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Less detail more retail


A commercial trade channel strategy that effectively engages pharmacies, wholesalers, and patients—not just physicians—can increase mature drug sales by between 5 and 25 percent. - See more at: …

A commercial trade channel strategy that effectively engages pharmacies, wholesalers, and patients—not just physicians—can increase mature drug sales by between 5 and 25 percent. - See more at: http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/less-detail-more-retail/10192#sthash.xl6LHStA.dpuf

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  • 1. Pharma in Europe: New Medicine for a New World Less Detail, More Retail A commercial trade channel strategy that effectively engages pharmacies, wholesalers, and patients—not just physicians—can increase mature drug sales by between 5 and 25 percent. Less Detail, More Retail 1
  • 2. Ever since the advent of mass-produced medicines in the mid-20th century, pharmaceutical companies have focused their sales efforts on the physician. Promotional spend in 34 of the world’s largest markets totaled $90 billion in the 12-month period ending in June 2012, with well over half that amount devoted to sales calls to doctors, or “detailing.”1 And why not? With the United States being the only major market to permit direct-to-consumer advertising of prescription drugs, physicians are a natural target for the brunt of laboratories’ global marketing and sales efforts. Doctors know their patients and their medical history, and patients trust them. As a result, physicians have traditionally been free to choose among available treatments based solely on their clinical judgment. Or so it was until just a few years ago. Today, the explosion in healthcare costs, coupled with rising dependency ratios and constrained public spending, is reshaping the way countries deliver healthcare. Payers in many markets— particularly in Europe—are forcing drug prices down and subjecting new medicines to health technology assessments to determine reimbursement pricing and conditions. These factors are having a profound impact on pharmaceutical companies, disrupting worldwide pricing, market access, and innovation models.2 As pharma companies, wholesalers, and pharmacies scramble for position in the new healthcare landscape, their interests may appear to be in conflict, but there are opportunities for win-win collaboration. But the changes don’t stop there. Payers are defining clinical pathways based on empirical clinical effectiveness research, increasing patient copayments, promoting prescription by international nonproprietary name (INN) rather than brand, and—as patents expire—fomenting the use of generic drugs.3 All of these measures severely erode doctors’ discretionary power to prescribe and, thus, their centrality in the industry’s commercialization model. Retail pharmacies, then, are no longer mere dispensaries of whatever a physician cares to prescribe; instead, they can determine which laboratory’s product they will offer a patient with an INN prescription and which companies’ generic products they will stock. And patients are getting into the game too, becoming better informed and discussing with both doctors and pharmacists the pros and cons of different drugs (and their respective out-of-pocket costs). Furthermore, pharmaceutical companies, wholesalers, and pharmacies are all scrambling to defend their share of dwindling sales margins and position themselves in the new healthcare landscape (see sidebar: Fighting Over the Spoils on page 3). While their interests may appear to be in irresoluble conflict, in fact there are many opportunities for win-win collaboration. Cegedim Strategic Data, “Pharmaceutical Promotional Spending: Global Trends,” January 2013 1 For a more detailed discussion, please see “Healthcare Out of Balance” at www.atkearney.com. 2 An international nonproprietary name (INN) is a unique name assigned by the World Health Organization to a pharmaceutical substance or active pharmaceutical ingredient. 3 Less Detail, More Retail 2
  • 3. Fighting Over the Spoils As payers double down on spending and try to strip away excess fat, players across the pharmaceutical ecosystem are struggling to hold on to their hard-won positions: • Pharmaceutical companies are increasing their control over the supply chain through more direct distribution models, in an attempt to combat counterfeit drugs, rein in trading by third parties engaging in price arbitrage, and achieve greater intimacy with the retail pharmacy. As they do so, they are redefining their relationship with wholesalers, eliminating their traditional role as resellers and selecting instead a small number to serve each market as fee-for-service agents (similar to logistics service providers)—or even turning directly to qualified logistics companies where permitted by law. • Driven in part by new distribution models, pharmaceutical wholesalers are consolidating not just nationally but regionally, strengthening their hold on supply to retail pharmacies. In 2010, the top three wholesalers in Sweden, the United Kingdom, France, Australia, and the United States cornered nearly 90 percent or more of the market. And Europe’s largest wholesaler, Alliance UniChem, had a share in the five largest European markets ranging from 13 percent in Spain to 38 percent in the United Kingdom. To improve their ability to serve drug companies and retailers and fend off competition from logistics service providers, wholesalers are beefing up their value proposition with programs to help pharmaceutical companies promote diagnosis and treatment adherence, while helping pharmacy owners to better run their businesses. Furthermore, wholesalers are integrating backward into manufacturing, as Poland’s Neuca (formerly Torfarm) has done with its private label subsidiary Synoptis Pharma, and forward into retailing (as German-based wholesaler Celesio has done in Ireland by acquiring the DocMorris chain). • Finally, pharmacies are defending themselves by consolidating into chains, whether real (as in the United Kingdom) or virtual (as in France, where pharmacies must be individually owned, but where 80 percent have joined groups— some of them with as many as 2,000 members—to pool procurement, distribution, and administrative services). Many of these chains are redefining their supply chain models, shifting toward central fulfillment to minimize stocks and prepare for the evolution into direct distribution to patients. And, like wholesalers, they are diversifying into clinical services such as medication therapy management, disease management, and immunization to become true healthcare destinations for consumers. Our experience shows that those pharmaceutical companies that effectively engage the commercial trade channel (CTC)—wholesalers (and even patients) but, especially, pharmacies— can increase sales of mature drugs by between 5 and 25 percent. Wooing the Pharmacist Pharmacists are adapting quickly to the new healthcare environment, morphing into more significant roles as providers of health-related services. In many markets the traditional pharmacy is ceding ground to the “community” pharmacy concept (see figure 1 on page 4); in parallel, pharmacy business models and behaviors are becoming more professionalized, shifting away from a mom-and-pop mentality toward a more business-oriented mindset (see sidebar: Behavioral Segmentation on page 4). Gone, then, are the days when pharmaceutical companies could delegate the bulk of their commercial relationship with the pharmacy to wholesalers, safe in the knowledge that sales leakage between prescription and dispensation would be limited only to those patients who Less Detail, More Retail 3
  • 4. Figure 1 Pharmacies are beginning to provide a broader array of health-related services Traditional vs. community pharmacy role in disease treatment Prevention Traditional pharmacy Awareness and diagnosis • Promotion of healthy lifestyles Illustrative Dispensation Patient monitoring • Sale of drug against a script • Formulation • Other services: orthopedics, optometry Community pharmacy • Smoking cessation programs • Awareness campaigns • Weight management or nutrition advice • Referral • Analytics • Diagnostics • Disease-specific medicine management • Drug usage training • Disease training (patient, carer) • Patient compliance • Home care services: assessment, support • Drug administration Source: A.T. Kearney analysis chose not to fill the prescription. In reality, pharmacists are turning into retailers—and where regulations or market forces allow them to consolidate, they are becoming very powerful retailers indeed. Drug companies in many countries, then, are taking a page from the playbook of consumer goods manufacturers. In much the same way as a large dairy producer must know and reach out to sales outlets to maintain market share, so pharmaceutical firms must pull closer to the retail pharmacy, developing and delivering a value proposition tailored to its needs. Some examples follow: Behavioral Segmentation Pharmacy owners typically fall into one of three behavioral segments: • Traditionals are the archetypal independent pharmacy owner. They tend to stick to their core business. For them, income stability and business continuity are the priority; change is something to accept only reluctantly. They are perfectly content to fill prescriptions and sell over-the-counter products, and, in doing so, they are sure they play an important role in their communities. • Health professionals are likewise concerned with income stability and business continuity, but they are also keenly interested in offering pharmaceutical care to their “patients.” As such, they are always looking for opportunities to further their knowledge of pharmaceutical and medical topics. For them, it is essential that their role as a healthcare service provider be recognized. • Traders approach the business in a more materialistic way. Extremely well-versed in business management concepts and techniques, they seek to minimize working capital, optimize purchasing conditions, and attract the largest number of “customers” possible to their stores. Profit maximization is key; healthcare per se, not so much. Less Detail, More Retail 4
  • 5. • In the northeastern Spanish region of Navarre, Pfizer teamed up with the pharmacists association to train members in active dispensation to patients. The program covered 12 therapeutic areas (among them, gastrointestinal, cardiovascular, neurological, respiratory, and infectious diseases), addressing topics such as indications, drug interactions, adverse effects, and patient monitoring and compliance. • n France, 30,000 of the country’s 47,000 pharmacists subscribe to MSD’s Univadis online I portal, which—in exchange for their professional and contact details—provides them with pharmacy news, expert training videos, access to professional information databases, a drug dictionary, patient information per disease area, and free short message service (SMS) delivery alerts for patients. • pain’s Almirall offers online courses to improve pharmacy owners’ and employees’ S management and commercial skills. All of these initiatives place the pharmaceutical company in close contact with the point of sale, opening channels of communication and in many instances tying in neatly to support the community pharmacy concept described above. Pharmacists are adapting quickly to the new healthcare environment, morphing into more significant roles as providers of health-related services. In many markets the traditional pharmacy is ceding ground to the “community” pharmacy. In markets where direct-to-pharmacy distribution models have been established, and wholesalers have either been bypassed completely or relegated to consignment agents, drug companies have taken matters a step further. For instance, some are offering variable margins to the point of sale, linking higher margins to service levels and sales volume.4 This plan works best when additional margin is offered to the pharmacy through ex-post rebates, in order to avoid the temptation to use upfront margin concessions to erode end-user prices. A related initiative is to offer differentiated payment conditions, adjusting the equilibrium between payment period and discount level to suit pharmacies’ needs and preferences. In our experience, independent pharmacies attribute a relatively greater value to extended payment periods, given their long cash conversion cycle. Pharmacy chains, on the other hand, have the scale that allows them to rationally calculate the financial trade-off involved and decide accordingly. Finally, programs can be set up to help pharmacies minimize stocks while still ensuring availability, as one pharmaceutical company did in a successful pilot in two Spanish regions. Service levels can be measured, for example, by product availability levels, the type of sales data that is shared, or whether payments are received on time. 4 Less Detail, More Retail 5
  • 6. At the end of the day, initiatives such as these increase drug sales by acting to (see figure 2): Figure 2 A pharmacy channel strategy can increase drug sales Areas of opportunity Directly increase sales at the pharmacy Increase availability • Ensure product presence at point of sale Improve dispensation • Support correct product dispensation at point of sale Expand the patient pool Increase diagnosis • Decrease under-diagnosis level for diseases related to pharmaceutical company’s portfolio Bolster treatment adherence • Lower non-adherence ratio for relevant diseases Ensure supply chain integrity • Reduce product leakage and flow of counterfeits Source: A.T. Kearney analysis • nsure that the company’s products are stocked at the pharmacy (availability) and that the E pharmacist will actually dispense them, rather than opt for substitute products (dispensation) • xpand the patient pool for the company’s products, for example by enlisting the pharmacy’s E aid in getting patients diagnosed for relevant illnesses (diagnosis) and ensuring that they stick to the treatment the doctor prescribes (adherence) • Tighten control over the supply chain to guarantee that product flows are neither interrupted nor diverted and that counterfeit drugs cannot be introduced (supply chain integrity) Channeling the Affection The reactive, arm’s-length relationship model with the pharmacy is no longer suitable, that much is clear. Dealings with pharmacies can no longer be an afterthought to the laboratory’s commercial strategy, nor can they be left in distributors’ or wholesalers’ hands. An effective, pharmacy-centered CTC strategy relies instead on a studied channel mix that includes sales representatives, online tools, and call centers. The profile, focus, and cost of the pharmacy sales representative diverges significantly from that of the medical detailer (see figure 3 on page 7). While the latter’s role is largely informational and scientific in nature, the former’s is more nakedly commercial—and extremely time-consuming. For this reason, we usually recommend a separate network devoted exclusively to pharmacies. Nonetheless, collaboration between both sales networks is crucial to ensure alignment and to facilitate joint initiatives involving both physicians and pharmacists. Some companies decide to kick-start the pharmacy sales force and gain flexibility by hiring a contract sales organization (CSO), with an eye toward insourcing the pharmacy reps a couple of years down the road. Less Detail, More Retail 6
  • 7. Figure 3 Pharmacy sales reps are very different from traditional medical detailers Key activities Medical detailer Pharmacy sales representative • Build relationship with physicians in therapeutic area and geographic district • Build relationship with pharmacists within portfolio • Provide product information to physicians, focusing on: — Recommended product use — Interactions, contraindications • Answer physician questions • Collect and transmit information on adverse effects • Collect information at point of sale on physicians’ prescriptions • Visit pharmacies to: — Take orders — Ensure proper product promotion — Propose (and monitor) tailored value-added services such as: • Training on active dispensation • Participation in diagnosis or patient adherence programs • Physician-pharmacist collaboration • Track results of pharmacy channel strategy • Refine pharmacy segmentation, targeting, and behavior and needs analysis Source: A.T. Kearney analysis The online channel is a powerful and efficient way to reach out to a large audience. In Germany, Roche has developed a very complete, interactive e-platform with information on all of its products, including video lectures, news from medical congresses, and data on possible supply shortages. Roche also publicizes studies on potential breakthrough products. In addition, it allows pharmacies to place orders for patient information packages on ailments such as restless legs syndrome. Some decide to kick-start the pharmacy sales force and gain flexibility by hiring a contract sales organization (CSO), with an eye toward insourcing the pharmacy reps a couple of years down the road. Pfizer in Mexico actually uses email to conduct marketing activities, sending high-impact audiovisual content that triggers the pharmacist to submit information for the company’s databases— achieving an impressive response rate of 13 percent. And in an even more revolutionary move, Lilly performs e-detailing in France, conducting remote, multimedia sales calls. The call center is both inbound and outbound: inbound to resolve disputes, answer questions, or take note of supply issues; and outbound to notify pharmacies of promotions, gather feedback, or conduct tele-sales. Less Detail, More Retail 7
  • 8. Where to Start Pharmaceutical companies prioritize what countries to invest in and determine how to craft their efforts based on an assessment of the pharmacy channel’s power—a function of its levels of concentration, liberalization, and professionalization—and the potential impact to be obtained by influencing its behavior (see figure 4). Figure 4 Investments should be prioritized based on the pharmacy channel’s power and influence on performance Attractiveness of CTC investments by region Channel influence on performance High Channel behavior strongly determinative of company performance Somewhat attractive United States, United Kingdom, Canada, Australia Very attractive 16% China, India, Russia, Latin America 16% 42% Eastern and Southern Europe 10% Japan Central and Western Europe 14% Low Company performance relatively independent of channel behavior Relatively unattractive Somewhat attractive Channel’s negotiation power High Low Strong channel bargaining power due to high degree of liberalization, professionalization, or concentration Low channel bargaining power due to regulatory constraints, fragmentation, or underdeveloped management capabilities Note: Bubble sizes and percentages represent each region's share of global pharmaceutical sales. Source: A.T. Kearney analysis China, India, Russia, and Latin America account for 16 percent of the global pharmaceuticals market and are presently the most attractive target for a CTC strategy. While retail channel concentration is relatively high, there are few major examples of vertical integration, and business practices are ripe for further development. Furthermore, stiff competition from domestic manufacturers of generics and “similar” products, frequently coupled with unfriendly laws governing the protection of pharmaceutical patents, translates into a huge opportunity for gains from an effective CTC policy in these high-growth markets.5 Surprisingly, these countries have been largely absent to date from the radar screen of CTC strategists. A second market cluster comprises Eastern Europe, Southern Europe, and Japan: • With a combined 16 percent share of global pharmaceutical sales, Eastern and Southern European countries are on the cusp of a radical change in the regulations governing the prescription, distribution, and dispensation of drugs. Rules requiring pharmacies to be owned For a recent example of the difficulties manufacturers of innovative pharmaceuticals face, see Kaustubh Kulkarni and Suchitra Mohanty, “Novartis Loses Landmark India Cancer Drug Patent Case,” Reuters, 1 April 2013. 5 Less Detail, More Retail 8
  • 9. by licensed pharmacists and, in much of Southern Europe, restricting the ownership of multiple pharmacies by the same person have stymied any significant degree of retail concentration. Meanwhile, requirements to supply pharmacies through wholesalers have already been relaxed in Portugal and Italy, opening the door to full direct distribution by manufacturers; most other countries do not allow manufacturers to completely remove wholesalers from the equation, but pharmaceutical firms are successfully testing the system’s limits. • Japan, with 10 percent of the global market, presents a unique model. Well into the 1980s, most physicians operated their own pharmacies, solidly linking prescription with dispensation. Even today, this model continues to account for a significant share of drug sales. The link, however, has been weakened: The government is making a strong push for generic drugs, and a powerful pharmacy channel is emerging—with the appearance of several pharmacy chains, some of them controlled by wholesalers. By acting now in Eastern Europe, Southern Europe, and Japan, drug companies can get in on the change from the ground up, pulling the levers early on to carve out a position as preferred providers to increasingly powerful pharmacies. The pharmaceutical retail channel in the United States, the United Kingdom, Canada, and Australia (42 percent of the world market) is highly developed, with large, powerful, commercially sophisticated pharmacy chains and varying degrees of vertical integration among manufacturers, wholesalers, and pharmacies. The channel in these countries is relatively insensitive to efforts to directly increase a drug’s availability and promote its dispensation, but is normally open to explore collaborative initiatives to promote increased diagnosis and compliance. Central and Western Europe, which represents 14 percent of the global drug market, is in many ways the toughest nut to crack. Prescription and dispensation behavior is strictly regulated with a view to minimizing payer costs, so commercial efforts to directly influence pharmacy behavior are unlikely to have much impact. Pharmacists are, however, generally receptive to indirect strategies that strengthen their involvement in the healthcare system. As a result, given the size of the cluster and the relatively modest level of retail concentration and development, companies would be unwise to ignore this market. Beyond the Pharmacy Although the retail pharmacy is the principal target of a CTC strategy, a full approach is much more complex. While pharmaceutical companies have been doting on physicians, wholesalers have filled the vacuum with pharmacies, and many have developed a close relationship. Therefore, pharmaceutical firms and wholesalers—instead of acting as rivals—could team up and complement one another, offering different services to pharmacies based on their respective expertise and capabilities. Wholesalers have an especially important role to play in those markets where they own or heavily influence major pharmacy chains. For example, Alliance owns the Boots store chain and other virtual chains such as Alphega; Celesio owns DocMorris in Ireland, and it continues to run the virtual chain Pharmactiv in France. Sometimes, it’s a pharmacy chain that acquires a wholesaler, as Walgreens did when it bought Alliance Healthcare. In any case, the conclusion is clear: Wholesalers are an integral part of the CTC equation. Less Detail, More Retail 9
  • 10. A CTC strategy must also consider other stakeholders that intervene in drug dispensation, such as hospital pharmacies and, in some markets, dispensing physicians. Rather than operate as isolated players with a strictly clinical focus, hospitals are increasingly acting in concert in the procurement arena by, for example, organizing common tenders across private hospital groups or parts of the national health system. In more advanced markets, innovative tools such as e-auctions are being employed. Finally, pharmaceutical firms with a CTC strategy should consider creating a value proposition to sell their improved pharmacy access to companies in the consumer health, beauty, and cosmetics fields. The change for pharmaceutical companies’ commercial strategies is inescapable, and many in the sales chain already have a head start. But the field is wide open, and the opportunities for creative approaches are limitless. For innovative pharmaceutical firms, a CTC strategy is just what the doctor ordered. Authors Pablo Moliner, partner, Madrid pablo.moliner@atkearney.com María Eugenia Fanjul, partner, Bogotá maria.eugenia.fanjul@atkearney.com Hitoshi Kuriya, partner, Tokyo hitoshi.kuriya@atkearney.com Michael Wise, partner, New York michael.wise@atkearney.com João Carapeto, principal, São Paulo joao.carapeto@atkearney.com Alejandro García, consultant, Madrid alejandro.garcia@atkearney.com Less Detail, More Retail 10
  • 11. A.T. Kearney is a global team of forward-thinking partners that delivers immediate impact and growing advantage for its clients. We are passionate problem solvers who excel in collaborating across borders to co-create and realize elegantly simple, practical, and sustainable results. Since 1926, we have been trusted advisors on the most mission-critical issues to the world’s leading organizations across all major industries and service sectors. A.T. Kearney has 58 offices located in major business centers across 40 countries. Americas Atlanta Bogotá Calgary Chicago Dallas Detroit Houston Mexico City New York San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Dubai Johannesburg Manama Riyadh For more information, permission to reprint or translate this work, and all other correspondence, please email: insight@atkearney.com. A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea. © 2013, A.T. Kearney, Inc. All rights reserved. The signature of our namesake and founder, Andrew Thomas Kearney, on the cover of this document represents our pledge to live the values he instilled in our firm and uphold his commitment to ensuring “essential rightness” in all that we do.