Pharma Reform

The role of the pharmaceutical sales representative (Chapter 9 in Pharmaplasia™) has been waning for some time.  The internet is full of discussions about the sales representative (“detail person”, “detail man”, “detailing”) position being dead, dying, or even obsolete. Some discussions are defensive while others are unrealistically optimistic about a return to the traditional role.  At the same time,  Pharmaceutical companies are trying to balance the challenges of physician access with the fact that pharmaceutical sales has been one of the most impactful marketing tools available.  More importantly, the pharmaceutical sales representative was probably the best way to inform, and yes, “educate” physicians about prescription drugs, especially new products.

There is a lot of blame to go around for why pharmaceutical sales is struggling for survival.  There is a rarely talked about and hidden reason but first here are a few of the more obvious and frequently complained about reasons for why pharmaceutical sales representatives find themselves either unemployed or wondering if they will still have a job at the end of the year:

Some have also postulated that the advent of electronic communications and internet availability of medical and drug information have made sales representative obsolete.  I believe electronic communications should not be seen as a threat or replacement for pharmaceutical sales but rather could be a future necessity for handling the large volume of data available and to explain the complexities of new treatment options.

Some have suggested sales and sales management brought it upon themselves with questionable sales tactics and the hiring of less than professionally or scientifically qualified sales personnel.  While these may have ultimately contributed to the continuing demise of this important position, I believe you have to dig deeper to uncover the genesis of this unfortunate evolution.

Some have blamed management for just about everything and in this case, you don’t have to be very specific, from C-level to front line managers.  Unreasonable expectations and “stretch” sales forecasts drove a lot of sales organizations and individuals to do “whatever it took” to meet those sales goals.  Sales management complied with these expectations and was bound and determined to make their incentive bonuses and ensure their place at the annual sales incentive trip.  Again, “whatever it takes” to make or exceed your numbers.

Marketing often built those sales forecasts out of hubris and pushed the sales organization to deliver while also provided the marketing message and resources to do “whatever it took” to  deliver the sales.  Think of the virtually uncontrolled, unlimited (by standards for most other industries) funding for tchotches, lunch and learns, speaker programs, and of course, samples and literature (marketing materials).  Of course reps were encouraged to fully deploy and leverage all their resources.

Some people like to blame the regulatory environment (constraints on what reps can say and do) while others point to a less tolerant healthcare market (increasingly difficult physician access and institutional limitations on promotion).  These, however, while real, were more a response to increasingly aggressive and sometimes questionable (unethical or illegal?) activities rather than being inherent in the market.

No doubt, pressure on sales representatives to make their numbers was and is intense and often requires incredible selling skills and creativity to compensate for the realities of marginal product profiles given the market expectations and sometimes even harmful side effects of the products they were selling.

This leads us to one of the less obvious sources for why I believe the sales representative position has become threatened with extinction.  And that is,  the lack of credible clinical data and appropriate regulatory labeling to support the commercial claims needed to deliver the forecast sales numbers.  Sometimes the clinical data and marketing messages provided to the sales organizations have even been inaccurate, intentionally misleading, or even concocted.

Solid credible clinical data and regulatory approved labeling to support commercial claims mitigates the need for overly aggressive and questionable sales activities and reduces the regulatory constraints that bar sales representatives from having meaningful clinical discussions with physicians.  It is hard to imagine the level of sales that might have been achieved had the talented, skilled sales representatives been armed with better clinical data and stronger, more definitive regulatory label claims.

Research teams pushed (and senior management was pushing even harder) for approval rather than building comprehensive product profiles to support the commercial expectations.  The get-it-to-market drive for approval to attain indication- based label claims without differentiation or consideration for what sales representatives will be able to say or use in promotion unfairly puts sales representatives in an awkward, boring, professionally compromised, and near impossible selling situation.

So before you blame or criticize sales and sales management for jeopardizing the pharmaceutical sales position, look at the clinical data they had to work with.  You might find that they did a better job than might have been expected and you might find the reasons they felt compelled to go to such extremes in some cases to make their sales numbers.

mike@pharmareform.com

Prescription drug prices are a major source of distrust, frustration, and irritation for everybody in the healthcare market except pharmaceutical industry executives.  Payers and insurers find it difficult to justify paying for expensive branded products when they know less expensive generic drugs would probably work just fine for many patients.  Physicians struggle to explain to their patients that despite the high price, the brand they have selected is the best product for their particular situation.  Patients struggle to pay for the biggest out-of-pocket healthcare expense they have, often deciding whether to buy food, split their pills, or go without their medication to make it through the month.  With unemployment hovering around 10%,  more people are without insurance, making prescription drugs even more unaffordable for many.

The pharmaceutical industry has been totally insensitive to these market /patient issues as they continue to raise prices on many of their most popular, highest volume drugs.  The Congress’ Government Accountability Office calling the increases “extraordinary” with prices for many brands doubling from 2000-2008 while some increased substantially higher yet.  A recent study also revealed that branded prescription drugs increased 9.3% when the CPI was running -0.3% during the same period (2008-2009).

The industry response to the market concerns about high drug prices hasn’t changed for as long as I can remember (at least 30 years I’ve been in the industry).  They continue to highlight the dismal research success rate (1 in 10,000 discovery compounds makes it to the market), blame the high cost of R & D, and the need to recover their high costs in a short period of time as the reasons for their high prices.  Nobody in the healthcare market has ever bought that rationale for high prices and I don’t think that is going to change.  More recently the the industry has tried to also deflect high price accusations with stories about lower overall drug prices (which includes over 70% of prescriptions being filled with less expensive generics), drug costs as a diminishing share of healthcare cost (also because of generic drugs use and the out of control other healthcare costs), and claiming their free samples and the industry’s token prescription assistance programs make the high prices more affordable for everybody.

“What the market will bear” pricing strategies have led to unsubstantiated initial high product launch prices (relative to other therapeutic options, adding little or no real clinical benefits) and subsequent price increases which often outpace inflation.

Pricing is a marketing responsibility with huge corporate financial implications.  The internal pressures to set the absolute highest possible price to achieve revenue and profit targets can be intense.  In many cases it becomes a very impersonal, quantitative spreadsheet modeling exercise providing executives with the comfort that forecast numbers (think quarterly revenues and profits) will be delivered.  More often than not, the price leader is the baseline metric against which new product pricing is evaluated, whether or not the new product has real clinical benefits over the price leader.

Price increases are taken as needed to make the financial numbers or to make the numbers look better?  You may even be able to do two small increases in the same year to get a bigger annual increase rather than taking it all at once.  With all the patients currently on a chronic product it is unlikely they will switch just because of the price increase and formularies are not likely to throw the product off just because of an increase,  so the thinking is ….go for it.

So what to do as a marketer?

The industry must start being more market sensitive and value based in its pricing practices.  Eventually, the market will force this issue as cost management becomes an increasing priority for the evolving new healthcare market.  But it shouldn’t take the market imposed price intoilerance to make this change.  Remember the idea is to reestablish market trust.

So, what is the real value and can you substantiate the value of your product against other therapeutic options?  This is not rationalizing small clinically meaningless differences.  It is time to “show me the data” and be more realistic about the value of your products relative to other therapeutic options.  If a generic drug can do the same as your product for most patients, how is it that you can charge 5 or 10 times the generic drug price and say you have “fairly priced” your product?  Can you really expect insurers or patients to pay the equivalent of the price of a new home in exchange for a drug that gives them merely a chance (not a guarantee) of maybe living a few more weeks or months?  Have you really priced your product “fairly” and consistent with its value…as perceived by the market?

For marketers with products that have clinically meaningful benefits that clearly exceed those of other therapeutic options, reestablishing trust comes by setting prices that are considered by the market to be consistent with the product value.  Product value should be proven if the benefits are real and meaningful.  So again, “show me the data” that patients will be able to relate to and appreciate.  Patients and insurers do not mind paying for what they value.  They mind feeling like they are being ripped off and don’t have a choice.

The biggest challenge marketers will face trying to execute this market sensitive, value based pricing strategy is the organizational pressure from executives and senior managers who have expectations for continuing the financial windfalls of “what the market will bear “ pricing strategies.  Unfortunately, I don’t expect many pharmaceutical industry executives to embrace this concept until the market forces them to consider making the change.  It will take strong marketing managers to help organizations realize how important this painful but simple change can make a huge difference in how companies are perceived.    Regardess of whatever else companies do to improve market trust,  without a change in pricing practices, reestablishing market trust is not possible.

mike@pharmareform.com

Companies continue to feel investor pressure and struggle to deliver revenue growth as they downsize and restructure.

An increasingly “managed market” is becoming less tolerant of marketing and sales tactics. Physicians and patients alike, while seek more product information, are becoming less responsive to advertising.  Legislators continue to probe and publicly imply impropriety regarding marketing tactics.  States attorneys general have formulated a process for consistently identifying, filing and winning fraud and false claims actions to recover money from settlements and fines for their ailing state budgets.  And regulators are committed to be increasingly aggressive with reining in compliance violators.

The market, legislative, and regulatory expectation is to stick to the product label claims and drop the “hype”.  Comply with these expectations and you almost certainly put your product at a competitive disadvantage against those companies, and their products, that choose not to conform.  And even if you play up the side effects and adverse reactions, it probably won’t be sufficient to satisfy regulators and certainly won’t prevent the thousands of product liability attorneys waiting to prove you didn’t do enough for their clients.

Despite what their  spreadsheet models might suggest, products in many company portfolios don’t have the differentiation or market opportunities to deliver the revenue forecasts and growth expectations being proposed.  Many products are no longer or never were the best treatment option.  Many that made blockbuster status are or will soon go off patent.  Many company forecasts ignore or mitigate the realities of therapeutic substitutions with generic drugs.

Yet the demands for growth continue to put marketing and sales people in a difficult and often unfair position of producing the revenue growth that may not be achievable with the products they have in this increasingly difficult and demanding market.  Aggressive revenue forecasts without strong product label claims that can help differentiate products gives way to aggressive sales and marketing tactics that go beyond expertise, creativity, and skill.

I don’t believe there are very  many C-level executives or senior managers who are going to be  receptive or empathetic to this reality.  I can hear it now.  “If you can’t get the numbers we need….we’ll find somebody who can.”  And,  I guess based on previous history of questionable ethics, “pushing the regulatory envelop”, and even illegal marketing and sales activities, including “off-label” promotion, that means “do whatever it takes…just try not to get caught”.   It may seem unrealistic and very idealistic to believe that this could stop, but I believe, for the industry’s  sake,  it must.

mike@pharmareform.com

Most pharmaceutical companies are probably going through an endless series of meetings trying to figure out the potential impact of healthcare reform on their revenue forecasts.  Much of the public press has focused on the industry’s potential windfall and revenue upside from:

• Prescription drug coverage expanded to include an additional 45 million currently uninsured patients.
• Growing, aging population with the potential to treat more chronic diseases over a longer period of time
• Prescription drugs will be seen as cost saving alternatives with the potential to reduce the chances for more costly medical complications and avoid costly hospitalizations
• Cutting the $80 billion over 10 years deal to pay 50% of drug costs for seniors in the “doughnut hole” of Medicare coverage will make those drugs more affordable,  increasing the probability that patients will continue to take their branded medicines and reduce the chance that they might switch to cheaper generics during that time.
• Heightened prospects for establishing programs to enhance adherence and compliance (keep patients taking their medicines as prescribed)

These upsides, however, will come with new market expectations and realities that could have perhaps an even more dramatic downside impact on revenue forecasts.

• A strong preference for generic drugs supported by insurer driven prescribing influence (think compliance through e-prescribing technology) and an intense focus on controlling costs
• An expectation for proprietary brand products to meet “best practice treatment of choice” clinical proof before they are considered therapeutic options to generic drugs
• An expectation for treatment “guarantees”, cost sharing, risk sharing and other, yet to be created, tactics to offset the financial impact of high cost treatments
• Increased pricing transparency will increase market pressure to gravitate to the lowest negotiated price for a therapeutic class
• The potential for government price negotiations.  Private insurance plans will be challenged to do better than they are currently doing in price negotiations.  If they fail, prescription drug prices appear out of control, and  regardless of whether there was a deal struck between the industry and the Obama administration, the government will end up negotiating prices, at least for government sponsored coverage.
• Formularies will leverage their negotiating power and realize the financial feasibility of having no more than 2-3 therapeutic options (e.g., no need for 10 cholesterol lowering agents or anti-hypertensives) on their formulary.
• Formularies will collectively structure to the lowest cost options for drug treatment, reducing the market opportunity for more costly or less preferred branded products in a therapeutic class
• There will be less opportunity to directly influence physician prescribing or patient preference through traditional sales and marketing tactics

So how do your products fit this new world picture?   What do your forecasts look like? In the next post we’ll show you how to pressure test your product portfolio against the evolving new healthcare market.

mike@pharmareform.com