The first chapter of pharma’s commercial evolution takes us from the insatiable sales-drive of the 1980s to the present, highly complex marketing landscape.
It is easy to forget that our competitive industry still has 80-90% gross margins and, as a consequence, its traditional commercial model is driven by sales growth, rather than worrying about costs.
Under most circumstances, incremental sales drive incremental profit. Within the affiliates this is obvious, and country managers have often resisted attempts by corporate counterparts to take a centralised approach to sales and marketing, claiming their country’s commercial ecosystem is unique and not amenable to meddling.
Of course, the modern pharma company will also have to conduct market access, medical education and phase IV studies within its affiliates, but the reality is that most affiliate activity is focused on sales. For large pharma companies the sales and marketing budget usually beats R&D budgets by 1.7 times, and this is becoming increasingly difficult to justify.
Rise of primary care dominance
Throughout the 1980s and 90s the focus on sales-driven growth led to the evolution of some very different ways of working within primary care, from co-promotion and co-marketing with embedded local players, to the ‘petal’ system of multiple salesforces detailing overlapping product ranges.
The purpose of these techniques, together with employment of contract sales teams, was a sort of ‘shock and awe’ strategy which swamped the physician with frequent visits about particular products. The competitive response was usually swift and commensurate, resulting in a commercial arms race between players within a hotly contested therapeutic area.
This was known as the ‘share of voice’ model, and when applied to large primary care categories, it drove top line growth so successfully that governments and institutional payers were forced to find a response to escalating drug bills around the world.
Backlash from health technology
This response varied from country to country, but has taken two main forms; the Health Technology Assessment response and the consolidated payer response. Throughout the 1990s and 2000s, in the UK (NICE), much of Europe, Australia and parts of Asia, there has been systematic developing of a process that assesses whether a product represents value for society.
Much of the health economics work is shared among countries, and pricing comparisons made between the same product in different countries are routine. The benchmarks for the monetary value of a healthy human being are the subject of debate, but are necessary to make budgetary choices in a system without unlimited resources.
The consolidated payer model, operating in the US through pharmacy benefit managers such as Express Scripts, relies on large payers exerting pressure on manufacturers for rebates, with some undifferentiated product portfolios having to rebate as much as 50% of their gross price.
The impact of health technology assessments can be seen today, manifesting itself in pricing pressure, therapeutic substitution, a diminution of decision-making by physicians and a conscious shift towards products with a confirmed medical need. A decline in R&D productivity, however, has not made this process easy.
Dead end: Primary care hits a wall
Many commentators blame the decline in R&D productivity for the steep fall in product approvals through the 2000s but, in reality, there have been several forces at work.
The rise in genomics, together with high-speed screening techniques, led to a belief that chemical libraries could be screened against unprecedented targets and that optimised drug candidates would flood through the discovery phase into phase I trials.
The sharp product rise in the early clinical phases then came to a shuddering halt during phase II ‘proof of concept’ studies, when large numbers of clinical failures unveiled the reality – there is no short cut to understanding disease biology.
As research cul de sacs were explored, a squeeze on primary care products began in the form of price pressure from above and greater safety demands from below. As a consequence, and aided by the rise in technology, a rapid increase in the proportion of newly-approved, biological in origin drugs commenced.
Monoclonal antibodies, vaccines, enzyme replacement therapy and other therapeutic peptides, aided by insatiable demand for insulin, developed strong sales and completely changed the nature of commercial interfacing with physicians.
Biologicals change the commercial dynamic
The pressure on primary care products, together with the impact of the patent cliff in 2012/13, have combined to drive sales of primary care products into stagnation. Much of industry downsizing, particularly within commercial operations, has been in response to this.
Perhaps most merger and acquisition activity within pharma also has its origins in this relentless pressure on primary care sales and the need to reload the pipeline quickly with biologicals and specialties.
The success of biologicals and other specialties, such as oral cancer drugs, in terms of both approval and sales, has required the industry to change its commercial emphasis. The huge traditional focus on primary care or family doctors has changed to specialists, and their support workers within a secondary care or hospital environment.
The increased complexity of the specialty sell, sometimes involving multiple decision-makers, formulary approval, health economic arguments, companion diagnostics and performance-related reimbursement, has required a much smaller, but more skilled group of people to interface with the healthcare network.
Many companies have yet to find the necessary mix of skills within their workforce and are still working under the old assumptions that spending on promotional activities can remain as high as it used to be under traditional models. They do so at their peril. Check out Part 2in the next issue, as promotional resources and modern data come under intense scrutiny.