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Bending the Buyer Power Curve Downwards in Pharmaceuticals industry

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Predictions suggest that the Pharmaceutical industry needs to cut $36 billion in Selling, General and Administrative costs by 2017 to maintain an operating margin similar to 2012. Expiring patents, increased government regulation, declining physician access and reducing out of pocket expenditures have shifted the balance of (buyer) power to payors and providers. WNS DecisionPoint(TM) estimates that the rising influence of payors and providers has eaten up around 3.6 percentage points of the top 10 players’ average gross margins from 2009 to 2014 and is expected to hurt them more going forward.

Currently, many pharma companies are focused on containing sales and marketing expenses as a strategy to combat shrinking profit margins, but doing so is likely to hurt their bottom line in the long run. Without strong sales and marketing efforts, demand for their products is bound to decrease. Rather than sacrificing headline growth by cutting down investments in robust sales force and reducing marketing spend, pharma companies could turn to analytics to improve their existing sales force effectiveness and improve marketing return on investment. Analytics can help companies:

- Study data related to claims, patient, physicians, payors and providers to generate useful insights around launch action plans and create a distinct positioning thereby ensuring maximum usage post launch
- Draft market entry and expansion strategies
- Understand patients’ needs, competitors’ strategies, and stakeholder expectations early in the drug development process to aid delivering an acceptable return on investment (ROI)
- Tailor promotional messages, understand affinity of channels for various stakeholders, monitor sales force metrics, reduce administrative time to improve selling & marketing efficiency and effectiveness

To learn more about the challenges facing the pharmaceutical industry and strategies to overcome them, read the full report at:
http://www.wnsdecisionpoint.com/our-insights/reports/detail/46/bending-the-buyer-power-curve-downwards

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Bending the Buyer Power Curve Downwards in Pharmaceuticals industry

  1. 1. wnsdecisionpoint.com Bending the Buyer Power Curve Winning with Analytics
  2. 2. 11 Wnsdecisionpoint.com Stronger influence of payors and providers weighing on pharma companies’ profitability Rising influence of payors and providers in the US, as reflected in the Buyers Power Index, led to a reduction of 3.6 percentage points in top pharma companies’ Gross Margin between 2009 and 2014 100% 107% 108% 109% 116% 120% 127% 135% 140% 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F Buyers Power Index (BPI) BPI to go ↑ going forward as well, which is again expected to hamper profitability BPI is a function of pre-defined parameters or input variables such as generic sales contribution, consolidation of hospitals, physician access and out of pocket expenditure as a % GDP to ascertain the influence of payors and providers in the US. BPI is likely to go up in future as:  Generic contribution increases from 19.3% in 2014 to estimated 22.7% in 2020  More hospital consolidation takes place  Physician access becomes more restricted  Out of pocket expenditure reduces from 11.1% in 2014 to 10.2% in 2020 Read the full report to learn more about BPI and its impact
  3. 3. 22 Wnsdecisionpoint.com Successful companies are driving commercial excellence for competitive advantage 1 McKinsey 2 ZS Associates 3 BCG 4 WNS DecisionPoint 5 IMS Health Read the full report to understand each strategy and its implementation in detail StrategiesDrivers Market Statistics 80%1 of the commercial failures are because of lack of differentiation Driving fast-paced but high-quality research and development ~60% of the pharma companies are using advanced analytics in R&D4 Planning and adjusting launch plans according to uptake experience Embracing smaller size drug launches to diversify and reduce sales attrition risks Understanding patient needs, competitor strategies and payors/providers’ expectations in order to reduce drug failures in pre and post launch phases Controlling SG&A expenses Creating more robust account management and selling strategies to combat declining physician access Increasing geographical expansion Sales erosion from patent expiries Declining physician access from 78% in 2009 to 51% in 2014 in the US2 Declining healthcare spend as a % of GDP in most of the developed economies like Japan and UK Top 17 pharma companies need to cut $36 billion in SG&A costs by 2017 to maintain an operating margin similar to 20125 69.1% of the companies are using advanced analytics for sales force effectiveness and pricing reimbursement analysis4 Emerging markets including BRIC are expected to grow by 7-10% during 2015-20 as against 3-6% for developed economies like the US, EU-5 and Japan5 Sales erosion of $65 B due to patent expiries between 2014 and 2019 Commercial prowess of 53 drugs approved in 2014 will generate aggregate peak sales of $48 billion as compared to $53 billion for 36 drugs approved in 20133
  4. 4. 33 Wnsdecisionpoint.com Advanced analytics is being used as one of the key enablers to build an agile go-to-market strategy Read the report to understand the effective implementation of analytics in detail of companies are currently seeking the services of specialist analytics companies 67%1 of companies have achieved commercial benefits from the application of analytics 87%1 of the companies expect to increase investments by 6-10% in advanced analytics per year going forward for the next 4-5 years 47%1 1 Based on WNS DecisionPoint study Study data related to claims, clinical trials, patient, physicians, payors and providers to generate useful insights around launch action plans and create a distinct positioning thereby ensuring maximum usage post launch Understand patients’ needs, competitors’ strategies, and stakeholder expectations early in the drug development process to aid delivering an acceptable return on investment (ROI) Tailor promotional messages, understand affinity of channels for various stakeholders, monitor sales force metrics, reduce administrative time to improve selling & marketing efficiency and effectiveness Draft market entry and expansion strategies Analyticsoneofthekeydrivers toattaincommercialexcellence
  5. 5. 44 Wnsdecisionpoint.com Sales and marketing functions are again expected to be the top two end-user groups going forward Use of advanced analytics is comparatively high while devising selling and marketing strategies Sales and marketing divisions employ analytics more than any other department 2%13% 15% 4% 2% 9% 9% 18% 24% 15% 27% 38% 24% 49% 44% 53% 42% 31% 47% 20% 16% 29% 29% 22% 20% Strategy R&D Marketing Sales Finance Managed Markets Use of Analytics by Functions Very less Less Neither less nor a lot A lot Extensively 31% 18% 22% 25% 2% 2% 11% 15% 31% 24% 9% 11% 22% 11% 20% 15% 9% 24% Strategy R&D Marketing Sales Finance Managed Markets Popularity of Analytics Application in the Next 2-3 years Rank 1 Rank 2 Rank 3 For detailed applications of analytics to achieve functions’ effectiveness and transformation, read the full report Source: WNS DecisionPoint™ Survey Source: WNS DecisionPoint™ Survey; Data labels represent % of respondents; N=55
  6. 6. 55 Wnsdecisionpoint.com How to win with analytics? Identify and prioritize areas where to deploy analytics tools and methods based on business impact and structural factors Identify and prioritize the goals and requirements of analytics Carry out diagnostics (internal/external benchmarking) to assess the capability and maturity of current analytics operating model Define requirements within the company for the varied usages of analytics required and the associated technology components, platforms, and data lifecycle governance to support them Create a sustainable analytics roadmap for differentiated business growth and performance Set up infrastructure to institutionalize analytics Identify the potential use cases for adoption of analytics Prioritize the use of analytics based on the degree of tangible business impact expected to be generated Embed analytics into the decision making process and align it to business outcomes Measure the effects of analytics initiatives to ensure that they remain cost-effective and beneficial Link analytics to business processes and measure their effect
  7. 7. 66 Wnsdecisionpoint.com A credible insights hub for companies looking to transform their strategies and operations by aligning with todays realities and tomorrow’s disruptions. Email: perspectives@wnsdecisionpoint.com Website: wnsdecisionpoint.com @WNSDecisionPt WNS DecisionPoint WNS DecisionPoint

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