Pharma Reform

Unless you really understand and appreciate the mindset difference between that of the professional representative compared with that of the traditional pharmaceutical sales representative, this compensation discussion will not make sense to you.  As GlaxoSmithKline recently discovered, a change in sales compensation structure, especially incentive compensation,  away from traditional sales and prescription volume model will take an organizational and perhaps even industry realignment of pharmaceutical sales compensation philosophy.  Most pharmaceutical companies, their commercial management teams, and many representatives are not ready for this.

In fact, I predict that sales organizations will be most resistant to this change as most pharmaceutical sales representatives and managers are too grounded in the traditional sales mentality.  Many sales people are just going to see this as a take-away and will want nothing to do with the job.  It will also be hard for managers to get their arms around how to manage sales (“drive sales”) and evaluate performance without sales quotas and other activity based numbers.   They will complain about the inability to fairly and consistently assess performance if they don’t have hard numbers.  They ignore the fact that today’s prescription data and sales volumes are not accurate and are filled with national, regional, district, and territory caveats.   They also like to think that today’s sales goals and territory alignments are fairly distributed and accurately reflect potential.  And when was the last time we correlated the number of territory activities to sales results?

In the end, none of this matters because incentive compensation is not a performance driver for professional representatives the way it is for traditional sales representatives.  Incentive pay is not a scorecard like it is for traditional sales reps.  In fact if the lack of incentive pay is the reason for a representative to quit, you really didn’t lose a professional representative, you lost a sales representative and this is fine because they wouldn’t be happy or satisfied trying to make it work.  This is the hardest concept to get comfortable with if you have a traditional sales and sales incentive mentality.

Professional representatives want to be paid for their expertise, their stature in their medical community, and recognized for their personal performance excellence.  They prove their expertise and the effectiveness of that expertise by the business health of their territory in terms of how their products are perceived, formulary and reimbursement status, their access to key decision makers, and the professional respect those decision makers have of them personally.   They appreciate that actual sales of their product depends on a number of factors, some they can influence while for others it would be inappropriate to influence (e.g., encouraging the use of their product for patients who are not good candidates or where there is a better product available).  Sales and prescriptions are merely surrogate markers for a lot of things going on, not just their performance.

So how do you compensate the professional representative?  You pay them relatively high base salaries (compared to traditional sales representatives) consistent with their expertise and ability to create or maintain a healthy market environment for your products.   How many people can you hire with that level of expertise and ability to keep a territory healthy?  If you think you can find a lot of these people, you don’t have much for expectations and you are probably not looking beyond physician prescribing.  Are the people you are talking about able to hold their own in a scientific discussion with the Medical Director of an insurance company or pharmacy benefits manager that is considering how your product should be used in their patient population?  Can your representative cite the scientific literature to support their claims and recommendations for appropriate use? Is your professional representative so knowledgeable and good at their job that the insurance company Medical Director wants to hire them?

As for incentive pay, you might as well save it or better yet, invest it in your professional representative’s development.  You’d be better off spending the $20,000 per year on training, development, or sending them to more scientific meetings not to stand in an exhibit but to go to sessions and interact with their professional and academic colleagues.  If you still feel compelled to provide incentive pay, test them regularly on their expertise and give cash awards for testing performance.

You have to remember, professional representatives don’t do things because there is an additional pay opportunity associated with it.  They inherently want to do it because they see it as their responsibility. Their job is a big part of who they are and they take pride in themselves and the work they do. They view their compensation as a reflection of the level of expertise they have and the value they bring to the company when they apply that expertise.  They get more job satisfaction out of applying their expertise than any incentive pay could possibly achieve.   In fact, they’d rather have a pay raise as recognition of their advanced expertise than an incentive to drive sales.

The industry’s strong sales mentality will make it difficult to embrace the professional representative concept and even more challenging to formulate sales compensation plans that are not tied to sales and prescription volume.  You have to start someplace so perhaps this at  least has got you thinking about it philosophically.

mike@pharmareform.com

So what keeps representatives from having more engaging, more informative, and more credible discussions with physicians?  One of the most frequent reasons, or excuses, I hear about is the regulatory constraints placed on representatives.  Regulatory restrictions get in the way of being more effective as a sales representative when opportunities for product use exceed the label claims or where representatives could drive more sales by implying or even making comparative claims they can’t support with label claims or “substantial evidence.”

To ensure regulatory compliance, many companies, especially those with Department of Justice Corporate Integrity Agreements, now require representatives to stick to verbatim scripted presentations that mostly do not resonate well with physicians.  This “regurgitation of the company message” is an immediate turnoff for physicians, lacks credibility, and makes for awkward representative – physician interactions.

Now, keep in mind the premise of our discussion here. You are a professional representative and your mindset and focus is on making sure patients in your territory are getting the best treatment possible.  You are not just “driving sales” by doing and saying whatever it takes to get physicians to prescribe your product as much as possible.   Professional representatives don’t need to be reminded of fair balance or to stick to label claims and approved literature, they just do.  The challenge for them is whether or not they have the claims and sufficient regulatory compliant data and literature to meet the information needs of their customers.

Some sales representatives might suggest that they have all they need in terms of claims and published data and regulatory is just getting in the way.  If that is the case, then why would there be a regulatory compliance issue?  Why is regulatory review such a big deal?  Why would companies and representatives feel a need to promote off-label to make their sales? Why would companies feel compelled to script boring marketing messages to ensure sales representative compliance? More importantly, why is the market still clamoring for more comparative trials and better data to help them identify best treatment options for patients?

In this competitive market and knowing that products we now have were developed with a “get it to market “ mentality and indication – driven clinical trials to satisfy regulatory requirements for safety and efficacy, I’m going to suggest you do not have the claims or data you need.  How many of your products have two well controlled comparative efficacy trials to support claims of differentiation that you can use in sales presentations?  Can you claim superiority?  If not, how can you discuss why your product is better than another for a particular patient type? Can you do this and be compliant with regulatory requirements or are you expected to just cleverly implying a difference?

Here is the problem.   Even today, research gets the indications and it is up to marketing and sales to differentiate the product in the market.  When a physician or managed plan decision-maker asks why they should use your product rather than a competitive product, how do you answer?  Blatant claims of superiority or implied differentiation are the only way to convince them why your product should be used over another product.

What’s interesting is that when research and management talk about products to investors or in company presentations, especially before launch, they talk about and always answer questions about how the product is better than anything else out there, often using historical data from competitive products compared to their just released clinical data.  They highlight all the wonderful features and benefits that your product has over the competition, even quote data that imply superiority.

But, when marketing and sales wants to take those same messages to the market they have this regulatory issue.  While the research and management statements may be true,  they don’t necessarily come with the label claims or “substantial evidence” to support those same claims in advertising and promotion.  Yet, revenue forecasts are driven off those claims and expectations for differentiation.   And besides, who ever launched a product that wasn’t considered by their research team and management to be better than anything out there?

Pharmaceutical companies can no longer expect, pharmaceutical representatives to fill the label claim and “substantial evidence” data void for products.  The disconnect between product differentiation assumptions used for revenue forecasts and the regulatory constrained messaging puts the representative in an unfair position of having to deliver sales expectations beyond that which would be or ever could be achievable given a compliant presentation.

To be effective, even professional representatives need regulatory compliant information, comprehensive label claims, and more importantly, “substantial evidence” documented in peer-reviewed published literature.  This is the responsibility of management and the research team.  It is then marketing’s responsibility to develop forecasts that are aligned with the label claims and regulatory compliant information available for presentations and discussions by representatives.   mike@pharmareform.com

With the continuing investigations and charges of pharmaceutical companies for off-label and other illegal promotional activities with the subsequent meaningless fines and settlements being levied, (relative to the revenues generated by the alleged illegal activities) one has to wonder whether investors are being duped or rewarded.

If investors were aware of the fact that the blockbuster drugs that pharmaceutical companies are touting could not generate the same billions of dollars of revenue if the company had to stick to labeled claims for promotion and depend primarily on indicated uses, would they invest to the same extent?  In the spirit of full disclosure (think SEC), should companies be required to disclose that off-label promotion and use is part of their strategy (not just a possibility) and a major source of revenue that carries the risk of regulatory and legal action if the company is caught or charged and forced to go through expensive legal proceedings that could result in costly settlements?

Or, with the nominal settlements and fines being levied, are investors being rewarded for recognizing the clever business savvy of the pharmaceutical companies that know how to play the game with full understanding that they have little downside and huge financial upsides for ignoring the regulatory and legal constraints on pharmaceutical advertising and promotion?   We’re not talking about the activities of the one-off maverick sales or marketing person. We’re talking about the orchestrated initiatives where pharmaceutical companies know about  and develop plans to take advantage of the bigger market and revenue opportunity if they encourage and illegally promote their product for off-label uses.

Here is another way to look at this.  What if fines and settlements resulting from illegal promotional activities also required pharmaceutical companies to disgorge (forfeit) all product related revenues (attributed to illegal activities or not) during the period in which the alleged illegal activities occurred?

Would investors be as interested in investing or as forgiving of the companies that had to forfeit their revenues for illegal activities?  How many investors would expect disclosure up front if forfeiture of revenues was a real possibility from the planned off-label promotion?

Without getting into whether companies would legally fight rather than ever “settle” if disgorgement of revenues was a possibility, until the fines and penalties approach the revenues generated from the illegal activities, there is no disincentive ( these companies have already decided to ignore any concerns for patient safety), and every incentive, to continue to take advantage of the nominal financial downsides.

At the very least, however, there ought to be a disclosure requirement so that investors can make informed decisions, which for some investors might include investment choices based on supporting ethical and legal business practices.

mike@pharmareform.com

Once you have the attention of your customers (aware and interested in your product) they will usually evaluate your offering against other therapeutic options before they try or buy it.

In the past you may have been able to convince individual physicians that you had a better product for their patients by using any combination of sales presentations, marketing brochures, published clinical papers, or by having them attend company sponsored speaker programs.  Some physicians jumped right to using samples as their evaluation process. These were all effective tactics used to provide information for evaluation and biased or not, it was often the only information that physicians had convenient access to that helped them evaluate your product against other therapeutic alternatives.

In the evolving new healthcare market, even if you convince the physician you have a great product, what happens when they write the prescription but the patient’s drug plan does not have your product available on their formulary or it is available at a significantly higher, and perhaps an unaffordable, co-pay than other treatments?

Yes, this same situation can happen today but as the realities of healthcare reform take hold; cost management will intensify, including putting increased pressure on controlling the cost of prescription drug treatment. Managed plans will become more demanding for the information they require to substantiate your differentiating claims of better efficacy, improved safety, or cost benefit.  With the number of very effective mass market blockbuster products coming off patent over the next 5 years, prescription drug plans will have even more generic drug therapeutic alternatives to evaluate against your new product for many of the chronic diseases that drive revenues for the industry today.  Remember, you’ve been telling these same people how therapeutically wonderful these products are for years.  Now that they are available as generic drugs doesn’t make them any less therapeutically beneficial for their patients.

So what does this mean?  The evaluation step of the adoption sequence in the evolving new healthcare market will require marketers to answer two questions.  Marketers will also need to align every pieced of supportive data they have to prove the answers they are giving are based on credible, preferably published, scientific data (and not just implications and marketing hype).   This market will no longer buy into just because it is new, it is better message.  So, what are the two critical questions that must be answered?

“Why should we use your product rather than these other therapeutic options (including generic drug options) we have available?”

and

“Why should we pay more than we pay for these other therapeutic options that happen to be available as generic drugs?”

The difference between the past (or even the present) and the evolving healthcare reform- driven market is that prescription drug plans will be even more demanding and rigorous in their evaluation process. With so many good generic drug options available at lower cost they will need very good rationale and data to support their decisions and to justify the added costs associated with putting an expensive new branded products onto their formularies.  Patients may always have the option to pay for your product themselves but this is not where marketers are going to want to be, as you will not get the volume or revenues you need to make it worth marketing.

The good news is that if you have a truly innovative treatment that you can demonstrate has a clear clinically meaningful benefit at a reasonable price you will make the formulary decision easier and you may find the plan interested in working with you to increase the rate of adoption and encourage the use of your new product.  Again, all the marketing and sales hype you want to deploy for a “new” and “different” product without a meaningful clinical or cost benefit won’t get you there.  It will take solid credible clinical data to support the answer to the two questions.

It is this evaluation step that will make the evolving new healthcare market more challenging for pharmaceutical marketers going forward.  As physician prescribing practices are guided and constrained by prescription drug formularies and patient co-pay affordability, traditional marketing and sales tactics will have less of an impact on the evaluation step.  A good portfolio of effective treatments available as generic drugs makes this even more challenging.  Good science with strong data to support new product clinical benefits or overall healthcare cost savings will be more important than ever.

Guess marketing better start working even closer with and provide some meaningful input to  R & D.

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