the number of practising physicians rose by just 26%. Thesales representatives, and its selling market is getting very crowded in other countries, too. In a recent poll of Britishtechniques are becoming increasingly general practitioners, respondents reported receiving an average of four visitsineffective (see sidebar, Too many a month and five promotional mailings a week. Similarly, one Malaysian doctorcooks spoil the broth).4 participating in a study of promotional practices in emerging countries was approached by 16 multinationals and nine local generics companies within a five-Hence the fact that returns on detailing week time span.(sales visits to doctors) have begunto decline in the developed world. The battle for market share has triggered considerable alarm. Some 20% of USBetween 2004 and 2005, there was a and British doctors now refuse to see any sales representatives. The regulations23% drop in dollar growth per detail in governing the behaviour of sales representatives are also getting tougher. Variousthe US, although detailing still accounts US states have passed laws requiring pharmaceutical companies to report allfor more than half the market share gifts or payments to healthcare professionals exceeding $25, while Australia hasnew brands win during their first year of banned pharmaceutical companies from providing doctors with personal gifts,life. The picture is rather more varied in entertainment or lavish hospitality.Western Europe, but detailing plays a Several industry trade groups have likewise introduced new codes of practicemuch smaller role in stimulating sales in – and they are actively enforcing the rules. The Prescription Medicines Code ofthese countries.5 Practice Authority (PMCPA), which administers the code of practice laid down byConversely, detailing is still very the Association of the British Pharmaceutical Industry, is one such instance. Theimportant in many developing PMCPA “names and shames” the most serious offenders, by reprimanding themnations. In China, for example, nearly publicly and publicising the violations they have committed in advertisements inthree-quarters of the information the medical and pharmaceutical press.doctors receive about new medicinescomes from meetings with sales promotional” information.9 And to US advertising and French-speakingrepresentatives and conferences.6 But Pharma’s spending on DTC advertising Canadians, who primarily watch French-here, too, resistance to “irresponsible” only accounts for about US$5 billion, language media – over a five-yearmarketing practices is growing,7 and, in which is just 14% of its total marketing period. They found that DTC advertisingMay 2007, the member governments of budget.10 However, the jury is still out on had no effect on sales of two of thethe World Health Organisation passed a just what this expenditure provides. three products and that, although salesresolution to enact or enforce legislation of the third spiked by more than 40%banning the “inaccurate, misleading or In the early days, the returns appeared when the campaign began, the spikeunethical promotion of medicines”.8 to be substantial. Between 1999 and was quite brief.12 2000, sales of the 50 products thatDirect-to-consumer (DTC) advertising were most heavily advertised in the Much of the industry’s expenditure– the other big weapon in Pharma’s US soared by 32%, compared with on DTC advertising may have beenmarketing artillery – has also failed todeliver all that the industry expected. an average increase of 13.6%.11 But pointless, but the damage to itsOnly two countries – the US and New more recent research suggests that reputation is arguably a more seriousZealand – currently allow companies DTC advertising has little, if any, long- problem. In January 2008, the US Houseto market their medicines directly to term impact on demand. In one study of Representatives Committee on Energyconsumers, although the European published in the British Medical Journal, and Commerce initiated an investigationCommission is considering a proposal the researchers compared the uptake into the misleading and deceptiveto lift the ban on direct communications of three medicines in two populations – advertising of medicines, after severalthat provide “objective...non- English-speaking Canadians exposed particularly flagrant abuses of the rules.13Pharma 2020: Marketing the future 3
Table of contentsTable 1: Big Pharma has been slashing In short, aggressive marketing – • The buying and selling of medicinesits workforce whether it be to doctors or patients – is is based solely on technical data like Announced becoming increasingly ineffective as a safety and efficacy, as distinct from Company Job Cuts means of stimulating demand for new subjective criteria like quality of life. therapies and overcoming reluctance to Pfizer 10,000 We shall discuss the changes that have pay premium prices for products that invalidated these assumptions in more AstraZeneca 7,600 are deemed to offer only minor clinical detail in the next chapter. Merck & Co. 7,200 improvements. Industry critics are also becoming increasingly vociferous in Bayer 6,000 their complaints that it is wasteful or Schering-Plough 5,500 even unethical. What will the healthcare Johnson & Johnson 5,000 Big Pharma has responded with various landscape look like in GlaxoSmithKline 5,000 cost-cutting measures. Pfizer set the 2020? Amgen 2,600 pace in late 2006, when it said that it Novartis 2,500 would cut 20% of its US sales force.14 For many years, pharmaceutical Other companies rapidly followed suit companies decided what their products Wyeth 1,200 and, by October 2008, the industry were worth, and priced them accordingly. sanofi-aventis 700 leaders had announced plans to shed But healthcare policy-makers, payers Total 53,300 another 53,300 jobs, many of them in and patient groups are now playing marketing and sales (see Table 1).15 an increasingly important role in theSource: PricewaterhouseCoopers They are now turning their attention valuation process – and this trend will to developing countries like India, accelerate, as healthcare expenditure where 10 multinationals are reported everywhere continues to soar. to be trimming the number of sales The aging of the population, together representatives they employ.16 with dietary changes and more However, both industry executives and sedentary lifestyles, is driving up the commentators recognise that the failings disease burden in both developed of the current marketing and sales and developing countries.17 People’s model cannot be addressed simply by expectations are also rising as new reducing the size of the sales force; therapies for treating serious illnesses the problems go very much deeper. like cancer reach the market. The We believe that they stem from three global healthcare bill has risen incorrect assumptions, namely that: commensurately; between 2000 and 2006, expenditure on healthcare as • Pharma alone determines the value a percentage of gross domestic product of its products (GDP) climbed in every country in • Products alone create value; and the OECD.184 PricewaterhouseCoopers
Many policy-makers and payers have doctor was electronically notified that The push for e-prescribingtherefore started trying to measure the product concerned was off plan.21exactly what they are getting for their More than 70% of all doctors in E-prescribing has enormous commercialmoney. A number of countries, including Denmark, the Netherlands and implications for Pharma. Most of theAustralia, Canada, Finland, New Sweden write prescriptions activities it performs to market itsZealand and the UK, have established electronically, and the European Union medicines to doctors take place beforeagencies specifically to conduct formal is promoting the practice in other the prescribing decision is made –clinical and economic evaluations member states. Doctors in Darwin, and e-prescribing could mitigate thatof medicines. The US Senate is also Australia, are also testing a new influence, unless the industry can system that, if successful, could beconsidering a bill to create a Health collaborate with healthcare payers to rolled out nationwide, and the US hasCare Comparative EffectivenessResearch Institute, which would perform shape the information doctors receive. just passed a new law to increasea similar function.19 However, healthcare payers will want e-prescribing among doctors hard proof that a product really is safer, participating in the MedicareSimilarly, some governments are more effective or more economical than programme. Eligible physicians willactively encouraging the use of its rivals, and they will have many more receive a 2% bonus for writinge-prescribing (see sidebar, The push resources to investigate such claims electronic scripts in 2009 and 2010,for e-prescribing).20 The main aim of than any individual doctor or practice. dropping to 1% in 2011 and 2012, andthese efforts is to reduce prescribing 0.5% in 2013. But penalties will beerrors. But e-prescribing will also enable With greater use of pharmaco- economics, strict formularies and imposed on those who do not usehealthcare payers to influence the e-prescribing by 2012.prescribing decision much more easily, e-prescribing, healthcare policy-makersby providing doctors with clinical and and payers are increasingly assessing Interest in e-prescribing is not confinedfinancial information at the very point at the relative value of different medicines. to the developed world. India’s largestwhich they are choosing which products Patients are playing a bigger part in retail pharmacy chain, Apolloto prescribe. the process, too. Indeed, they are Pharmacies, has recently started even helping to decide which products offering doctors and patients anThis will have a major impact on the should reach, or remain on, the market. e-prescription service. Similarly, thedecisions doctors make. In one recent Turkish government has launched Patient power was a critical factor in thesurvey, for example, two-thirds of several e-prescribing pilot programmes decision to approve Herceptin for usethe physicians participating in a US as part of a bigger initiative to establish on the British National Health Servicee-prescribing initiative reported that a national health network, and the (NHS) in the treatment of early-stagethey were more likely to prescribe a Russian Ministry of Health and Social breast cancer, for example.22generic or plan-preferred medicine Development introduced newwhen using an e-prescribing system. Patients will become even more prescribing rules, including computer-Analysis of some 3.3m e-prescriptions influential, as access to reliable readable prescription forms for thebore out their claims; 39% of those healthcare information increases, the beneficiaries of federal and regionalthat failed to comply with the formulary use of co-payments proliferates and insurance schemes, in 2007.requirements were changed when the the trend towards self-medicationPharma 2020: Marketing the future 5
Table of contentsgrows (see sidebar, Health 2.0 hits Health 2.0 hits the headlinesthe headlines).23 Public expenditurestill accounts for the bulk of healthcare The number of people using the Internet to find healthcare information hasspending in every G7 country except increased dramatically over the last decade. Some 66% of US adults go online tothe US, but patients in the E7 countries research their conditions, as do more than half of all Europeans. Numerous blogstypically foot more than half the bill and online forums have also sprung up to cater for increasingly information-hungrythemselves (see Figure 1). patients. They include sites such as patientslikeme.com, which enables patients to compare symptoms and side effects; medhelp.org, where doctors and patientsThe split between public and private work together to create “wikis”; and various disease-specific forums for patientshealthcare spending is also changing with conditions like cancer and epilepsy.in some G7 countries, as they tryto reduce the burden on the public The next stage in the so-called Health 2.0 revolution is the proliferation ofexchequer. In Britain, for example, the electronic personal health records. Microsoft and Google have both launchedgovernment recently gave permission services to help people create and store their own personal health records on thefor cancer patients to buy “top-up” World Wide Web. But there are many other, smaller companies offering similardrugs privately, without losing their right services, including myPHR.com, medicalrecords247.org and ihealthrecord.org.to free care under the NHS.24Conversely, in the US, President BarackObama plans to put a bigger shareof healthcare costs on the public tab,by expanding coverage to uninsuredAmericans. He has also promised tolower the cost of medicines by allowing Figure 1: Private expenditure on health as a percentage of total healthcarethe importation of safe products spending in the G7 and E7 countriesfrom other developed countries,increasing the use of generics in public 90% G7 Countries E7 Countriesprogrammes, taking on pharmaceuticalcompanies that block cheaper generics 80%from the market and eliminating the ban 70%on the federal government negotiating 60%drug prices.25 But, whether it is patients,governments or health insurers who 50%are picking up the costs, one thing is 40%clear: the days when pharmaceuticalcompanies could dictate how much 30%their medicines should fetch, without 20%regard for the other stakeholders in thehealthcare arena, are over. 10%The opportunities for generating value 0%from pure product offerings are also da ce ly n k S il na In ndia M ia o ia ey y az U pa ic U Ita s ss an rk an hi a nerapidly diminishing. In the past 15 ex Br an Ja Ru m C Tu I Fr do er Cmonths, at least three companies Ghave started offering personal genome Source: World Health Organisation, “World Health Statistics 2008”6 PricewaterhouseCoopers
services for the masses. 23andMe which medicines are particularly safe, On the right track(which is backed by Google) charges efficacious and cost-effective in differentjust US$399 to analyse people’s DNA patient populations, and include such Numerous new sources of clinical dataand tell them how likely they are to suffer information in their treatment protocols are emerging. The US Nationalfrom more than 90 health conditions and (see sidebar, On the right track).27 They Comprehensive Cancer Network has,inherited traits. deCodEme (a branch will also be able to revise the prices they for example, established an oncologyof the Icelandic genetics company pay upwards or downwards, depending database to collect socio-deCODE Genetics) and Navigenics on how specific medicines perform over demographic, clinical and non-clinicaloffer more comprehensive versions of time (see Figure 2). information on patients suffering fromthis service for US$985 and US$2,500, various forms of cancer. The American The industry has already been forcedrespectively.26 Cheap gene sequencing Medical Group Association has set up to take the first steps down the path a system to let doctors shareand disease disposition analysis will fuel to pay-for-performance. In the UK, for comparative outcomes data, so thatpopular demand for targeted medicines example, reimbursement of Velcade, they can treat their patients moreand personalised healthcare. Johnson & Johnson’s new cancer effectively. And the InternationalBy 2020, electronic medical records, treatment, is contingent on proof of a Serious Adverse Events Consortiume-prescribing and remote monitoring measurable reduction in the size of a aims to develop genetic markers forwill also give healthcare payers and patient’s tumour.28 Similarly, payment for identifying which individuals are at riskproviders in many countries access Lucentis, Novartis’s therapy for age- of experiencing serious drug-relatedto extensive outcomes data, as we related macular degeneration, is subject adverse events.indicated in “Pharma 2020: The vision”. to a dose-capping scheme under whichThey will then be able to determine the company bears the costs of treatingFigure 2: By 2020, pay-for-performance will be the norm in many countries Today Patient Prescription Payment 2020 Patient Prescription Outcome Medicine works/does not work Medicine is safe/unsafe Specified populations in which medicine works and is safe Payment based on performanceSource: PricewaterhouseCoopersPharma 2020: Marketing the future 7
Table of contentsany patient who requires more than 14 definition of what constitutes a “good” Recognising theinjections.29 The British government now medicine will expand. In additionplans to extend this approach, with a to clinical considerations like safety interdependence of theflexible pricing system under which the and efficacy, it will include qualitative pharmaceutical andprices of new medicines can be raised, criteria – such as the extent to whichif they prove more effective than initially a treatment makes patients feel better, healthcare value chainsexpected.30 enables them to keep working or The relationship between pharmaceuticalUS health insurer UnitedHealthcare reduces the cost of caring for them. companies, healthcare payers andis also piloting a performance-based providers is at best wary – and By 2020, we believe thatpricing experiment with Genomic sometimes downright antagonistic. Yet pharmaceutical companies will thereforeHealth, which makes a genetic test analysis of their value chains suggests have to collaborate much more closelyto identify which women with early- that they have far more in common thanstage breast cancer would benefit from with everyone in the healthcare arena to provide a range of products and might first seem the case.chemotherapy.31 And, by 2020, we thinkthat all new medicines will be paid for on services from which patients can pick In its simplest form, a value chain isthe basis of the outcomes they deliver. and choose all but the core prescription, the series of activities an entity (either both to differentiate their offerings more singular or collective) performs to createHowever, most treatments perform value for its customers and thus for the effectively and to preserve the valuemuch better in clinical trials than they entity itself. The pharmaceutical value of the medicines they make. Moredo in everyday life, partly because the chain starts with the raising of capital specifically, they will have to:level of compliance is much higher. to fund R&D and concludes with theNumerous clinical studies show, for • Recognise the interdependence of marketing and sale of the resultinginstance, that most patients who the pharmaceutical and healthcare products. In essence, it is about makingare taking statins can reduce their value chains innovative medicines that can commandcholesterol to normal levels. But in one • Ensure that they invest in developing a premium price (see Figure 3).study of long-term compliance patterns,only 33% of patients were still using medicines the market really wants The payer value chain starts with thea statin at the end of 12 months, and raising of revenues through premiums, • Form a web of alliances to offeronly 13% were still doing so at the taxes or out-of-pocket payments. supporting servicesend of five years.32 Thus, if Pharma is The payer then creates value for itsto command premium prices for its • Develop comprehensive plans for customers (patients, policyholders andproducts in future, it will need to help marketing and selling specialist payers) by managing the administrativepatients manage their health. Otherwise, therapies process and giving them access toit risks having to reduce its charges or medical care. The payer’s goal is thus • Create organisational cultures that to make a financial or political profit byeven incurring financial penalties forfailing to deliver all that it has promised. are suitable for marketing specialist maximising its revenues or reputation healthcare packages (with its customers or voters, dependingTo put it another way, good medicines • Manage multi-country launches and on whether it is a commercial enterprisewill still be the cornerstone of any live licensing or government) and the quality of thepharmaceutical company’s marketing service it secures, while minimising itsand sales strategy, but they will not • Adopt a more flexible approach to costs (see Figure 4).be sufficient in isolation. By, 2020, pricing; andprescription therapies will be only one The provider’s goal is to deliver a highof the components in a collection of • Build marketing and sales functions quality of care efficiently. This usuallyproducts and services from which that are fit for the future. means treating patients as economicallypatients can select. Furthermore, as the as possible, for as long as required. Thebalance of power shifts from Pharma provider value chain therefore beginsto healthcare payers and patients, the with an analysis of the factors affecting8 PricewaterhouseCoopers
Figure 3: The pharmaceutical value chain Raising of Finance Research Development Manufacturing Marketing & Sales & Distribution (Via the capital (Target identification, (Clinical trials, (Process development, (Development of markets) synthesis & screening of submission of new scale-up, commercial promotional materials, molecule, in vitro and drug application to production, shipping to detailing, account & in vivo testing, initial regulators) brand management) warehouse) testing in man) PreventionSource: PricewaterhouseCoopersFigure 4: The healthcare payer value chain Raising of Finance Provision of Cover Medical Services Management Bill Payment (Through premiums, taxes or (Analysis of population (Practice guidelines, clinical (Referral management, out-of-pocket payments) at risk, administrative guidance, pharmacoeconomic monitoring & payment of services etc.) evaluations, formularies etc.) healthcare providers’ bills)Source: PricewaterhouseCoopersNote: Our diagram represents the key activities in the payer value chain, not the entity that performs a specific activity, since this clearly varies from onehealthcare system to another.Figure 5: The healthcare provider value chain Analysis of Prevention Primary Care Secondary & Long-Term Care Population at Risk Tertiary Care (Epidemiological (Vaccinations, healthcare (Diagnosis, treatment, (Diagnosis & treatment of (Disease management, studies) advice etc.) minor surgery) serious illnesses, nursing care at home, in major surgery, emergency nursing homes & hospices) services, hospital care)Source: PricewaterhouseCoopersNote: Our diagram represents the key activities in the provider value chain. Again, different entities perform different activities in different healthcare systems.the health of a given population and policies and practices of the providers and, while they continue to clash, theythe preventative measures that can be used. The value providers generate are struggling to attain their respectivetaken to forestall illness. Thereafter, it depends on the revenues payers raise goals. The quality of the care theyprogresses through the various stages and the medicines Pharma makes. And collectively deliver is lower, and theof treatment from primary care to long- the value Pharma generates depends cost higher, than it would otherwiseterm care (see Figure 5). on getting access to the patients whom be – and society can no longer afford providers serve and income from the such inefficiencies. So, if mankind isHowever, although these three value payers who fund those providers. to ensure that it gets the healthcare itchains are different, they are also heavilyinterdependent. The value healthcare In short, none of the three parties can needs, the three parties must be muchpayers generate depends on the do its job properly without the others more closely aligned.Pharma 2020: Marketing the future 9
Table of contentsWe believe that creating feedback loops Investing in the play a key role in deciding whether ato capture outcomes data will help to medicine is innovative, using differentclose the gap. It will enable Pharma development of definitions of innovation at differentboth to establish a more dynamic medicines the market points in the product lifecycle (seerelationship with payers and providers, sidebar, What is innovation?).33and to play a bigger role in giving wants to buy The process starts with the researcher,patients the support they require. This One of the many areas in which Pharma who identifies the scientific potential ofwill ultimately result in the convergence needs to work much more closely with a particular molecule. It continues withof the separate, linear value chains that healthcare payers and providers is in the investor, who backs that belief withexist today into a single, circular value determining the sort of medicines the capital; the regulator, who approves thechain (see Figure 6). market actually wants to buy. We have labelling claim; and the pharmaceutical identified seven stakeholders who each company, which commits resources toFigure 6: By 2020, the pharmaceutical, payer and provider value chains will be much more closely intertwined Changes in epidemiology will Med influence the need for healthcare ica funding & Pharma’s research er lS C ov Primary care er vic priorities. Payers, providers & Se of tio n Te co n e Pharma will collaborate on en rtia da epidemiological studies. on ev s ry r y Pr M i ca vis an Payers will shift to outcomes-based & Pro ag re pricing. Pharma will collaborate with em Lo payers and providers to determine popul is of ng- ent at ris n which of the medicines in its pipeline atio term k s really add value and can thus Analy command the premium prices it care needs to maximise its return on Patient investment. Mark les Payers, in consultation with the ce of f ising & Sa medical profession, will issue clinical inan etin Ra guidelines. They will also give g providers incentives to prevent & manage disease, as distinct from Ra M n treating it. Pharma’s focus will shift to Di ufac a isi & ch t st the development of cures and en rib turin ar ng se ym fF uti g healthcare packages for helping Re a o on inan lP l patients comply with their medical Payer ce Development Bi regimens and manage the diseases Provider Pharma from which they suffer more effectively.Source: PricewaterhouseCoopers10 PricewaterhouseCoopers
the production and promotion of the What is innovation?treatment. Once a medicine has reachedthe market, it is the healthcare payer, Innovative products are typically defined as those which cure a disease orprovider and patient, respectively, who condition; prevent a disease or condition; reduce mortality or morbidity; reduce theadjudicate on its innovativeness: the cost of care; improve the quality of life; are safer or easier to use; or improvehealthcare payer by paying a premium patient compliance and persistence. Most industry experts also distinguishprice for it; the provider by choosing it between “radical” and “incremental” innovation, although the distinction is notover other therapies; and the patient by always very helpful. Pharmaceutical companies often engage in a race to developtaking it as instructed or even pressing new products which all have the same mode of action, and the third or fourthfor a prescription (see Figure 7). market entrant may be superior to the first or second.However, not all of these “referees”are equally important. If thesponsoring company is to recover itsdevelopment costs and earn a return Figure 7: Seven stakeholders are involved in deciding whether a new producton its investment, any new products it is innovativelaunches must command a premiumprice while they are still under patentprotection. The healthcare payer – be it Patienta government, health insurer, employeror patient – is therefore the ultimate Provider Regulatorarbiter of whether or not a product isconsidered innovative, and the shift in Payerthe balance of power from prescribers Researcher Investor Regulator Pharmaceutical companyto payers will only increase that control. $Yet, for many years, mostpharmaceutical firms invested relativelylittle effort in understanding the payer’sperspective during the R&D process,and those that did so generally waited R&D 12 Years Marketing & Sales 8 Yearsuntil the end. This is why many of themedicines they have recently launchedhave failed to qualify as innovative. In Source: PricewaterhouseCoopers2006, only five Big Pharma companiesearned more than 10% of their revenues Table 2: Only eight truly innovative medicines were launched in 2007from major products launched withinthe previous five years.34 Moreover, Country ofthere are no signs of any immediate Company Brand name Primary indication first launchimprovement. In 2007, only eight Novartis Tekturna Hypertension USof the 27 new therapies launched GlaxoSmithKline Tykerb Breast cancer USworldwide were the first of their kind(see Table 2). More than half were PharmaMar Yondelis Soft tissue sarcoma UK, Germany“me-too” treatments with at least three Alexion Soliris Paroxysmal nocturnal USpredecessors.35 haemoglobinuriaA number of companies now look Pfizer Selzentri HIV USat whether the medicines they are GlaxoSmithKline Altabax Bacterial skin infections USdeveloping are as effective as, or more LEO Pharma ATryn Thrombosis UKeffective than, other existing therapies(and certain countries now require Bristol-Myers Squibb Ixempra Breast cancer USthat they do so). Some firms also Sources: IMS Intelligence.360 (2008) and PricewaterhouseCoopers analysisPharma 2020: Marketing the future 11
Table of contentsconduct extensive safety profiling in the commercial sphere. Indeed, they known examples being Genentech’sPhase II to reduce the risk of finding should review every compound in their partnership with DAKO to devise a testsafety problems in Phase III, which pipelines, since no molecule that enters for identifying which patients with breastaccounts for more than 25% of all R&D clinical development today will be cancer can benefit from Herceptin.39costs.36 However, very few focus on launched before 2015, when the market However, Pharma will also have to enterdemonstrating the superior economic for medicines will be even tougher the health management space, withvalue of their candidate molecules – and than it is now. Performing a rigorous compliance programmes, nutritionaleven fewer consider pricing before the assessment of what payers, providers advice, exercise facilities, healthend of Phase III. and patients regard as innovation in screening and other such services. One Phase II will enable the industry toTwo recent exceptions to this pattern firm that has already gone some way terminate any candidates that lookpoint to a more constructive way down this road is Baxter Healthcare, unlikely to generate much demandforward. In late 2007, Novartis struck which offers a range of services for and concentrate its resources on morea groundbreaking deal with the patients suffering from renal failure. commercially promising products (seeEnglish National Institute for Health These services vary from country to Figure 8).and Clinical Excellence (NICE) under country, but they include a globalwhich it agreed to pay the agency a educational website with customisableconsultancy fee for advising it on the tools and information tailored to thedesign of a Phase III trial to measure Forming a web of needs of paediatric patients; a networkthe efficacy and cost-effectiveness of alliances to offer of nurses who provide dialysis trainingan experimental new drug.37 And, in at home or in hospital; a home deliveryJune 2008, GlaxoSmithKline took the supporting services service; and a travel service to supportequally unprecedented step of giving peritoneal dialysis patients travelling The development of medicines the locally or globally.40government healthcare officials in the market actually wants to buy willUK, France, Italy and Spain a say in Novo Nordisk has gone even further in not be enough, though. By 2020,deciding which compounds to progress its quest to “defeat diabetes”.41 In 2001, pharmaceutical companies will needthrough its pipeline.38 the company launched a global initiative to offer a suite of supporting servicesWe believe that all pharmaceutical for the treatments they launch. A few called DAWN, in conjunction with thecompanies should adopt a similar companies have already paired up International Diabetes Federation, toapproach and extend the concept to develop complementary therapies provide “psychosocial support” forof “de-risking” from the clinical to and diagnostics, one of the best patients with diabetes.42 It also operates a “National Changing Diabetes” programme in 66 countries, via which itFigure 8: Pharma needs to adopt a price de-risking strategy in early development provides training for medical staff, free blood sugar screening services, support Percentage of spending in each phase of R&D. 11.3% of spending uncategorized for diabetes patient organisations and equipment for diabetes clinics, as Preclinical Phase I Phase II Phase III Regulatory Phase IV well as working with governments to 25.7 5.8 11.7 25.5 6.9 13.3 improve the diagnosis and treatment of the disease.43 Point at which Point at which pharmaceutical pharmaceutical Meanwhile, Medtronic recently launched companies companies a wireless monitoring service for should be typically start thinking about thinking about patients with cardiac disease, which pricing to de-risk pricing enables them to send data from their their portfolios implanted devices directly to theirSource: PricewaterhouseCoopers12 PricewaterhouseCoopers
doctors. The latest devices can even Developing a plan for Generics for freebe programmed to update and sendpatient data automatically.44 And other marketing and selling San Diego based MedVantx hasprecedents for moving into health specialist therapies developed an automated system formanagement exist outside Pharma dispensing generics free at the pointitself. In the UK, for example, insurance The industry’s changing product mix of care. When a doctor wants togiant Prudential has joined forces will act as yet another incentive to move give a patient a sample, the machinewith Virgin Active Health Club to offer into health management. In the 1990s, dispenses a 30-day supply and logs thea critical illness policy that provides most of the medicines Pharma made transaction. The health insurer then payssubsidised gym membership and were primary-care therapies for diseases for the product.rewards people who exercise regularly afflicting large patient populations, The idea is to give doctors anby reducing their premiums.45 such as hypertension, diabetes, alternative to the free samples issuedBy 2020, this model will apply to the high cholesterol and depression. by pharmaceutical companies. Suchindustry as a whole. Some companies But genomics, proteomics and samples are popular with patientsmay choose to provide such services metabolomics are providing new tools because they provide an opportunitythemselves, but most will function with which to develop larger molecules to try a medication before paying for it.as nodes for a network of providers, that more closely mimic naturally One pilot programme conducted by Blueincluding device manufacturers, occurring molecules in the human body. Cross & Blue Shield of Rhode Island isdieticians, health and fitness clubs, estimated to have reduced the insurer’s Biotech companies like Amgen,mobile telecoms operators and expenditure on medicines by nearly $2m. Biogen and Genentech were amongcompliance call centres. They will the first firms to capitalise on thesebe responsible for managing the scientific advances. However, many Generics for free).48 The opportunitiesmechanics of contracting and delivering pharmaceutical companies have now for developing primary-care treatmentsthese services, and thus collectively redirected much of their investmentproviding healthcare packages that with the potential to command premium from chemical entities to proteins prices are thus shrinking rapidly.individual patients can tailor to their for specific cancers, immunologicalown needs. conditions and blood factor deficiencies Conversely, demand for specialistMoving into health management will not too. At least 400 of the 2,000-odd medicines is soaring. In 2007, 55 of thebe easy, not least because the provision treatments currently in development 106 blockbusters on the market were are biologicals or protein-based specialist treatments, up from just 12of services is very different from the compounds.46 in 2001.49 And IMS Health predictedprovision of products. Nevertheless, this that sales of all specialist therapiesroute has several significant advantages. Increasing generic competition has could reach US$295-300 billion by theIt will enable pharmaceutical companies reinforced this shift in the industry’s end of 2008, accounting for 44% ofto generate new sources of revenue, research focus; as many of the products worldwide spending on prescriptionbuild stronger brands and forge closer developed in the 1990s come off patent, pharmaceuticals.50relationships with the patients who generics manufacturers are filling anuse their products and services. It will ever larger part of the primary-care Yet, although specialist medicines holdalso help them to protect the value of space. Generics already account for huge clinical and commercial promise,the medicines they launch, both by 65% of all prescriptions dispensed they come with one major drawback:increasing compliance and by reducing in the US and for as many as 70% of their charging profile. Tufts Centerthe threat of getting locked out through all prescriptions dispensed in Central for the Study of Drug Developmente-prescribing, since it is very much and Eastern Europe,47 a trend that will estimates that the cost of developing aeasier to substitute a standalone product accelerate, as automated dispensing new biological is about US$1.2 billion,than it is a product which comes with systems neutralise the effect of nearly US$400m more than the averagepersonalised satellite services. distributing free samples (see sidebar, for a small molecule.51 But specialistPharma 2020: Marketing the future 13
Table of contentsFigure 9: Many specialist therapies cost thousands, or even hundreds of thousands, benefits and risks associated with usingof dollars a year them and to communicate with an audience that is very well informed. Cancer Second, since specialist therapies cost such a lot, they attract far moreAlpha-1 Proteinase Inhibitor Deficiency scrutiny before being approved for reimbursement – and reimbursement Pulmonary Arterial Hypertension is crucial, because few patients can afford to pay for them out of their own Haemophilia pockets. This trend will increase with the proliferation of more sophisticated Fabry’s Disease pharmacoeconomic models, reducing the opportunities for “hype”. It also Gaucher’s Disease means that anyone who promotes such medicines will need to have a “Bubble Boy” Syndrome clear grasp of the health economics underlying them. 0 100,000 200,000 300,000 400,000 Third, many specialist therapies are Average Price in US dollars used to treat patients with specific disease subtypes, so they must beSource: D. Stevens, “Specialty Pharmacy to Therapy Management: The Next Generation”, accompanied by a diagnostic. Andpresented at PCMA Specialty Pharmacy Annual Meeting, October 2005 since they are more difficult to get to the target site, they must generallytherapies are currently used to treat value in the eyes of payers, providers be delivered by injection or infusion.conditions that affect only 3% of the and patients, not just those of the Many such therapies must thus begeneral population.52 A company that executives that have backed them. It administered by a doctor or nurse but,develops a specialist medicine must is also increasing the importance of even when patients can administertherefore amortise its investment the marketing and selling process. But their own medicines, they usually(including the money it spends on though most pharmaceutical firms have require intensive patient educationmarketing and sales) over a much recognised the potential of specialist and monitoring, especially in the earlysmaller number of patients. medicines, they continue to use a stages of treatment. marketing and sales model that wasSo it is not surprising that specialist This not only adds to the overall cost designed to promote primary-caretherapies often sell for many thousands of using specialist therapies, it also products for mass-market consumption.of dollars (see Figure 9). Nor is it means that different payment centressurprising that healthcare payers In fact, specialist therapies have (and reimbursement procedures)everywhere are taking steps to slow a number of unique features that may be involved. In the US, fordown their utilisation. If demand for differentiate them from conventional example, specialist treatments aresuch products were to grow at current medicines and mean that they must often reimbursed under a healthcarerates, the global market for specialist be marketed quite differently. First, payer’s medical benefit rather than they typically have a broader range its pharmaceutical budget. Similarly,therapies alone would be worth about of activity and greater potential to in the UK, the cost of monitoring andUS$1.4 trillion by 2020, double the 1 generate an immune response. They maintaining patients on specialistUS$712 billion the entire prescription are also prescribed by specialists rather medicines frequently falls on the primaryproducts market was worth in 2007.53 than general practitioners. So anyone care trusts covering the areas in whichThe shift towards specialist therapies who is marketing such medicines those patients live, rather than theis thus accentuating the need to must possess considerable scientific hospitals that treated them in thedevelop healthcare packages that have knowledge – both to understand the first place.14 PricewaterhouseCoopers
Lastly, many specialist treatments must will therefore have to develop a at risk of experiencing health problems.be ordered as necessary, rather than comprehensive marketing and sales It can also, as we have already noted,kept in stock – partly because they strategy that is tailored to the distinctive generate additional revenues from theare so expensive and partly because characteristics of such products support services it provides.they have relatively short shelf lives. (see Table 3). It will have, amongThey must also be transported and other things, to offer complementarystored with much greater care than diagnostics and support services; to Creating a culture thatsmall molecules, because they are appoint a smaller, smarter sales forcemuch more fragile. Both these factors capable of engaging with powerful is suitable for marketinghave considerable implications for healthcare payers and medical specialist healthcarethe supply chain. The ability to “make specialists; to build a responsive directto order” requires the integration of distribution network; and to invest much packagesa company’s demand management more effort in educating patients.with its manufacturing, packaging and Selling specialist therapies and support But if it succeeds in doing these things, services as distinct from standalonedistribution processes – changes that it can expect to enjoy a longer period small molecules has numerous otherwill necessitate a substantial capital of exclusivity and greater customer implications, and any pharmaceuticalinvestment in new skills and supply loyalty, since biologicals are very company that wants to make thechain systems. difficult to manufacture and most transition will need to undergo evenAny pharmaceutical company that patients are reluctant to switch from more sweeping changes. It will, forwants to sell specialist therapies one to another because they are moreTable 3: Specialist therapies require different marketing and sales models from those used for mass-market medicines Mass-market medicines Specialist therapies Marketing implications Treat common illnesses Treat rare diseases and specific disease A much smaller target market subtypes Must generally be used with a diagnostic, which adds to the overall cost but improves compliance Relatively simple products Very complex products Require more scientifically educated sales representatives Typically prescribed by general Prescribed by specialists Require a much smaller sales force practitioners Low price per dose Very high price per treatment Require much more extensive proof of clinical efficacy Outcomes-based pricing Usually oral formulations Usually delivered by infusion or injection Require intensive patient education & monitoring Costs may be spread across different payment centres & budgets with different reimbursement procedures Relatively easy to manufacture Difficult to manufacture Less vulnerable to generic competition Easy to transport Require special distribution & storage facilities More expensive to ship & store Generally kept in stock Often delivered to order Must be supported by a much more flexible supply chainSource: PricewaterhouseCoopersPharma 2020: Marketing the future 15
Table of contents Many companies will likewise have to a more integrated environment. VariousPlaying by the rules recruit and train people with new skills, elements may have to be altered,The majority of pharmaceutical including: ranging from new cycle time targetscompanies have established for different steps in the R&D process • Researchers who are as capable ofcompliance programmes that are to new measures of effectiveness in considering commercial imperativesbased on the guidelines the Office marketing and sales. like pricing and sales as they areof Inspector General of the US of considering scientific issues likeDepartment of Health and Human Most companies will also have to safety and efficacyServices issued in April 2003. But they alter their corporate compliancehave typically taken quite a reactive • Manufacturing experts who can programmes. At present,approach. They have concentrated manage the complex processes pharmaceutical compliance functionson mitigating legal risks, such as required to produce large molecules typically spend the bulk of their timeviolations of the US Anti-Kickback and drug-device combinations and resources monitoring the way inStatute, US False Claims Act, US that amalgamate different scientific which marketing and sales staff interactForeign Corrupt Practices Act and disciplines with healthcare professionals, andvarious US state-level marketing • Supply chain managers who can ensuring that everyone complies withdisclosure reporting laws. Theyhave also added yet another layer handle chilled-chain distribution the existing legislation (see sidebar,of controls to those they use in their through multiple channels and Playing by the rules).54 But, as theexisting business operations, rather supervise a large network of service industry shifts to specialist medicines,than creating integrated, value-adding providers payers and patients play a bigger part incompliance functions. • Health economists who can advise the purchasing process and a growing on the pricing and reimbursement number of companies offer healthcareexample, have to decide whether to of new medicines, and provide input packages that include products andcontinue developing primary-care into the design of clinical trials for services supplied by other firms, so themedications or focus exclusively on candidate molecules compliance function’s responsibilitiesspecialist therapies (as Genentech • Key account managers who will increase. It will have to monitordoes). Similarly, it will have to decide can negotiate with increasingly communications with payers andwhat sort of business model it should powerful healthcare payers and patients; collect, analyse and reportuse – be it diversified, federated or one pharmacoeconomic assessment on information from third parties; andof various other permutations. agencies; and assume responsibility for managingClearly, “hard” financial, operational • Disease management specialists a broader range of risks across theand legal criteria will play a big role in with a profound understanding of extended enterprise – all activities thatshaping these choices but, whatever how to help patients through the will necessitate the acquisition of muchpath they take, most companies will disease lifecycle. better operational and informationalso have to make major cultural management skills.adaptations. They will have to build Finding people with the requisite skillsmuch closer links between their R&D will not be easy, given the breadth of In short, focusing on the development ofand marketing and sales functions to knowledge the industry requires and specialist medicines and services ratherfoster cross-disciplinary collaboration the battle for brains now being waged than primary-care blockbusters entailsand ensure that the views of healthcare in almost every part of the world. Many making significant organisational andpayers are fed into the development companies will therefore have to adopt cultural changes – some of which mayprocess. One way of doing this is to new talent management strategies, as not be immediately obvious (see Table 4).create dual reporting relationships, well as ensuring that the performance And implementing these changes willwith employees in R&D reporting to measures and incentive systems they take enormous effort.management in marketing and sales, use are aligned with the behaviour thatand vice versa. will be needed to operate effectively in16 PricewaterhouseCoopers