New commercial models

Sati Sian of IMS Health looks at how pharmaceutical companies are reviewing their strategies to meet changing market needs.

NGP. What is driving pharmaceutical companies to re-think their commercial models?
Sati Sian. Several converging business conditions are forcing most major pharmaceutical companies to review their core, go-to-market strategy and how they commercialise their products. The most direct one is a decline in sales force productivity – a trend first observed a couple of years ago – precipitated because the ability to access and inform physicians has been tightened in response to the stricter controls that have been placed around them.

But the larger issue is that companies are straining to sustain profitability in light of growing generic competition, slower innovation and a much less robust pipeline, tightening regulation and growing safety challenges, and cost controls imposed by a variety of new decision makers. Payers are becoming increasingly aggressive in controlling costs, a trend made easier by the availability of generics and the growing number of ‘me too’ drugs in the marketplace. 

In this environment, most companies recognise the importance of reviewing their assets in sales, marketing, market access, and medical affairs and then rationalising them against a broader set of customers with different needs. Many companies began experimenting with pilots of new commercial models a few years ago, and a select few have moved to full implementation in 2009.
 
NGP. How do the new commercial models compare to the old?
SS. The former model was designed to achieve ‘share of voice.’ At its core was the simple (and at one time valid) notion that ‘more reps equaled more sales’. That single model now appears fundamentally broken for a large proportion of the market. In its place are multiple models flexing to accommodate regional differences and the nature of the controls that have been put in place in each country. These models take into account new, additional stakeholders and the complex interactions needed to work successfully with each of these groups.

NGP. What trends are you seeing across major markets?
SS. Markets across the globe are at different stages of evolution. In advanced markets such as the US, Canada, the UK and Germany, the dynamics have already changed. The return on investment (ROI) in physician-calling programmes and larger sales forces is dramatically down for a large segment of the market. In Germany, for example, new legislation gives the sick funds considerable power to negotiate directly with pharmaceutical companies, creating both winners and losers. In the UK, the Primary Care Trusts now have power over how prescribing is done in each region. And in the US, managed care programmes and the increasing burden of healthcare are influencing treatment decisions. Consequently, there’s an urgent need for companies to make changes to their commercial models in these markets.  

In the middle tier, there are markets that can be described as ‘mature’, but still awaiting for the market to develop to such a point that new commercial models will be mandatory. Many of the southern European countries fall into this category, plus Latin America.

In the third category – what IMS has called the ‘pharmerging’ markets (China, India, Brazil, Russia, Turkey, Korea, and Mexico) – growth remains high, healthcare systems and funding models are still developing, and a middle class is emerging that can fund healthcare. Here the traditional model still operates successfully.

NGP. What has IMS been doing to advance a solution?
SS. Manufacturers have been applying a number of generalised frameworks in their early experimentation and pilots with new commercial models. IMS, however, has made use of its local footprint in each of the eight leading markets to study what has really been driving change and to understand the current commercial context for products across 80 therapeutic areas.

We’ve segmented each therapeutic class in each country into three market categories: differentiated, commoditised, and transitional. This research has shown us how the need for change varies by class and country and what investments would now make a real difference in each market. Across the board, we’ve found considerable opportunity for optimisation; many billions of dollars of promotional spending are no longer warranted or could be better deployed.

Based on the evidence we collected, we also developed insights into the competencies and structures that pharmaceutical companies will need in order to respond appropriately. We then created a strategic framework for aiding companies in devising commercial models that accommodate their portfolios, the competitive landscape, and their own threshold for change. To help companies make the transition – which will in all likelihood be the most ambitious change effort the industry has ever undertaken – we’ve structured an approach to implementing change using the collective talent and knowledge of our management consultants.
 
NGP. What framework for designing and implementing new commercial models does IMS recommend? 
SS. We believe, for starters, that each company should understand the real return it is getting from its go-to-market efforts and asess its broader strategic options before undertaking the ‘downstream’ work of developing a new commercial model. Once a cohesive understanding is established, work can progress along three work streams.

The most near term involves stimulating the efficiency and the effectiveness of the existing resource, and these efforts are currently having the most impact on clients’ businesses. Companies are primarily using technology to look at more efficient segmentation schemes and pushing to create more value through the existing resource pool.

The second focuses on stakeholder engagement. One of the most significant factors that will drive improved performance is achieving clarity about the new stakeholders and how best to engage them. For example, this may entail knowing how to use key account management structures, deciding whether resources should be regionalised so that they are closer to the plan owners, and determining what resources are needed to engage successfully with the new stakeholders.

The third area is around creating additional value from the current portfolio of products. IMS is encouraging companies to think beyond the therapy itself and to wrap total treatment plans around the product set.

NGP. What’s required to adopt a customer-centric approach?
SS. First, understand that the definition of the customer is changing. The customer used to be the physician, and so as much as 90 percent of the sales effort was physician focused.  Now ‘the customer’ includes a much broader group of stakeholders.

This means that marketers face a very different set of needs that must be satisfied in the market. Companies must, therefore, have different value propositions, different organisational structures, and different skills, capabilities, and assets that face the stakeholders.  

We’ve seen this customer-centric approach work quite well. A top ten pharmaceutical company wanted to build stronger, customised relationships across its customer base, and so we helped it isolate the variables that customers appreciate in their interactions with the company. We then recommended new metrics for driving behaviour that included measures of customer value and plan influence by region, rather than share of voice. The company was able to realize an incremental $900 million annually in one country alone.
 
NCP.  Can you point to some examples of companies that have gotten it right?
SS. Although a few businesses are in some stage of implementation, it’s too early to pronounce that they have been successful. We are, however, beginning to see strong implementations of new regional structures in which companies are moving resources from a national to a local level. In the US for example, three major players are implementing and executing regional organisations that have the autonomy to respond to local needs by re-tuning their proposition. One of our clients operating in Spain has also adopted a regional approach, aligning the management framework to the geography of the new stakeholders. The company is seeing significant improvement in the uptake of new products, as its market access teams are integrated at the local level.

NGP. What does IMS bring to the challenge?
SS. First, IMS provides access to the information required to understand the current landscape in each market and the ability to quantify the degree to which a company’s existing model is working. Plus, we have in-depth, local knowledge about the health outcomes that local healthcare providers are demanding. Having framed the strategic decision-making process, we can help companies select the best approach for their situation. For example, we helped a mid-tier company map out its future operating environment across 19 countries, outlining what models made the most sense in each geography and what skills, processes, and assets it would need in order to succeed.

We can then guide the onerous and lengthy implementation process and measure the success of the resulting programme. It’s worth noting that our recent acquisition of Skura Professional Services enhances our ability to implement customer-centric approaches with particular experience in implementing closed loop marketing.

Sati Sian is Global General Manager, Commercial Effectiveness at IMS Health.