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All things Pharma

Pharma at the crossroads: Choosing the right direction in a changing healthcare world

An increasingly difficult market environment is forcing pharma to adopt new ways of working, but how will these changes impact sales models and what will this mean for the field force? David Stern and Sophie Lamle of Roland Berger Strategy Consultants investigate.

Times are getting tough for pharmaceutical companies. Whilst financial pressures, regulatory changes and increasingly active stakeholders have already forced pharma firms to rethink their business models, it seems the most demanding times are yet to come. “For the first time in history, it is evident that this industry will have winners and losers,” comments one senior pharma executive.

The recent Roland Berger report, Pharma at the Crossroads – the result of research among senior decision makers in the world’s leading pharmaceutical firms – provides a unique snapshot of the industry’s current thinking.

What has changed?

Pharma managers highlight how market access and reimbursement have become increasingly challenging in recent years.

Historically, if a company wished to access a market, there were three hurdles a drug had to pass; safety, efficacy and manufacturing quality. Now, however, not only has regulation in these areas been tightened, but some markets – especially in Europe – have implemented a fourth hurdle: cost effectiveness.

“There will be a need for all representatives working within a local health economy to work closely together towards the same goal”

Access to markets is becoming highly restricted in some countries by either governments or payors, who are seeking price decreases or increasingly stringent cost benefit analyses. Chart 1 shows our assessment of the healthcare situation in major healthcare markets with arrows indicating the likely direction of change in the future. It can be seen that many markets are becoming increasingly controlled by payors and are moving towards a cost containment model.

These difficulties have led to pharma companies experiencing increasing price pressure, accentuated by the lack of innovative products emerging from the R&D pipeline. NICE in the UK has set the trend in terms of reimbursement, and rationing has become a major element of cost containment. This may mean that not launching a product in certain markets (as already demonstrated in Germany, France and the UK) due to reimbursement issues will become more common. However, not all senior executives see cost containment as a bad thing due to the associated trend for evidence-based medicine: “Provided you have the right data, you can virtually guarantee the market,” comments one manager.

As well as challenges at the national level, regional organisations (e.g. PCTs in the UK) are becoming increasingly prevalent, resulting in fragmented national markets that call for different commercial models to be successful. These regional organisations can have control over local healthcare budgets and care pathways, creating further hurdles for pharma companies to ensure good uptake of a drug.

Our study highlights that only 40% of companies have implemented market access programmes at a country level, 15% at a global/ regional level, with a further 35% still working on these. Given the importance of market access, pharmaceutical managers foresee the need for further investment in these programmes, with the majority looking to improve their organisation, skills and resources (61%) and investing further into stakeholder management (59%).

What does this mean for the industry?

Whilst pharmaceuticals remains one of the most profitable industries, mounting pressure on corporations is affecting the bottom line. Senior executives recognise the need to take action, and are looking to implement cost reduction programmes. Sales and marketing are identified as having the largest cost cutting potential of all business functions, with 5-10% potential savings predicted.

However, not all is doom and gloom. The majority of interviewees consider sales and marketing functions as core competencies for the business, but highlight the need for traditional sales and marketing models to change. These changes are driven not only by the need to reduce costs but also by the recognition that healthcare systems in many countries are changing.

As highlighted earlier, reimbursement and market access are becoming increasingly tough for pharma companies. In countries such as the UK and Germany, organisations such as NICE and IQWIG need to be approached carefully to ensure favourable reimbursement decisions. At a regional level, ‘new’ customers, such as payors and hospital groups, are growing in importance, reducing the influence of the individual physician in many markets. So what is the industry doing to address these issues? How can sales and marketing functions adapt to the new world?

How to ensure market access and increase profitability

We asked pharmaceutical managers to identify the key dimensions of a business model to ensure good market access and profitability in the future.

For market access, executives identify a shift from products towards services and an indirect influence on prescribers as crucial for success. However, most feel that these services would have to be free. This shift to services will lead to interesting collaborations and partnerships between pharmaceutical companies and other bodies, as has already happened with Takeda (see below).

In terms of profitability, senior executives foresee a shift away from individual products to product portfolios; to accounts rather than individual prescribers; and a strong need for flexibility in the field force (including outsourcing). See Chart 2 for further details.

What this means for the UK – partnerships not products

The healthcare market in the UK is in a state of flux. Private providers are able to enter the market more easily, changing the way the NHS has traditionally been run, as exemplified by the introduction of polyclinics.

Increasing cost pressures on the NHS are driving the use of generic products, whilst the power of individual physicians is declining as local organisations such as PCTs create local formularies and care pathways.

Since 2006, the number of PCTs has also fallen, increasing the risk to a pharmaceutical company if relationships with these organisations are mismanaged.

These changes will offer pharma companies an exceptional opportunity for partnership.

The shift towards indirect influences on prescribers has already been occurring for some time in the UK, with some pharma companies looking for innovative partnerships. The majority of major pharma companies already have representatives in place specifically to manage PCTs.

Some have gone even further. For example, Takeda’s view that they could not justify the expense of the large field force required to compete with the big pharma presence saw them invest in only 45 account managers for the UK.

Takeda account managers have been responsible for building relationships with the local healthcare decision makers through partnerships. These partnerships are less about products and more about services, including offers to sponsor nurses, educational meetings and training sessions for the local health community.

Generally there is a growing realisation within NHS organisations that partnership is necessary to ensure the best, most effective care for the population. In addition, new private organisations offer further partnership opportunities for the industry.

The role of the representative

The influence network within local health economies is becoming increasingly complex as these new groups emerge. Exactly who the key influencers are within each local health economy is likely to vary widely by region. Because of this, the need to operate an account management approach is particularly strong in the UK. In future, there will be a need for all representatives working within a local health economy to work closely together towards the same goal. This will require flexibility in terms of roles, skills, team sizes and management.

Due to the important trends in cost containment and evidence-based medicine, representatives are having to become highly skilled in both health economics and the medical science behind drugs. As we move further towards a product portfolio and services approach, the skills of a rep will need to develop even further. How these skills should be spread amongst a field force must be managed carefully and raises further questions for the industry.

Given the increasingly regional fragmentation of the market, pharmaceutical companies will need to differentiate their commercial strategies and tactics according to the specific local requirements, leading to asymmetric organisations and processes. The many additional skills required in the future, as well as new customer groups, growing regional differences and the need for flexibility (including outsourcing) will make field force structures more complex, posing a significant management challenge to UK organisations.

Mapping out the road to future success

Whilst marketing and sales will remain core competencies in the future, they will be differently aligned, with partnerships with external suppliers becoming increasingly important. In the UK, in particular, building a highly skilled field force that can respond quickly and effectively to changing local situations and local customer needs will be the key to future success. What this field force looks like in detail, however, still remains unclear.

David Stern, Managing Partner, and Sophie Lamle, Senior Consultant at Roland Berger Strategy Consultants both have extensive experience of working closely with the UK’s major pharmaceutical companies to redesign commercial organisational structures.

Roland Berger Strategy Consultants, founded in 1967, is one of the world’s leading strategy consultancies. With 36 offices in 25 countries, the company has successful operations in all major international markets. In 2007, it generated more than EUR 600 million in revenues with 2,000 employees. The strategy consultancy is an independent partnership exclusively owned by about 160 Partners.

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