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Sales Model Paradigm Shift

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A whitepaper talking to the coming shift from physician aligned territories to an account based model.

A whitepaper talking to the coming shift from physician aligned territories to an account based model.

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  • 1. A Paradigm Shift in the Pharmaceutical Sales Model By: Richard W. Johnston Vice President and Founder, AdvantageMS Property of Advantage Management Solutions, Inc Confidential Page 1 of 10
  • 2. A Paradigm Shift in the Pharmaceutical Sales Model Over the last twenty years the pharmaceutical industry has experienced extraordinary sales growth as a result of new product introductions, market expansions and the increase of aggressive sales strategies and tactics. During this same time, the ratio of physicians to sales representatives declined steadily and until recently, sales forces were at unprecedented and unsustainable levels. This accelerated growth started in the late 1980’s. Perhaps the single leading contributing factor was advances in technology: computer hardware and software, and mathematical modeling. As more powerful computers and models were deployed, pharmaceutical companies were able to evaluate chemical compounds and molecular structures at a faster pace and as a result, more drugs were brought to market. Advances in technology also played a key role in enhancing data collection and physician profiling. This enabled pharmaceutical sales and marketing departments to make better investments. Clearly more complex factors were also at play, however, the focus of this discussion is to obtain perspective on the sales force expansion, the industry experience and propose a paradigm shift going forward. Undoubtedly, advances in technology played a large role in the growth of the pharmaceutical industry. One major benefactor of technological advances was the introduction of projected prescription data at the physician level. This, for some companies, was available in the mid 1980’s 1 . Prescriber level data, coupled with high powered desktop computers allowed market researchers to develop behavior models that explicitly demonstrated that increased product detailing and sampling had a significant impact on product growth, particularly during a new product launch. 1 As part of a strategic partnership established in 1984 with PDS (Prescription Data Services), Pfizer, Merck and Key (later Key-Schering) had access to prescription data at the doctor-level. As early as 1984 prescription data were available to Pfizer representatives for profiling and targeting and by 1987, these data were being projected by Pfizer. PDS was a subsidiary of PCS, which at the time, was a subsidiary of McKesson. Through many acquisitions and mergers PDS is now part of WK Health. Property of Advantage Management Solutions, Inc Confidential Page 2 of 10
  • 3. A Paradigm Shift in the Pharmaceutical Sales Model Resource allocation and sales forecasting models suggested that substantial increases in field force sizes were warranted. Moreover, these models, utilizing physician- level data, were substantially more accurate than previous models. They could simulate and measure the ROI for various product portfolios, sales force structures, including field force specialization, synergistic and/or mirrored structures, co-promotion, and the infamous double and triple coverage. These models paved the way for continued growth in field force sizes in the 1990’s even though these same models later suggested that the impact of sales effort was eroding. Again, the dynamics are far more complicated and considerably more factors were at play. There were factors that put increased pressure on sales force expansion, while other factors significantly increased the cost to bring a product to market. As stated earlier, far more drugs were brought to market during this period than any other. Since companies were reluctant to reduce it s selling effort on their in- line drugs, there were many cases where launching a new product meant adding another field force. With increased FDA oversight and regulation as well as other regulations, product costs, both discovery and marketing, were skyrocketing. In turn, this meant that big Pharma required billion dollar drugs to fuel its growth. To optimally accelerate growth, especially during launch, the strategy was to deploy as many sales representatives as possible. This was accomplished through field size increases, co-promotion, co- licensing, and more. As a result, sales and marketing budgets were increased, putting more urgency on successful launches. Generally the motto was “during launch, one can never have too many reps”. The availability of physician-level prescription data and refurbished targeting models enabled pharmaceutical companies to identify physicians who were high writers for their specific markets as well as the early adopters and influencers. These models suggested that high f equency to the high valued targets provided the greatest return. Call plans r Property of Advantage Management Solutions, Inc Confidential Page 3 of 10
  • 4. A Paradigm Shift in the Pharmaceutical Sales Model with 24 and 48+ calls on an individual prescriber were common and when the recommended call level reached a “maximum level”, pharmaceutical companies implemented multiple sales forces. High prescribers and early adopters were the “beneficiaries” of double and triple coverage. Prescriber level data allowed for more precise measurement that led to improved targeting and paved the way for better compensation models and thus, higher compensation to the representatives. We were indeed in the era of “micro marketing”. We could see what worked and as a result, we did more of it. What didn’t work, we still did, because many of the companies could afford it. This was true of many promotion vehicles, such as direct mail and other programs that showed little return. The overwhelming result was bigger budgets and bigger sales forces. We also witnessed the emergence of biotechnology, another beneficiary of advances in technology. Biotechnology added to the plethora of drugs marketed and biotechnology added still more representatives. Marketing expanded its programs and budgets to increase awareness among physicians and consumers. Through these awareness campaigns 2 , DTC 3 , and a litany of other marketing programs (leave behinds, conventions, peer selling), many of these investments showed a good return. One may conclude that a flood of new drugs and advances in technology, quickly embraced by sales and marketing departments, all contributed to the explosive expansion in sales representatives. At the same time, other factors were at play which increased the industry’s cost to market. There was an added sense of urgency in bringing drugs to market quickly, 2 A good example was the awareness campaign for the introduction of Prozac by Eli Lilly. During the 80’s, prior to the launch of Prozac, the depression market was estimated in the $100 millions, filled with low cost generics. Lilly and companies that followed recognized that, through both physician and consumer education programs geared toward recognizing the symptoms of depression and by converting what was basically a generic market to branded products, in reality, this was a multi-billion dollar market. Launched in 1988, it only took two years for Prozac to attain its “most prescribed” status. 3 DTC – Direct to Consumer. Property of Advantage Management Solutions, Inc Confidential Page 4 of 10
  • 5. A Paradigm Shift in the Pharmaceutical Sales Model expanding the markets, gaining additional indications and generally garnering the greatest market share in the least amount of time possible. More product introductions meant more competition and lower share of voice. As pharmaceutical companies grew, they needed to replace drugs whose patents were expiring and billion dollar drugs were required to continue their growth. This meant increased investment in discovery. During this time, more government regulations were introduced that impacted the industry and ultimately increased costs. As an example, the Drug Price Competition and Patent Term Restoration Act, informally known as the Waxman Hatch4 legislation, introduced in 1984, paved the way for the growth of the generic industry by allowing generic drug manufactures to file an ANDA(Accelerated New Drug Application) )verses an NDA (New Drug Application) to seek FDA approval of the generic product. This act also limited the infringement liability of the generic manufacturer. Prior to this legislation, a pharmaceutical company could preserve, to some degree, the brand’s market share for several years, even though the product’s patent expired. Although this legislation guaranteed at least five years patent protection, once a branded product came off patent, the pharmacy shelves were stocked with generics, especially for the big revenue drugs 5 . This put additional pressure on pharmaceutical companies to generate maximum revenue within the 5-year window, for surely half the brand’s share would evaporate within six months. Again, even this is not so simple. Pharmaceutical 4 See http://www.fdli.org/pubs/Journal%20Online/54_2/art2.pdf 5 From 2004 through 2008, generic prescriptions grew 12 percent a year whereas brand drugs declined 6 percent a year and in 2008, generics prescriptions numbered 2.4 billion compared to 1.4 billion branded prescriptions. Ref: http://www.fiercepharma.com/story/branded-meds-suffer-two-times-over/2009-04-08 Property of Advantage Management Solutions, Inc Confidential Page 5 of 10
  • 6. A Paradigm Shift in the Pharmaceutical Sales Model companies protected its market share utilizing many techniques; DAW 6 programs, repackaging, reformulations, etc. However, the advent of managed care changed all that. Increased government regulations imposed on sales and marketing, tougher FDA product discovery requirements, increased sampling oversight (Dingle Bill 7 ) and other changes imposed directly or indirectly by the government, substantially increased the costs to develop and market new drugs. Technology employed in the managed care arena has also made its impact, significantly eroding the potential for branded drugs and new novel drugs. At its infancy, managed care plans, introduced primarily for cost-containment, found it difficult to enforce its formularies. Companies typically paid one hundred percent of the healthcare costs and as a result, there was no incentive for the consumer to use generics. There was also an astounding level of ignorance within the physician community as to the true cost of the drugs prescribed. Even when the physicians were aware of the costs, many preferred the new branded drugs over older generics. Today, computer technology has provided the platform for increased enforcement. With consumers responsible for more of their healthcare costs, consumers are more willing to use generics. In the early 2000’s, the pharmaceutical industry was at its peak in field force saturation. Fully loaded sales representatives cost, anywhere between $150,000 to $250,000 per year and the drug discovery and marketing costs had spiraled to unprecedented levels. At that time, many of the prescriber-based behavior models suggested that sales representatives were indeed less effective than in the past and in some cases, not effective at all. But to 6 DAW or “Dispensed as Written” programs became very popular after the passage of the Waxman hatch legislation. Manufacturers were providing prescription pads to physicians with DAW preprinted, thereby ensuring that their branded drug was not substituted. 7 The Prescription Drug Marketing Act of 1987, informally known as the Dingle Bill, was enacted primarily to address problems in drug diversion. This act required physician signatures when dropping samples and required that the manufactures put in place an audit system to detect and correct sample diversion. Property of Advantage Management Solutions, Inc Confidential Page 6 of 10
  • 7. A Paradigm Shift in the Pharmaceutical Sales Model make the decision to cut sales effort and sacrifice “share of voice” clearly was difficult and companies often erred on the side of sales increases. Moreover, many physicians and their practices were under financial pressure, with the regulations imposed on them, reimbursement schedules, and paperwork required by the litany of plans. Many joined group practices in an effort to “share the burden” and ultimately provide superior service to their patients. New physicians could no longer afford the cost associated with establishing a single practice. They had neither the time nor the inclination to listen to the same product presentation from several representatives within the same week. In some cases the sales representatives’ basic job became delivery man (samples) and catering service (lunches). Although there were changes in the market, increases in sales costs, and a decline of sales force effectiveness, the basic physician-based sales model remained the same. Sizing models, targeting plans and routing models continue to be based on the single physician. Many pharmaceutical companies are now looking for alternative models. They want to basically “do more with less”. This author proposes a paradigm shift from a physician-based sales model to an account-based sales model, where the latter model will focus heavily on the account (group practices, clinics, surgical centers, etc.) dynamic. Certainly this is not a new revelation. Account-based models have been discussed by many for years. However, there has been resistance for a number of valid reasons. Among those reasons are the lack of adequate measurement, the higher complexity of implementation, the lack of good group practice affiliation data, and in general a large departure from what has been done in the past and historically has worked. However, many of these obstacles have now been overcome, allowing companies to take advantage of the clear benefits to account-based models. First, although research is still at its infancy, it is clear that a sales representative can more effectively target group practices with a greater ROI. By targeting the larger Property of Advantage Management Solutions, Inc Confidential Page 7 of 10
  • 8. A Paradigm Shift in the Pharmaceutical Sales Model groups, a sales representative can achieve greater reach and cover a larger percentage of the market potential in less time. As an example, a typical call plan may allocate (annually) 24 calls to decile 10 & 9 physicians. Targeting 10 of these physicians requires 240 calls or almost 20% of the total sales effort a representative can make in a year. But a group practice with 10 decile 9 & 10 physicians may require far less calls. Existing resource allocation, behavioral and targeting models need to be adjusted to account for the group dynamic and take into account the size of the group. Take for example, two groups worth $20 million dollars, one group with 100 (valued) physicians and the other group with 20 physicians; the group with 100 physicians may not require more calls, but rather more time inside the building. The bottom line is that an account-based approach allows one to do more with less. Second, the targeting and sizing models typically allocate more effort to the higher valued physicians (assuming that the response curve is the same for both for a given product). In fact the model may suggest that physicians with a lower decile may not provide an adequate ROI to allocate effort. But when these lower physicians are grouped in with other physicians, perhaps even with the same decile, the group value may be more than sufficient to warrant sales effort. The group dynamic affords the pharmaceutical company to extend its reach into lower decile physicians that previously were not considered viable. Third, the typical business rule of targeting six to eight calls per day does not fit well within the account-based model. A sales representative visiting a large group could see six to eight physicians in an hour. Therefore, by targeting and routing around groups as opposed to individual physicians, sales representatives can make more calls with less travel. Additionally, we will need to address the issue of sales force structure. In an account- based model, a pharmaceutical company has more options to mix its resources. For Property of Advantage Management Solutions, Inc Confidential Page 8 of 10
  • 9. A Paradigm Shift in the Pharmaceutical Sales Model example the pharmaceutical company may be able to provide a lower cost representative to deliver samples whereas with the larger groups, making available more seasoned representatives such as very experienced representatives with account based training as well as Medical Sales Liaisons (MSL’s). One of the more ominous events over the last few years has been the recent legislation which prevents pharmaceutical companies from acquiring prescription data at the physician level. Currently there are three states restrict access to prescriber data at some level and there are 17 states in which similar legislation has been introduced in 2009. Additionally, there are over 20,000 8 physicians who have opted out through the AMA’s PDR program. The pharmaceutical industry has a problem. One of the basic tenants of many of the physician-based sizing, alignment and targeting models is the presumption that one can adequately measure a physician’s market potential. Although a review of the current and pending legislation is prudent, one solution that an account-based model offers, in particular for groups of two or more physicians, is the ability to roll- up the prescription data at the group level9 . Clearly the privacy issue so embraced by these states is not an issue at the group level. Sales representatives will have to be more engaged with the physicians and other physicians within the group to ascertain the users and the influencers (of course market research can help in this area). However, it is clear that, in general, the best selling strategy will be to allocate sales effort to most viable or highest “potential” accounts and that this is only possible with an account-based model. One last issue that needs to be addressed: the industry is still guarded when dealing with the accuracy of the group affiliation data. We do know that there is a great deal of movement among physicians. We also know that there is not a data source that is 100% accurate. However, organizations such as the AMA have made significant inroads in this 8 Source: AdvantageMS February 2009 PDRP Summary Report. 9 Rolling up the prescription data would need to be performed by the data providers in some states. Property of Advantage Management Solutions, Inc Confidential Page 9 of 10
  • 10. A Paradigm Shift in the Pharmaceutical Sales Model area. Currently the AMA Group Practice10 product tracks 100,000+ groups and 500,000+ affiliations. Furthermore, the AMA manually verifies all groups once a year. Clearly, the AMA Group Practice represents a good starting point. Moreover, there are tools available (including AdvantageMS’ own M3 – Map My Market) that provide the sales representative the ability to visually see the group practice on the map (with the network of physicians) and easily manage group practice affiliations, making or breaking affiliations, and identifying the primary group practice (whe n appropriate). The paradigm shift from a physician-based sales model to an account-based sales model will require a rethinking of the role of the field force, but in this authors view, the benefits outweigh the risk. For additional information or copies contact our home office. Advantage Management Solutions, Inc. 580 Middletown Blvd, Suite D211 Langhorne, PA 19047 Website: www.advantagems.com Phone: 215-750-5503 Email: sales @advantagems.com 10 AdvantageMS is a strategic partner with the AMA in providing this Group Practice offering to the industry. Property of Advantage Management Solutions, Inc Confidential Page 10 of 10

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