‘Inflection point’ is a term used in multiple disciplines including mathematics, engineering and business strategy to describe a point on a curve at which the curvature changes from convex to concave. In business strategy, an inflection point is frequently used to describe a scenario where the dynamics of today’s business situation shift significantly.Here, the term inflection point indicates the point at which the business requirements needed to compete significantly shift.
It is important to clarify that this does not mean to imply that the fundamentals of today’s model no longer work, but rather that there is a transition occurring, when a new set of rules is being defined to set the stage for a new and different competitive landscape. Managing this transition is the ultimate challenge for industry leaders.The experience of a wide array of industries, from airlines to entertainment to retail, shows that new leaders emerge when companies are able to recognize that an inflection point provides the opportunity to create performance differentiation in the future. In making the transition, though, organizations must continue to operate in the world of today, while preparing for the world of tomorrow. 1 Pharmaceutical marketing executives know all about inflection point.It is something that has been on the corporate horizon for many years.
Inflection point for the pharmaceutical industry will mean a paradigm shift in the way the business is modelled. This paper attempts to examine some of the issues that this reshaping will have on current marketing practices within the sector and how the future marketing strategy may have to evolve to tackle what is likely to be a much more intricate and segmented business model. These are challenging times for Pharmaceutical marketers.The industry as a hole exists on the cutting edge of scientific and technological innovation where the cost of participation is colossal and the price of failure almost incalculable. Escalating research costs and declining drug discovery success rates are causing productivity levels to fall throughout the global pharmaceutical industry. To compound the issue pharmaceutical sales and marketing executives are finding that bringing information about new treatments into the healthcare system is now a more expensive and convoluted process that at any time in the past.
As a result “Big Pharma” is looking more and more outside of its traditional corporate territory for the expertise and ideas that it will need in order to survive what is essentially the collapse of a long business cycle that has seen immense growth in its revenues and profitability. As the largest global net exporter of pharmaceuticals Ireland will not be unaffected, over 24,000 people are directly employed in the industry in roles from manufacturing to marketing, from research and development to patient education.By no means is the pharmaceutical industry going broke, but it has reached a nexus in its evolution and the next 15 years is likely to bring enormous change that will reshape the industry on a global scale. In order to understand traditional pharmaceutical sales and marketing strategy we should look at the industry’s recent past.
During the past 30 years pharmaceutical companies have developed and brought to market a series of pioneering medications that are now fundamental to the healthcare of tens of millions of people around the world.This combination of innovation and consumer demand created a flood of revenue leading to an unprecedented period of prosperity for pharmaceutical companies and their employees. Anti-Depressants, SSRI’s, Statins, ARB’s, ACE Inhibitors, PPI’s and Sexual Function Disorder treatments are just a handful of the new classes of drugs that have changed healthcare. Today more than 200 million prescriptions for statins such as Crestor and Lipitor are written each year in the U. S.
alone.Nearly 227 million prescriptions are written annually for anti-depressants and more than 60 million people each year globally use medications to treat sexual dysfunction. When it comes to the sales and marketing of pharmaceutical prescription product, a fully loaded campaign for a blockbuster pharmaceutical therapy would include a comprehensive and expensive global marketing campaign. Such as campaign will almost always involve the full range of marketing tools, including media advertising, comprehensive information packs, special events for doctors, conference presentations, dedicated sales forces and increasingly the internet.
The strategy is essentially a bilateral mix involving ‘Direct to Physician’ and where permitted ‘Direct to Consumer’ marketing. Selling through the Physician channel is a simple concept where in an ever increasing race to gain market share the organization that is making the most noise i. e. has the largest and most heavily resourced sales force will inevitably enjoy the fastest rates of growth.
The sales representatives are essentially selling evidence to the physician; the model requires that the physician acknowledges the evidence as detailed by the representative as being of value, and accordingly prescribes the drug where appropriate.In territories where direct to consumer pharmaceutical advertisements are permitted the model is equally straightforward. Today a typical American television viewer can expect to spend 16 hours per year watching DTC prescription drug advertisements. 2 Frosch et al 2007. Attesting to their ability to generate sales, DTC advertisements are everywhere. They are broadcast on TV and on the radio, they are on websites and billboards and they fill the pages of newspapers and magazines3.
This blockbuster bilateral sales model has worked perfectly for over 30 years and although essentially simple in its configuration is now executed globally with a ruthless sophistication that attracts ample criticism from consumer and public interest groups around the world as an unethical practice that ultimately puts organizational profit before patient welfare. Whatever the ethics may be ‘Big Pharma’ has a serious problem; the Blockbuster model is no longer working!In many ways some of the questions posed by the end of the blockbuster model are being answered by events unfolding globally within the industry. A recent study 4 found that it now costs around €1. 7 billion to develop a new blockbuster pharmaceutical treatment and that the average annual return on investment for a newly developed drug is now 5%. The point is that when it comes to developing new products for the pipeline pharmaceutical companies now have to take much greater financial risks for far less return that in the past.This problem is largely due to a convergence of factors such as more rigorous regulatory testing procedures, and no obvious commercial application of the few new therapeutic discoveries that are being made.
Additionally legislative changes around the world have drastically decreased the time any prescription pharmaceutical can dominate a market before patent protection expires and generic competition intrudes. The principle consequences of an expired patent can be a considerable or often total collapse of branded product profitability.Despite line extensions, layering and other pre emptive patent lengthening measures often taken by marketing strategists the fact is once a brand name looses patent protection on a blockbuster therapy, generic substitutes and bio equivalents capture the market because they are typically priced up to 80% lower than the brand name equivalent. The experience of Bristol Myers Squibb illustrates the shocking effect that the introduction of generic competition can have after patent expiration.
Patent protection on the blockbuster drug Glucophage which had sales of over 2 billion in 2006, expired in January 2007.One month later over 85% of the market had been captured by generic competitors 5. This is called ‘product wipe-out’ in the pharmaceutical industry and it is these set of circumstances that are driving change in how pharmaceutical marketers, sales and industry strategists see the future. In addition to ‘product wipe-out’ there are other forces that threaten to further complicate sales and marketing strategy during the coming years.
As mentioned earlier when companies market to Physicians the solution has always been to throw more sales reps at doctors in an effort to maximize ‘Share of Voice’ and ‘Call Frequency’.An Accenture6 white paper commissioned by the pharmaceutical healthcare company Astra Zeneca indicated that the skills and motivation of the sales force is the single largest factor (33%) driving sales and marketing performance. It is no surprise then that the number of sales representatives has been increasing steadily to a point where it is not uncommon for up to six different sales teams with identical product messages to be competing for access to prescribers in the same sales territory.In Ireland this obsession with Share of Voice marketing has resulted in 30% of physicians closing their practice doors to the industry.
For the prescribers that continue to participate, the average time each representative spends with a physician is now only 100 – 300 seconds. The ‘Doctor Channel’ is blocked and it has not taken the financial departments in pharmaceutical companies long to realize that a set of fully loaded medical representatives costing over €150,000 each per year in salary, benefits and bonuses may no longer offer such an efficient or productive selling solution.To further complicate the matter physicians are becoming increasingly more irritated with Direct to Consumer advertising which they cite as a threat to the doctor – patient relationship, ultimately causing patients to request drugs that they do not need or that may not be appropriate for the patient in question. The pharmaceutical industry insist that such advertising not only encourages patients to contact their doctor for possible under - diagnosed medical conditions, but also that it educates patients about treatment options, empowering them in future discussions with their doctors.And it’s not only the physicians that are upset; In the United States consumer advocacy groups such the US Public Interest Research Group are lobbying hard for greater government oversight and regulation of DTC 7.
While such developments in overseas markets may not necessarily appear immediately relevant to Ireland where DTC advertising is highly regulated, it is highly important to recognize that this type of forced adjustment in the way pharmaceutical companies are permitted to market product is changing the way strategists see the future of the industry where current marketing spend can easily absorb more than 30% of revenues.As discussed, traditionally successful marketing campaigns for new medicines tended to focus on the education of physicians and potential patients on the features and benefits of the therapy. In Ireland where DTC advertising in pharmaceuticals is prohibited by the Medicinal Products (Control of Advertising) Regulations and where the physician has ultimate freedom to prescribe irrespective of cost, the game plan was almost always simply one of persuasion where tactically strong relationships between doctors and sales representatives underpinned almost all sales growth.Not surprisingly there is a paradigm shift happening here too. In a world where health care providers struggle with ever increasing budgetary constraints and where health insurance companies struggling with aging client portfolios fight to remain viable the payers are finally looking for better value.
In a recent presentation to the Pharmaceutical Product Managers Association of Ireland (PMI), Health Service Executive (HSE) procurement executives had a chilling message for ‘Big Pharma’ in Ireland entitled ‘Pharmaceutical Tendering & Key Account Management’.The presentation outlined in detailed terms the proposed introduction of a national formulary and a new procurement directive that will change the way that Pharmaceutical companies in Ireland do business. This new directive 8 will establish the HSE as the ‘Key Pharmaceutical Account’ in Ireland and will be in stark contrast to the traditional hospital procurement system that had been in place. It seems as though the HSE have consolidated significantly at administrative level and can now bring significant purchasing power to bear on the pharmaceutical industry in Ireland.No longer willing to micro manage the supply chain and demanding better value and possibly even outcomes based pricing structures, the poignant significance of the presentation was not lost on a room full of pharmaceutical marketing and brand managers who must now find a way to comply with and understand the decision making processes of this new powerful and influential customer.
So all these changes beg the question as to what life after blockbuster medicine may look like for the Pharmaceutical Industry.We know that the industry itself is a hugely complex entity that needs colossal revenues to support its continued viability and evolution. But generating the levels of profit required for this from the current model is no longer seen as realistic by most pharmaceutical organizations. Again we simply need to look at events currently unfolding in the industry give us an insight into this forced reshaping process.Michael Stein et al 8 draw our attention to the fact that since 2003 the pace of layoffs in the industry has been phenomenal.
This trend is set to continue unabated as Big Pharma begins what will essentially be the wholesale remodelling of the industry. In 2008 over 50,000 9 sales force personnel were laid off industry wide and 2009 is already delivering a more severe contraction with over 24,000 industry jobs already gone.Many of the layoffs have been as a result of some of the largest pharmaceutical industry mergers and acquisitions in history as companies with large exposure to pending patent expiration on blockbuster drugs and weak product pipelines look for safety in numbers. The argument for massive consolidation is compelling as the new larger and leaner undertaking can operate with a significantly reduced cost base without any corresponding drop in revenue per se. This is helping to facilitate the necessary restructuring as companies move into the post blockbuster era.The key message for Pharma marketers here is that if there are going to be fewer companies and fewer blockbuster medicines then there is likely to be a consequent reduction in the need for high value blockbuster marketing campaigns as branded medicine moves off the shelf.
It is important to state that this wind down of the blockbuster era is not exactly happening as we speak, there is time to further understand how marketing strategy can develop as the next golden cycle approaches and to do this we need to look much closer at the science that is driving the change.
