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Pharmaceuticals and Life Sciences

Pharma 2020: the future Which path will you take? Table of contents

Previous publications in this series include:

Pharmaceuticals Pharmaceuticals and Life Sciences

Pharma 2020: The vision Pharma 2020: Virtual R&D Which path will you take?* Which path will you take?

*connectedthinking  Pharma 2020: The vision # Pharma 2020: Virtual R&D 1

Published in June 2007 this paper highlights a number of This report published in June 2008 explores opportunities issues that will have a major bearing on the over to improve the R&D process. It proposed that new the next 11 years. The publication outlines the changes we will enable the adoption of virtual R&D; and believe will best help pharmaceutical companies realise the by operating in a more connected world the industry, in potential the future holds to enhance the they provide collaboration with researchers, governments, healthcare to shareholders and society alike. payers and providers, can address the changing needs of society more effectively.

“Pharma 2020: Marketing the future” is the third in this series of papers on the future of the published by PricewaterhouseCoopers. It discusses the key forces reshaping the pharmaceutical marketplace, including the growing power of healthcare payers, providers and , and the changes required to create a marketing and model that is fit for the 21st century. These changes will enable the industry to and sell its products more cost-effectively, to create new opportunities and to generate greater customer loyalty across the healthcare spectrum. Table of contents

Introduction 2

What will the healthcare landscape look like in 2020? 4

Recognising the interdependence of the pharmaceutical and healthcare value chains 8

Investing in the development of the market wants to buy 10

Forming a of alliances to offer supporting services 12

Developing a plan for marketing and selling specialist 13

Creating a that is suitable for marketing specialist healthcare packages 15

Managing multi-country launches and live licensing 18

Adopting a much more flexible approach to pricing 18

Creating a marketing and sales function that is fit for the future 19

Conclusion 22

Pharma 2020: Marketing the future Introduction trends reshaping the pharmaceutical that, between 1996 and 2005, total marketplace).1 All these challenges real spending on pharmaceutical The social, demographic and economic have major ramifications for the way in promotions rose from US$11.4 billion to US$29.9 billion in the US (the only context in which the pharmaceutical which Pharma markets and sells the country for which expenditure on all industry (Pharma) operates is changing medicines it develops – the subject on which we shall focus here. major marketing and sales activities dramatically, as we noted in “Pharma is available).2 Another study suggests 2020: The vision”, the White Paper The industry has traditionally relied on that the true figure (including meetings PricewaterhouseCoopers* published in aggressive marketing to promote its and e-promotions) is closer to US$57.5 June 2007 (see sidebar, Seven major products. One recent study estimates billion in real terms.3

Seven major trends reshaping the pharmaceutical marketplace The pharmaceutical marketplace is changing dramatically, with huge implications for the industry as a whole. We have identified seven major socio-economic trends.

The burden of chronic is performance of different medicines. where for medicines is likely soaring. The prevalence of chronic Widespread adoption of electronic to grow most rapidly over the next 13 like is growing medical records will give them the years, are highly varied. Developing everywhere. As greater longevity forces outcomes data they need to determine countries have very different clinical and many countries to lift the retirement age, best medical practice, discontinue economic characteristics, healthcare more people will still be working at the products that are more expensive or less systems and attitudes towards the point at which these diseases start. The effective than comparable therapies and protection of intellectual property. Any social and economic value of treatments pay for treatments based on the outcomes company that wants to serve these for chronic diseases will rise accordingly, they deliver. So Pharma will have to prove markets successfully will therefore have but Pharma will have to reduce its that its medicines really , provide to devise strategies that are tailored to and rely on volume sales of such value for and are better than their individual needs. products because many countries will alternative forms of intervention. Many governments are beginning otherwise be unable to afford them. The boundaries between different to focus on prevention rather than Healthcare policy-makers and forms of healthcare are blurring. The treatment, although they are not yet payers are increasingly mandating primary-care sector is expanding as investing very much in pre-emptive or influencing what doctors can clinical advances render previously fatal measures. This change of emphasis prescribe. As treatment protocols diseases chronic. The self- will enable Pharma to enter the realm replace individual prescribing decisions, sector is also increasing as more of . But if it is to do Pharma’s target audience is also prescription products are switched to so, it will have to rebuild its image, since becoming more consolidated and more over-the-counter status. The needs healthcare professionals and patients powerful, with profound implications of patients are changing accordingly. will not trust the industry to provide for its sales and marketing model. Where treatment is migrating from the such services unless they are sure it has The industry will have to work much doctor to ancillary care or self-care, their best at heart. harder for its dollars, collaborate with patients will require more comprehensive The regulators are becoming more healthcare payers and providers, and information. Where treatment is risk-averse. The leading national and improve compliance. migrating from the to the multinational agencies have become primary-care sector, patients will require Pay-for-performance is on the rise. much more cautious about approving new services such as home delivery. A growing number of healthcare payers truly innovative medicines, in the wake are measuring the pharmacoeconomic The markets of the developing world, of problems with medicines like Vioxx.

*‘PricewaterhouseCoopers’ refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

2 PricewaterhouseCoopers Much of this increase in spending has Too many cooks spoil the broth gone on the expansion of the sales force. However, many of the industry’s Between 1996 and 2005, the number of US sales representatives nearly doubled biggest markets are now saturated with to 100,000, although the number of practising rose by just 26%. The sales representatives, and its selling market is getting very crowded in other countries, too. In a recent poll of British techniques are becoming increasingly general practitioners, respondents reported receiving an average of four visits ineffective (see sidebar, Too many a month and five promotional mailings a week. Similarly, one Malaysian doctor cooks spoil the broth).4 participating in a study of promotional practices in emerging countries was approached by 16 multinationals and nine local generics companies within a five- Hence the fact that returns on detailing week time span. (sales visits to doctors) have begun to decline in the developed world. The battle for market share has triggered considerable alarm. Some 20% of US Between 2004 and 2005, there was a and British doctors now refuse to see any sales representatives. The regulations 23% drop in dollar growth per detail in governing the behaviour of sales representatives are also getting tougher. Various the US, although detailing still accounts US states have passed laws requiring pharmaceutical companies to report all for more than half the market share gifts or payments to healthcare professionals exceeding $25, while Australia has new win during their first year of banned pharmaceutical companies from providing doctors with personal gifts, life. The picture is rather more varied in or lavish hospitality. Western Europe, but detailing plays a Several industry trade groups have likewise introduced new codes of practice much smaller role in stimulating sales in – and they are actively enforcing the rules. The Prescription Medicines Code of 5 these countries. Practice Authority (PMCPA), which administers the code of practice laid down by Conversely, detailing is still very the Association of the British Pharmaceutical Industry, is one such instance. The important in many developing PMCPA “names and shames” the most serious offenders, by reprimanding them nations. In China, for example, nearly publicly and publicising the violations they have committed in advertisements in three-quarters of the information the medical and pharmaceutical press. doctors receive about new medicines comes from meetings with sales promotional” information.9 And to US advertising and French-speaking representatives and conferences.6 But Pharma’s spending on DTC advertising Canadians, who primarily watch French- here, too, resistance to “irresponsible” only accounts for about US$5 billion, language media – over a five-year 7 marketing practices is growing, and, in which is just 14% of its total marketing period. They found that DTC advertising May 2007, the member governments of budget.10 However, the jury is still out on had no effect on sales of two of the the World Health Organisation passed a just what this expenditure provides. three products and that, although sales resolution to enact or enforce legislation of the third spiked by more than 40% banning the “inaccurate, misleading or In the early days, the returns appeared when the campaign began, the spike unethical promotion of medicines”.8 to be substantial. Between 1999 and was quite brief.12 2000, sales of the 50 products that Direct-to-consumer (DTC) advertising were most heavily advertised in the Much of the industry’s expenditure – the other big weapon in Pharma’s US soared by 32%, compared with on DTC advertising may have been marketing artillery – has also failed to 11 deliver all that the industry expected. an average increase of 13.6%. But pointless, but the damage to its Only two countries – the US and New more recent research suggests that reputation is arguably a more serious Zealand – currently allow companies DTC advertising has little, if any, long- problem. In January 2008, the US House to market their medicines directly to term impact on demand. In one study of Representatives Committee on Energy consumers, although the European published in the British Medical Journal, and Commerce initiated an investigation Commission is considering a proposal the researchers compared the uptake into the misleading and deceptive to lift the ban on direct communications of three medicines in two populations – advertising of medicines, after several that provide “objective...non- English-speaking Canadians exposed particularly flagrant abuses of the rules.13

Pharma 2020: Marketing the future 3 Table of contents

Table 1: has been slashing In short, aggressive marketing – • The buying and selling of medicines its workforce whether it be to doctors or patients – is is based solely on technical data like Announced becoming increasingly ineffective as a safety and efficacy, as distinct from Company Job Cuts means of stimulating demand for new subjective criteria like quality of life. therapies and overcoming reluctance to We shall discuss the changes that have 10,000 pay premium prices for products that invalidated these assumptions in more AstraZeneca 7,600 are deemed to offer only minor clinical detail in the next chapter. Merck & Co. 7,200 improvements. Industry critics are also becoming increasingly vociferous in 6,000 their complaints that it is wasteful or Schering-Plough 5,500 even unethical. What will the healthcare Johnson & Johnson 5,000 Big Pharma has responded with various landscape look like in GlaxoSmithKline 5,000 cost-cutting measures. Pfizer set the 2020? 2,600 pace in late 2006, when it said that it 14 2,500 would cut 20% of its US sales force. For many years, pharmaceutical Other companies rapidly followed suit companies decided what their products 1,200 and, by October 2008, the industry were worth, and priced them accordingly. -aventis 700 leaders had announced plans to shed But healthcare policy-makers, payers Total 53,300 another 53,300 jobs, many of them in and patient groups are now playing marketing and sales (see Table 1).15 an increasingly important role in the Source: PricewaterhouseCoopers They are now turning their attention process – and this trend will to developing countries like India, accelerate, as healthcare expenditure where 10 multinationals are reported everywhere continues to soar. to be trimming the number of sales The aging of the population, together representatives they employ.16 with dietary changes and more However, both industry executives and sedentary lifestyles, is driving up the commentators recognise that the failings disease burden in both developed of the current marketing and sales and developing countries.17 People’s model cannot be addressed simply by expectations are also rising as new reducing the size of the sales force; therapies for treating serious illnesses the problems go very much deeper. like cancer reach the market. The We believe that they stem from three global healthcare bill has risen incorrect assumptions, namely that: commensurately; between 2000 and 2006, expenditure on healthcare as • Pharma alone determines the value a percentage of of its products (GDP) climbed in every country in • Products alone create value; and the OECD.18

4 PricewaterhouseCoopers Many policy-makers and payers have doctor was electronically notified that The push for e-prescribing therefore started trying to measure the product concerned was off plan.21 exactly what they are getting for their More than 70% of all doctors in E-prescribing has enormous commercial money. A number of countries, including , the Netherlands and implications for Pharma. Most of the Australia, Canada, Finland, New Sweden write prescriptions activities it performs to market its Zealand and the UK, have established electronically, and the European Union medicines to doctors take place before agencies specifically to conduct formal is promoting the practice in other the prescribing decision is made – clinical and economic evaluations member states. Doctors in Darwin, and e-prescribing could mitigate that of medicines. The US Senate is also Australia, are also testing a new influence, unless the industry can considering a bill to create a that, if successful, could be collaborate with healthcare payers to Care Comparative Effectiveness rolled out nationwide, and the US has Research Institute, which would perform shape the information doctors receive. just passed a new law to increase a similar function.19 However, healthcare payers will want e-prescribing among doctors hard proof that a product really is safer, participating in the Similarly, some governments are more effective or more economical than programme. Eligible physicians will actively encouraging the use of its rivals, and they will have many more receive a 2% bonus for writing e-prescribing (see sidebar, The push resources to investigate such claims electronic scripts in 2009 and 2010, for e-prescribing).20 The main aim of than any individual doctor or practice. dropping to 1% in 2011 and 2012, and these efforts is to reduce prescribing 0.5% in 2013. But penalties will be errors. But e-prescribing will also enable With greater use of pharmaco- economics, strict formularies and imposed on those who do not use healthcare payers to influence the e-prescribing by 2012. prescribing decision much more easily, e-prescribing, healthcare policy-makers by providing doctors with clinical and and payers are increasingly assessing in e-prescribing is not confined financial information at the very point at the relative value of different medicines. to the developed world. India’s largest which they are choosing which products Patients are playing a bigger part in chain, Apollo to prescribe. the process, too. Indeed, they are , has recently started even helping to decide which products offering doctors and patients an This will have a major impact on the should reach, or remain on, the market. e-prescription . Similarly, the decisions doctors make. In one recent Patient power was a critical factor in the Turkish government has launched survey, for example, two-thirds of decision to approve Herceptin for use several e-prescribing pilot programmes the physicians participating in a US on the British as part of a bigger initiative to establish e-prescribing initiative reported that (NHS) in the treatment of early-stage a national health network, and the they were more likely to prescribe a breast cancer, for example.22 Russian Ministry of Health and Social generic or plan-preferred Development introduced new when using an e-prescribing system. Patients will become even more prescribing rules, including computer- Analysis of some 3.3m e-prescriptions influential, as access to reliable readable prescription forms for the bore out their claims; 39% of those healthcare information increases, the beneficiaries of federal and regional that failed to comply with the use of co-payments proliferates and schemes, in 2007. requirements were changed when the the trend towards self-medication

Pharma 2020: Marketing the future 5 Table of contents

grows (see sidebar, Health 2.0 hits Health 2.0 hits the headlines the headlines).23 Public expenditure still accounts for the bulk of healthcare The number of people using the to find healthcare information has spending in every G7 country except increased dramatically over the last decade. Some 66% of US adults go online to the US, but patients in the E7 countries research their conditions, as do more than half of all Europeans. Numerous blogs typically foot more than half the bill and online forums have also sprung up to cater for increasingly information-hungry themselves (see Figure 1). patients. They include sites such as patientslikeme.com, which enables patients to compare symptoms and ; medhelp.org, where doctors and patients The split between public and private work together to create “wikis”; and various disease-specific forums for patients healthcare spending is also changing with conditions like cancer and . in some G7 countries, as they try to reduce the burden on the public The next stage in the so-called Health 2.0 revolution is the proliferation of exchequer. In Britain, for example, the electronic personal health records. Microsoft and Google have both launched government recently gave permission services to help people create and store their own personal health records on the for cancer patients to buy “top-up” World Wide Web. But there are many other, smaller companies offering similar privately, without losing their right services, including myPHR.com, medicalrecords247.org and ihealthrecord.org. to free care under the NHS.24 Conversely, in the US, President Barack Obama plans to put a bigger share of healthcare costs on the public tab, by expanding coverage to uninsured Americans. He has also promised to lower the cost of medicines by allowing Figure 1: Private expenditure on health as a percentage of total healthcare the importation of safe products spending in the G7 and E7 countries from other developed countries, increasing the use of generics in public 90% G7 Countries E7 Countries programmes, taking on pharmaceutical companies that block cheaper generics 80% from the market and eliminating the ban 70% on the federal government negotiating 60% prices.25 But, whether it is patients, governments or health insurers who 50% are picking up the costs, one thing is 40% clear: the days when pharmaceutical companies could dictate how much 30% their medicines should fetch, without 20% regard for the other stakeholders in the healthcare arena, are over. 10% The opportunities for generating value 0% from pure product offerings are also Uk US Italy India rapidly diminishing. In the past 15 Japan Brazil China Turkey Canada France Mexico Russia months, at least three companies Germany Indonesia have started offering personal genome Source: World Health Organisation, “World Health Statistics 2008”

6 PricewaterhouseCoopers services for the masses. 23andMe which medicines are particularly safe, On the right (which is backed by Google) charges efficacious and cost-effective in different just US$399 to analyse people’s DNA patient populations, and include such Numerous new sources of clinical data and tell them how likely they are to suffer information in their treatment protocols are emerging. The US National from more than 90 health conditions and (see sidebar, On the right track).27 They Comprehensive Cancer Network has, inherited traits. deCodEme (a branch will also be able to revise the prices they for example, established an of the Icelandic company pay upwards or downwards, depending database to collect socio- deCODE Genetics) and Navigenics on how specific medicines perform over demographic, clinical and non-clinical offer more comprehensive versions of time (see Figure 2). information on patients suffering from this service for US$985 and US$2,500, various forms of cancer. The American The industry has already been forced respectively.26 Cheap gene sequencing Medical Group Association has set up to take the first steps down the path and disease disposition analysis will fuel a system to let doctors share to pay-for-performance. In the UK, for popular demand for targeted medicines comparative outcomes data, so that example, reimbursement of Velcade, and personalised healthcare. they can treat their patients more Johnson & Johnson’s new cancer effectively. And the International By 2020, electronic medical records, treatment, is contingent on proof of a Serious Adverse Events Consortium e-prescribing and remote monitoring measurable reduction in the size of a aims to develop genetic markers for 28 will also give healthcare payers and patient’s tumour. Similarly, payment for identifying which individuals are at risk providers in many countries access Lucentis, Novartis’s for age- of experiencing serious drug-related to extensive outcomes data, as we related macular degeneration, is subject adverse events. indicated in “Pharma 2020: The vision”. to a dose-capping scheme under which They will then be able to determine the company bears the costs of treating

Figure 2: By 2020, pay-for-performance will be the norm in many countries Today

Patient Prescription Payment

2020

Patient Prescription Outcome

Medicine works/does not work

Medicine is safe/unsafe

Specified populations in which medicine works and is safe

Payment based on performance Source: PricewaterhouseCoopers

Pharma 2020: Marketing the future 7 Table of contents

any patient who requires more than 14 definition of what constitutes a “good” Recognising the injections.29 The British government now medicine will expand. In addition plans to extend this approach, with a to clinical considerations like safety interdependence of the flexible pricing system under which the and efficacy, it will include qualitative pharmaceutical and prices of new medicines can be raised, criteria – such as the extent to which healthcare value chains if they prove more effective than initially a treatment makes patients feel better, 30 expected. enables them to keep working or The relationship between pharmaceutical reduces the cost of caring for them. US health insurer UnitedHealthcare companies, healthcare payers and is also piloting a performance-based By 2020, we believe that providers is at best wary – and pricing experiment with Genomic pharmaceutical companies will therefore sometimes downright antagonistic. Yet Health, which makes a genetic test have to collaborate much more closely analysis of their value chains suggests to identify which women with early- with everyone in the healthcare arena that they have far more in common than stage breast cancer would benefit from might first seem the case. chemotherapy.31 And, by 2020, we think to provide a range of products and that all new medicines will be paid for on services from which patients can pick In its simplest form, a value chain is the basis of the outcomes they deliver. and choose all but the core prescription, the series of activities an entity (either both to differentiate their offerings more singular or collective) performs to create However, most treatments perform effectively and to preserve the value value for its customers and thus for the much better in clinical trials than they of the medicines they make. More entity itself. The pharmaceutical value do in everyday life, partly because the specifically, they will have to: chain starts with the raising of capital level of compliance is much higher. to fund R&D and concludes with the Numerous clinical studies show, for • Recognise the interdependence of marketing and sale of the resulting instance, that most patients who the pharmaceutical and healthcare products. In essence, it is about making are taking can reduce their value chains innovative medicines that can command cholesterol to normal levels. But in one a premium (see Figure 3). study of long-term compliance patterns, • Ensure that they invest in developing only 33% of patients were still using medicines the market really wants The payer value chain starts with the raising of revenues through premiums, a at the end of 12 months, and • Form a web of alliances to offer taxes or out-of-pocket payments. only 13% were still doing so at the supporting services end of five years.32 Thus, if Pharma is The payer then creates value for its to command premium prices for its • Develop comprehensive plans for customers (patients, policyholders and products in future, it will need to help marketing and selling specialist payers) by managing the administrative patients manage their health. Otherwise, therapies process and giving them access to it risks having to reduce its charges or medical care. The payer’s goal is thus • Create organisational that even incurring financial penalties for to make a financial or political profit by failing to deliver all that it has promised. are suitable for marketing specialist maximising its revenues or reputation healthcare packages (with its customers or voters, depending To put it another way, good medicines on whether it is a commercial enterprise will still be the cornerstone of any • Manage multi-country launches and or government) and the quality of the pharmaceutical company’s marketing live licensing service it secures, while minimising its and sales strategy, but they will not • Adopt a more flexible approach to costs (see Figure 4). be sufficient in . By, 2020, pricing; and prescription therapies will be only one The provider’s goal is to deliver a high of the components in a collection of • Build marketing and sales functions quality of care efficiently. This usually products and services from which that are fit for the future. means treating patients as economically patients can select. Furthermore, as the as possible, for as long as required. The balance of power shifts from Pharma provider value chain therefore begins to healthcare payers and patients, the with an analysis of the factors affecting

8 PricewaterhouseCoopers Figure 3: The pharmaceutical value chain

Raising of Finance Research Development Marketing & Sales & (Via the capital (Target identification, (Clinical trials, (Process development, (Development of markets) synthesis & screening of submission of new scale-up, commercial promotional materials, molecule, and drug application to production, shipping to detailing, account & testing, initial regulators) ) management) testingPr inevention man)

Source: PricewaterhouseCoopers

Figure 4: The healthcare payer value chain

Raising of Finance Provision of Cover Medical Services Management Bill Payment

(Through premiums, taxes or (Analysis of population (Practice guidelines, clinical (Referral management, out-of-pocket payments) at risk, administrative guidance, pharmacoeconomic monitoring & payment of services etc.) evaluations, formularies etc.) healthcare providers’ bills)

Source: PricewaterhouseCoopers Note: Our diagram represents the key activities in the payer value chain, not the entity that performs a specific activity, since this clearly varies from one healthcare system to another.

Figure 5: The healthcare provider value chain

Analysis of Prevention Secondary & Long-Term Care Population at Risk Tertiary Care (Epidemiological (, healthcare (Diagnosis, treatment, (Diagnosis & treatment of (Disease management, studies) advice etc.) minor ) serious illnesses, care at home, in major surgery, emergency nursing homes & ) services, hospital care)

Source: PricewaterhouseCoopers Note: Our diagram represents the key activities in the provider value chain. Again, different entities perform different activities in different healthcare systems.

the health of a given population and policies and practices of the providers and, while they continue to clash, they the preventative measures that can be used. The value providers generate are struggling to attain their respective taken to forestall illness. Thereafter, it depends on the revenues payers raise goals. The quality of the care they progresses through the various stages and the medicines Pharma makes. And collectively deliver is lower, and the of treatment from primary care to long- the value Pharma generates depends cost higher, than it would otherwise term care (see Figure 5). on getting access to the patients whom be – and society can no longer afford providers serve and income from the However, although these three value such inefficiencies. So, if mankind is payers who fund those providers. chains are different, they are also heavily to ensure that it gets the healthcare it interdependent. The value healthcare In short, none of the three parties can needs, the three parties must be much payers generate depends on the do its job properly without the others more closely aligned.

Pharma 2020: Marketing the future 9 Table of contents

We believe that creating feedback loops Investing in the play a key role in deciding whether a to capture outcomes data will help to medicine is innovative, using different close the gap. It will enable Pharma development of definitions of at different both to establish a more dynamic medicines the market points in the product lifecycle (see relationship with payers and providers, sidebar, What is innovation?).33 and to play a bigger role in giving wants to buy The process starts with the researcher, patients the support they require. This One of the many areas in which Pharma who identifies the scientific potential of will ultimately result in the needs to work much more closely with a particular molecule. It continues with of the separate, linear value chains that healthcare payers and providers is in the investor, who backs that belief with exist today into a single, circular value determining the sort of medicines the capital; the regulator, who approves the chain (see Figure 6). market actually wants to buy. We have labelling claim; and the pharmaceutical identified seven stakeholders who each company, which commits resources to

Figure 6: By 2020, the pharmaceutical, payer and provider value chains will be much more closely intertwined

Changes in will influence the need for healthcare Me dic funding & Pharma’s research r al ve ary c S priorities. Payers, providers & o Prim are er C S vi f n ec c Pharma will collaborate on o tio T o e n n er nd s o e tia a M epidemiological studies. i ev r r is r y y a v P ca & n o r a r e g Payers will shift to outcomes-based P e L pricing. Pharma will collaborate with o m f n e g payers and providers to determine o n n - s o t t i i t e which of the medicines in its pipeline s k a r y l s m l i u r really add value and can thus a p t c n o a a command the premium prices it A r p e needs to maximise its return on Patient .

M

& a e g Payers, in consultation with the r c k n S i e n a s medical profession, will issue clinical t i a l i n e n a i f s g R guidelines. They will also give f o providers incentives to prevent &

R M manage disease, as distinct from a a is & nu treating it. Pharma’s focus will shift to i D f t n i ac h n g st tu rc e the development of and o ri ri a m f bu ng se y healthcare packages for helping F tio Re a in n P a ill patients comply with their medical Payer nc Development B Provider e regimens and manage the diseases Pharma from which they suffer more effectively.

Source: PricewaterhouseCoopers

10 PricewaterhouseCoopers the production and promotion of the What is innovation? treatment. Once a medicine has reached the market, it is the healthcare payer, Innovative products are typically defined as those which a disease or provider and patient, respectively, who condition; prevent a disease or condition; reduce mortality or morbidity; reduce the adjudicate on its innovativeness: the cost of care; improve the quality of life; are safer or easier to use; or improve healthcare payer by paying a premium patient compliance and persistence. Most industry experts also distinguish price for it; the provider by choosing it between “radical” and “incremental” innovation, although the distinction is not over other therapies; and the patient by always very helpful. Pharmaceutical companies often engage in a race to develop taking it as instructed or even pressing new products which all have the same mode of action, and the third or fourth for a prescription (see Figure 7). market entrant may be superior to the first or second. However, not all of these “referees” are equally important. If the sponsoring company is to recover its development costs and earn a return Figure 7: Seven stakeholders are involved in deciding whether a new product on its investment, any new products it is innovative launches must command a premium price while they are still under protection. The healthcare payer – be it Patient a government, health insurer, employer or patient – is therefore the ultimate Provider Regulator arbiter of whether or not a product is considered innovative, and the shift in Payer the balance of power from prescribers Researcher Investor Regulator Pharmaceutical company to payers will only increase that control. $ Yet, for many years, most pharmaceutical firms invested relatively little effort in understanding the payer’s perspective during the R&D process, and those that did so generally waited R&D 12 Years Marketing & Sales 8 Years until the end. This is why many of the medicines they have recently launched have failed to qualify as innovative. In Source: PricewaterhouseCoopers 2006, only five Big Pharma companies earned more than 10% of their revenues Table 2: Only eight truly innovative medicines were launched in 2007 from major products launched within the previous five years.34 Moreover, Country of there are no signs of any immediate Company Brand name Primary indication first launch improvement. In 2007, only eight Novartis Tekturna Hypertension US of the 27 new therapies launched GlaxoSmithKline Tykerb Breast cancer US worldwide were the first of their kind (see Table 2). More than half were PharmaMar Yondelis Soft tissue sarcoma UK, Germany “me-too” treatments with at least three Alexion Soliris Paroxysmal nocturnal US predecessors.35 haemoglobinuria A number of companies now look Pfizer Selzentri HIV US at whether the medicines they are GlaxoSmithKline Altabax Bacterial skin infections US developing are as effective as, or more LEO Pharma ATryn Thrombosis UK effective than, other existing therapies (and certain countries now require Bristol-Myers Squibb Ixempra Breast cancer US that they do so). Some firms also Sources: IMS Intelligence.360 (2008) and PricewaterhouseCoopers analysis

Pharma 2020: Marketing the future 11

1 Table of contents

conduct extensive safety profiling in the commercial sphere. Indeed, they known examples being ’s Phase II to reduce the risk of finding should review every compound in their with DAKO to devise a test safety problems in Phase III, which pipelines, since no molecule that enters for identifying which patients with breast accounts for more than 25% of all R&D clinical development today will be cancer can benefit from Herceptin.39 costs.36 However, very few focus on launched before 2015, when the market However, Pharma will also have to enter demonstrating the superior economic for medicines will be even tougher the health management space, with value of their candidate molecules – and than it is now. Performing a rigorous compliance programmes, nutritional even fewer consider pricing before the assessment of what payers, providers advice, exercise facilities, health end of Phase III. and patients regard as innovation in screening and other such services. One Phase II will enable the industry to Two recent exceptions to this pattern firm that has already gone some way terminate any candidates that look point to a more constructive way down this is Baxter Healthcare, unlikely to generate much demand forward. In late 2007, Novartis struck which offers a range of services for and concentrate its resources on more a groundbreaking deal with the patients suffering from renal failure. commercially promising products (see English National Institute for Health These services vary from country to Figure 8). and Clinical Excellence (NICE) under country, but they include a global which it agreed to pay the agency a educational with customisable consultancy fee for advising it on the tools and information tailored to the of a Phase III trial to measure a web of needs of paediatric patients; a network the efficacy and cost-effectiveness of alliances to offer of nurses who provide dialysis training 37 at home or in hospital; a home delivery an experimental new drug. And, in supporting services June 2008, GlaxoSmithKline took the service; and a travel service to support equally unprecedented step of giving peritoneal dialysis patients travelling The development of medicines the 40 government healthcare officials in the locally or globally. market actually wants to buy will UK, France, Italy and Spain a say in not be enough, though. By 2020, has gone even further in deciding which compounds to progress 41 pharmaceutical companies will need its quest to “defeat diabetes”. In 2001, through its pipeline.38 to offer a suite of supporting services the company launched a global initiative We believe that all pharmaceutical for the treatments they launch. A few called DAWN, in conjunction with the companies should adopt a similar companies have already paired up International Diabetes Federation, to approach and extend the concept to develop complementary therapies provide “psychosocial support” for 42 of “de-risking” from the clinical to and diagnostics, one of the best patients with diabetes. It also operates a “National Changing Diabetes” programme in 66 countries, via which it Figure 8: Pharma needs to adopt a price de-risking strategy in early development provides training for medical staff, free blood sugar screening services, support Percentage of spending in each phase of R&D. 11.3% of spending uncategorized for diabetes patient organisations and equipment for diabetes , as Preclinical Phase IPhase II Phase III Regulatory Phase IV well as working with governments to 25.75.8 11.7 25.5 6.913.3 improve the diagnosis and treatment of the disease.43 Point at which Point at which pharmaceutical pharmaceutical Meanwhile, Medtronic recently launched companies companies a wireless monitoring service for should be typically start patients with cardiac disease, which thinking about thinking about pricing to de-risk pricing enables them to send data from their their portfolios implanted devices directly to their

Source: PricewaterhouseCoopers

12 PricewaterhouseCoopers

1 doctors. The latest devices can even Developing a plan for Generics for free be programmed to update and send patient data automatically.44 And other marketing and selling San Diego based MedVantx has precedents for moving into health specialist therapies developed an automated system for management exist outside Pharma dispensing generics free at the point itself. In the UK, for example, insurance The industry’s changing product mix of care. When a doctor wants to giant Prudential has joined forces will act as yet another incentive to move give a patient a sample, the machine with Virgin Active Health Club to offer into health management. In the 1990s, dispenses a 30-day and logs the a critical illness policy that provides most of the medicines Pharma made transaction. The health insurer then pays subsidised gym membership and were primary-care therapies for diseases for the product. rewards people who exercise regularly afflicting large patient populations, The idea is to give doctors an by reducing their premiums.45 such as hypertension, diabetes, alternative to the free samples issued By 2020, this model will apply to the high cholesterol and depression. by pharmaceutical companies. Such industry as a whole. Some companies But genomics, proteomics and samples are popular with patients may choose to provide such services metabolomics are providing new tools because they provide an opportunity themselves, but most will function with which to develop larger molecules to try a medication before paying for it. as nodes for a network of providers, that more closely mimic naturally One pilot programme conducted by Blue including device manufacturers, occurring molecules in the human body. Cross & Blue Shield of Rhode Island is dieticians, health and fitness clubs, estimated to have reduced the insurer’s Biotech companies like Amgen, mobile telecoms operators and expenditure on medicines by nearly $2m. Biogen and Genentech were among compliance call centres. They will the first firms to capitalise on these be responsible for managing the scientific advances. However, many mechanics of contracting and delivering Generics for free).48 The opportunities pharmaceutical companies have now for developing primary-care treatments these services, and thus collectively redirected much of their investment providing healthcare packages that with the potential to command premium from chemical entities to proteins prices are thus shrinking rapidly. individual patients can tailor to their for specific cancers, immunological own needs. conditions and blood factor deficiencies Conversely, demand for specialist Moving into health management will not too. At least 400 of the 2,000-odd medicines is soaring. In 2007, 55 of the be easy, not least because the provision treatments currently in development 106 blockbusters on the market were are biologicals or protein-based specialist treatments, up from just 12 of services is very different from the 49 46 in 2001. And IMS Health predicted provision of products. Nevertheless, this compounds. that sales of all specialist therapies route has several significant advantages. Increasing generic has could reach US$295-300 billion by the It will enable pharmaceutical companies reinforced this shift in the industry’s end of 2008, accounting for 44% of to generate new sources of revenue, research focus; as many of the products worldwide spending on prescription build stronger brands and forge closer developed in the 1990s come off patent, pharmaceuticals.50 relationships with the patients who generics manufacturers are filling an use their products and services. It will ever larger part of the primary-care Yet, although specialist medicines hold also help them to protect the value of space. Generics already account for huge clinical and commercial promise, the medicines they launch, both by 65% of all prescriptions dispensed they come with one major drawback: increasing compliance and by reducing in the US and for as many as 70% of their charging profile. Tufts Center the threat of getting locked out through all prescriptions dispensed in Central for the Study of e-prescribing, since it is very much and Eastern Europe,47 a trend that will estimates that the cost of developing a easier to substitute a standalone product accelerate, as automated dispensing new biological is about US$1.2 billion, than it is a product which comes with systems neutralise the effect of nearly US$400m more than the average personalised satellite services. distributing free samples (see sidebar, for a small molecule.51 But specialist

Pharma 2020: Marketing the future 13 Table of contents

Figure 9: Many specialist therapies cost thousands, or even hundreds of thousands, benefits and risks associated with using of dollars a year them and to communicate with an audience that is very well informed. Cancer Second, since specialist therapies cost such a lot, they attract far more Alpha-1 Proteinase Inhibitor Deficiency scrutiny before being approved for reimbursement – and reimbursement Pulmonary Arterial Hypertension is crucial, because few patients can afford to pay for them out of their own pockets. This trend will increase with the proliferation of more sophisticated Fabry’s Disease pharmacoeconomic models, reducing the opportunities for “hype”. It also Gaucher’s Disease means that anyone who promotes such medicines will need to have a “Bubble Boy” Syndrome clear grasp of the underlying them. 0 100,000 200,000 300,000 400,000 Third, many specialist therapies are Average Price in US dollars used to treat patients with specific disease subtypes, so they must be Source: D. Stevens, “Specialty Pharmacy to Therapy Management: The Next Generation”, accompanied by a diagnostic. And presented at PCMA Specialty Pharmacy Annual Meeting, October 2005 since they are more difficult to get to the target site, they must generally therapies are currently used to treat value in the eyes of payers, providers be delivered by injection or infusion. conditions that affect only 3% of the and patients, not just those of the Many such therapies must thus be general population.52 A company that executives that have backed them. It administered by a doctor or nurse but, develops a specialist medicine must is also increasing the importance of even when patients can administer therefore amortise its investment the marketing and selling process. But their own medicines, they usually (including the money it spends on though most pharmaceutical firms have require intensive patient marketing and sales) over a much recognised the potential of specialist and monitoring, especially in the early smaller number of patients. medicines, they continue to use a stages of treatment. marketing and sales model that was This not only adds to the overall cost So it is not surprising that specialist designed to promote primary-care of using specialist therapies, it also therapies often sell for many thousands products for mass-market . of dollars (see Figure 9). Nor is it means that different payment centres surprising that healthcare payers In fact, specialist therapies have (and reimbursement procedures) everywhere are taking steps to slow a number of unique features that may be involved. In the US, for down their utilisation. If demand for differentiate them from conventional example, specialist treatments are such products were to grow at current medicines and mean that they must often reimbursed under a healthcare rates, the global market for specialist be marketed quite differently. First, payer’s medical benefit rather than they typically have a broader range therapies alone would be worth about its pharmaceutical budget. Similarly, of activity and greater potential to in the UK, the cost of monitoring and US$1.4 trillion by 2020, double the 1 generate an immune response. They US$712 billion the entire prescription maintaining patients on specialist are also prescribed by specialists rather products market was worth in 2007.53 medicines frequently falls on the primary than general practitioners. So anyone care trusts covering the areas in which The shift towards specialist therapies who is marketing such medicines those patients live, rather than the is thus accentuating the need to must possess considerable scientific that treated them in the develop healthcare packages that have knowledge – both to understand the first place.

14 PricewaterhouseCoopers Lastly, many specialist treatments must will therefore have to develop a at risk of experiencing health problems. be ordered as necessary, rather than comprehensive marketing and sales It can also, as we have already noted, kept in stock – partly because they strategy that is tailored to the distinctive generate additional revenues from the are so expensive and partly because characteristics of such products support services it provides. they have relatively short shelf lives. (see Table 3). It will have, among They must also be transported and other things, to offer complementary stored with much greater care than diagnostics and support services; to Creating a culture that small molecules, because they are appoint a smaller, smarter sales force much more fragile. Both these factors capable of engaging with powerful is suitable for marketing have considerable implications for healthcare payers and medical specialist healthcare the supply chain. The ability to “make specialists; to build a responsive direct to order” requires the integration of distribution network; and to invest much packages a company’s demand management more effort in educating patients. with its manufacturing, packaging and Selling specialist therapies and support But if it succeeds in doing these things, distribution processes – changes that services as distinct from standalone it can expect to enjoy a longer period will necessitate a substantial capital small molecules has numerous other of exclusivity and greater customer investment in new skills and supply implications, and any pharmaceutical loyalty, since biologicals are very chain systems. company that wants to make the difficult to manufacture and most transition will need to undergo even Any pharmaceutical company that patients are reluctant to switch from more sweeping changes. It will, for wants to sell specialist therapies one to another because they are more

Table 3: Specialist therapies require different marketing and sales models from those used for mass-market medicines

Mass-market medicines Specialist therapies Marketing implications Treat common illnesses Treat rare diseases and specific disease A much smaller target market subtypes Must generally be used with a diagnostic, which adds to the overall cost but improves compliance Relatively simple products Very complex products Require more scientifically educated sales representatives Typically prescribed by general Prescribed by specialists Require a much smaller sales force practitioners Low price per dose Very high price per treatment Require much more extensive proof of clinical efficacy Outcomes-based pricing Usually oral formulations Usually delivered by infusion or injection Require intensive patient education & monitoring Costs may be spread across different payment centres & budgets with different reimbursement procedures Relatively easy to manufacture Difficult to manufacture Less vulnerable to generic competition Easy to Require special distribution & storage facilities More expensive to ship & store Generally kept in stock Often delivered to order Must be supported by a much more flexible supply chain

Source: PricewaterhouseCoopers

Pharma 2020: Marketing the future 15 Table of contents

Many companies will likewise have to a more integrated environment. Various Playing by the rules recruit and train people with new skills, elements may have to be altered, The majority of pharmaceutical including: ranging from new cycle time targets companies have established • Researchers who are as capable of for different steps in the R&D process compliance programmes that are considering commercial imperatives to new measures of effectiveness in based on the guidelines the Office like pricing and sales as they are marketing and sales. of Inspector General of the US of considering scientific issues like Department of Health and Human Most companies will also have to safety and efficacy Services issued in April 2003. But they alter their corporate compliance have typically taken quite a reactive • Manufacturing experts who can programmes. At present, approach. They have concentrated manage the complex processes pharmaceutical compliance functions on mitigating legal risks, such as required to produce large molecules typically spend the bulk of their time violations of the US Anti-Kickback and drug-device combinations and resources monitoring the way in Statute, US , US that amalgamate different scientific which marketing and sales staff interact Foreign Corrupt Practices Act and disciplines with healthcare professionals, and various US state-level marketing • Supply chain managers who can disclosure reporting laws. They ensuring that everyone complies with have also added yet another layer handle chilled-chain distribution the existing legislation (see sidebar, of controls to those they use in their through multiple channels and Playing by the rules).54 But, as the existing business operations, rather supervise a large network of service industry shifts to specialist medicines, than creating integrated, value-adding providers payers and patients play a bigger part in compliance functions. • Health who can advise the purchasing process and a growing on the pricing and reimbursement number of companies offer healthcare example, have to decide whether to of new medicines, and provide input packages that include products and continue developing primary-care into the design of clinical trials for services supplied by other firms, so the or focus exclusively on candidate molecules compliance function’s responsibilities specialist therapies (as Genentech • Key account managers who will increase. It will have to monitor does). Similarly, it will have to decide can negotiate with increasingly communications with payers and what sort of business model it should powerful healthcare payers and patients; collect, analyse and report use – be it diversified, federated or one pharmacoeconomic assessment on information from third parties; and of various other permutations. agencies; and assume responsibility for managing Clearly, “hard” financial, operational • Disease management specialists a broader range of risks across the and legal criteria will play a big role in with a profound understanding of extended enterprise – all activities that shaping these choices but, whatever how to help patients through the will necessitate the acquisition of much path they take, most companies will disease lifecycle. better operational and information also have to make major cultural management skills. adaptations. They will have to build Finding people with the requisite skills much closer links between their R&D will not be easy, given the breadth of In short, focusing on the development of and marketing and sales functions to knowledge the industry requires and specialist medicines and services rather foster cross-disciplinary collaboration the battle for brains now being waged than primary-care blockbusters entails and ensure that the views of healthcare in almost every part of the world. Many making significant organisational and payers are fed into the development companies will therefore have to adopt cultural changes – some of which may process. One way of doing this is to new talent management strategies, as not be immediately obvious (see Table 4). well as ensuring that the performance create dual reporting relationships, And implementing these changes will with employees in R&D reporting to measures and incentive systems they take enormous effort. management in marketing and sales, use are aligned with the behaviour that and vice versa. will be needed to operate effectively in

16 PricewaterhouseCoopers Table 4: Specialist medicines require totally new organisational and cultural characteristics

Blockbuster model Specialist model Strategy Development of mass-market Development of specialist medicines for treating specific blockbusters disease subtypes Generation of new prescriptions Cooperation with healthcare payers & providers to optimise the healthcare resource mix Responsibility for compliance & persistence Organisation Vertically integrated Networked Culture Fragmented, with separation of disciplines Integrated, with collaboration across disciplines & brands & brands R&D Restricted research agenda Comprehensive research agenda R&D silos Internal & external connectivity, partnering & adaptive trials Cumbersome decision-making processes Nimble decision-making processes

Reward systems based on number rather Reward systems based on collaboration & commercial than quality of candidate molecules awareness Manufacturing Narrow product range Wide product range (including diagnostics, biomarkers & novel delivery technologies) Batch-based, “made to forecast” Flexible, “assembled to order” manufacturing manufacturing Six Sigma processes Unique manufacturing processes Distribution Traditional channels, primarily wholesalers Multiple channels, including direct distribution to patients or their healthcare providers Conventional distribution Chilled-chain distribution and storage Pricing What the market will bear, rebates & Pay-for-performance discounting Marketing & Sales Intensive detailing Individual negotiations with large healthcare payers; specialist advice for secondary & tertiary healthcare providers; & educational programmes for patients Based on differentiation of competing Based on treatment of specific disease states and medicines measurement of outcomes

Source: PricewaterhouseCoopers

Pharma 2020: Marketing the future 17 Table of contents

Managing multi-country populations, different populations or the pricing, as live outcomes data provide treatment of other conditions. objective evidence of how new medicines launches and live perform outside a clinical setting. We If these changes take place, think that differential pricing will also play licensing pharmaceutical companies will be able a much bigger role in Pharma’s repertoire, to launch new medicines and services The nature of the products and services as the emerging grow. Pharma offers is not all that will change simultaneously in multiple countries, over the next 11 years; so will the way although they will still have to deal More than one-third of the world’s in which they are regulated. The leading with different regulators and market 10.1m high worth individuals agencies are exploring various new conditions. They will also be able to (defined as those with financial assets methods for assessing, approving and build new brands on an incremental of at least US$1m) live in Asia Pacific, monitoring medicines. We discussed basis, adding new services as they Latin America and the Middle East – these initiatives in detail in “Pharma expand from one territory to another or and the numbers are swelling rapidly. 2020: Virtual R&D”, but they will also identify new needs. But they will almost Between 2006 and 2007, the population have a huge impact on the marketing certainly be expected to price all new of high net worth individuals in the BRIC and sales process.55 medicines on a sliding scale, with price economies (Brazil, Russia, India and rises tied to the extension of the live China) rose by 19.4%, for example, We have predicted two changes that licence and quota of patients for which compared with an increase of just 3.7% could prove particularly significant. First, a treatment can be prescribed. in Europe and 4.2% in the US.56 Some by 2020, there may well be a common of these people are rich enough to regulatory regime for all healthcare Clearly, managing multi-country afford the most expensive medicines products and services, rather than launches with staged price increases Pharma has to offer. separate regimes for pharmaceuticals, would be a very complex business – medical devices, diagnostics and the and one that might well necessitate However, it is the rise of the global like (as is presently the case in most the acquisition of greater expertise in middle class – as distinct from the countries). Indeed, there may even be cross-jurisdictional regulation. But, with ranks of the wealthy – that is arguably a single global system, administered by modern communications technologies, more significant. US investment national or federal agencies responsible it would not be impossible. It would Goldman Sachs estimates that the for ensuring that new treatments meet also have the great merit of enabling number of people with annual incomes the needs of patients within their companies to start capitalising on their of between US$6,000 and US$30,000 respective domains. We think the latter R&D expenditure much more rapidly, (measured in is unlikely, given the vested interests although sales would peak more slowly. dollars) could increase by as much as of the existing agencies, but there two billion over the next 22 years.57 will almost certainly be much greater Much of this growth in the international harmonisation. Adopting a much more world’s prosperity will come from China Second, the current “all-or-nothing” flexible approach to and India (see sidebar, Mass affluence approach to the approval of new will fuel Asia’s pharmaceutical medicines may be replaced by a pricing markets).58 But the story extends cumulative process, based on the considerably further; some 20m people gradual accretion of data. In other In fact, Pharma will have to adopt a from other countries are joining the words, all newly approved therapies more flexible approach to pricing for global middle class every year, dwarfing would receive “live licences” conditional other reasons as well. We have already previous periods of middle-class on further in-life testing to substantiate discussed the forces driving the shift expansion, like the late 19th century in their safety and efficacy in larger from fixed pricing to performance-based Europe and the US.59

18 PricewaterhouseCoopers Pharma has traditionally been very Mass affluence will fuel Asia’s pharmaceutical markets cautious about using differential pricing, fearing that it encourages arbitrage China’s burgeoning will lift hundreds of millions of out between countries with higher and lower of poverty during the next two decades. In 2005, about 148m Chinese urban prices for the same medicines. But households had annual incomes of less than 25,000 renminbi (US$3,660 at any organisation that wants to benefit current exchange rates and US$7,379 in terms of purchasing power parity). By from the increase in global affluence 2025, 263m households will earn over 40,000 renminbi a year – and 41m will have incomes of 100,000 renminbi or more. China’s urban consumer market will will have to tailor its products, services then be worth about 20 trillion renminbi – almost as much as the entire Japanese and prices to the needs of these new consumer market is worth today. consumers – as several pharmaceutical companies have already recognised. Expenditure on private healthcare and medicines is expected to increase commensurately. Indeed, McKinsey estimates that private healthcare spending by In March 2008, GlaxoSmithKline started urban Chinese consumers will grow at 11.6% a year for the next two decades, creating offering its medicines at variable prices considerable opportunities for pharmaceutical companies and healthcare providers. within, as well as between, middle- Affluence is also increasingly reshaping India’s marketplace. Roughly 50m people income countries. It is currently testing currently have disposable incomes of between 200,000 and 1,000,000 rupees a the strategy – which is designed to year (the equivalent of between US$4,572 and US$22,872 at current exchange generate a premium from wealthier rates and between US$11,870 and US$59,400 in terms of purchasing power people in emerging economies without parity). But if the country continues to grow at its current rate, average excluding those who cannot afford incomes will triple over the next two decades. By 2025, the middle class will to pay – in India, Morocco and South number about 583m people – or 41% of the population – making India the world’s Africa.60 With this Big Pharma firm fifth-largest consumer market. leading the way, we expect that others Private consumption has already played a much larger role in India’s growth than will soon follow. it has in that of other developing countries. This trend is projected to continue, Indeed, we predict that, by 2020, especially in the healthcare sector. The market is currently worth just over $34 most pharmaceutical companies billion. But, by 2025, an estimated 189m Indians will be at least 60 years of age will use differential pricing, based on – triple the number in 2004, thanks to greater affluence and better – and variations in income, to increase sales in spending on private healthcare and medicines is forecast to grow at nearly 11% developing countries. They will minimise per annum until that point. the risk of parallel trading by branding and packaging the same medicines Creating a marketing and the specialist medicines the industry differently for rich and poor markets, develops will understandably be and tracking them using e-tagging sales function that is fit targeted at conditions that were technologies. for the future previously unrecognised, because the knowledge required to distinguish All the changes we have discussed between different disease subtypes did will have a major impact on the way not exist. Pharma will therefore have to in which provide more support for the medical and sales is conducted – and hence education programmes run by academic on the sort of marketing and sales institutes to help doctors keep abreast functions companies require. Many of of the latest medical developments.

Pharma 2020: Marketing the future 19 Table of contents

The marketing process will also largely outside its experience to date. Promoting bundled products become much more incremental. In Many pharmaceutical companies By 2020, patients will need healthcare the past, the industry launched new treat the terms “product” and “brand” packages that include branded products with big-budget campaigns. synonymously. But a brand is not medicines, generics and over-the- But, by 2020, new medicines will be a physical product; it is the set of counter products – and they will not launched with live licences. So they associations a product or service be concerned about which company will have rapidly evolving labels, as engenders in the minds of its users. makes which product, as long as it the indications for which they can be And the distinction is a critical works for them. The development prescribed are extended, new dosing one. Products have no long-term of “poly pills” will accelerate this schedules are developed and their side sustainability. They are eventually trend. Scientists at the London- effects become more obvious. The superseded by rival products with based Wolfson Institute of Preventive “big bang” launch will thus be replaced superior features or generic substitutes. Medicine have, for example, recently by a process in which information is Brands, by contrast, can be sustained developed a prototype “five-in- continuously disseminated in a series of indefinitely – and the potential for one” pill containing a statin, three much smaller waves. creating brands that physicians and hypertension treatments and folic Moreover, one of the principal tools patients value is very much greater with acid, for patients suffering from pharmaceutical companies currently packages comprising different product- cardiovascular disease. But the use to get access to doctors – the service combinations than it is with principle of “bundling” could equally distribution of free samples – will be isolated products. easily be applied to other conditions, irrelevant in most cases. As we have such as cancer – where a healthcare Most companies will thus have to already indicated, specialist medicines package might include an oncology change their marketing and sales usually require refrigeration, must agent for a specific disease subtype, functions quite substantially, as their be administered by a healthcare treatment for cancer-induced anaemia, focus switches to specialist medicines. professional and are much more various pain killers, vitamins and so Rather than hiring hundreds of expensive to produce than small forth. Any pharmaceutical company thousands of sales representatives molecules, characteristics that make that wants to create a comprehensive to knock on the doors of general sampling impractical and economically healthcare package for patients may practitioners, they will have to employ unfeasible. The product-service therefore have to include medicines a small cadre of specialists who can offerings the industry develops that are made by rival manufacturers negotiate with large healthcare payers must therefore be both clinically and in the products it sells. and talk to highly qualified consultants economically compelling, to ensure on an equal footing (much as medical that it can reach the consultants who device manufacturers market their typically prescribe such treatments. products to surgeons today). Clearly, That, in turn, means it will have to build the specific organisational model much stronger brands, a skill that lies different companies adopt will depend

20 PricewaterhouseCoopers on their individual requirements. pivotal role. Many companies are likely specialist healthcare packages to Nevertheless, we believe that several to restructure their marketing functions secondary healthcare providers. common elements will emerge, which accordingly, with the appointment of Patient communications officers will we have depicted in Figure 11 below. global or regional brand managers to be responsible for liaising with patient First, the marketing and sales function decide which products and services groups, developing educational will liaise much more closely with the different healthcare packages should literature, organising training R&D function both to help identify which include; supervise the launch of these programmes and answering queries molecules could produce medicines packages; and maximise the returns (all permissible activities under the that have real value and to provide they deliver (see sidebar, Promoting existing regulations, which do not 61 feedback on the uptake of products and bundled products). preclude pharmaceutical companies from providing patients with information, services that are already on the market. Third, the day-to-day management as long as they do not give medical It will also, of course, liaise with the of each brand will be divided into advice). A small primary-care sales health economics function on everything three core activities: key account force will supplement these tasks in to do with pricing and reimbursement. management, specialist care support any emerging countries where sales This will assist the marketing and sales and patient communications. Key representatives still have a useful function in refining the strategies it account managers will be responsible contribution to make. uses to promote specific healthcare for maintaining the relationship packages as they go through the live with large healthcare payers and However, the role and structure of the licensing process. negotiating “big-ticket” sales; and marketing and sales function are not all Second, brand management will play a specialist care advisers for promoting that must change. So must the way in

Figure 11: By 2020, the pharmaceutical marketing and sales function will be organised around brands

Research & Key Account Development Manager

Global Brand Head of Marketing Specialist Care Manager for Brand Manager Adviser & Sales Therapeutic Area

Health Economics Patient (Pricing & Communications Reimbursement) Officer

Source: PricewaterhouseCoopers

Pharma 2020: Marketing the future 21 Table of contents

which it collects and uses information. do not interact with other critical healthcare payers and providers. It Online patient forums, wikis and blogs systems, like accounting and resource will, for example, have to collaborate are all valuable sources of data about planning. Moreover, a lot of sales people much more closely with payers (be what patients think. New web-based regard them as tools for monitoring how they governments, health insurers, technologies have also stimulated the they perform, rather than as tools for employers or patients) to ensure that development of professional networking helping a company manage its relations it develops medicines which have real sites like Sermo, Healtheva and with its customers.63 social and economic value. DoctorNetworking. Such sites provide By 2020, this disjointed approach to the Moreover, the burden of proof will be insights that can help a company to collection and sharing of data will not much greater for specialist therapies differentiate its products and services suffice. The pharmaceutical marketing costing many thousands of dollars more effectively, and identify new areas and sales function of the future will than it is for primary-care treatments – of demand. need to collect both qualitative and and, as multiple products for treating Some of these sites likewise offer the quantitative information. It will need specific disease states emerge, the industry an opportunity to engage to collect that information from the pressure will only increase. Herceptin rapidly and economically with a very other companies involved in delivering has long dominated the market for large number of doctors. Pfizer recently the healthcare packages it develops, HER-2 positive breast cancer, for took the first step in this direction, as well as from patients, payers and example, but with the launch of Tykerb, when it struck a deal with Sermo, under providers. And it will need to share that GlaxoSmithKline has produced a 64 which it can read what doctors say information, both within and across serious rival to the throne. on the site, as well as posting its own corporate boundaries, in order to refine Pharma will have to supplement these messages, provided that they are clearly its service offerings, enhance the quality new medicines with a wide range of marked with the company’s logo and of the experience patients undergo and health management services in order non-promotional in content.62 But many reinforce its brands (see Figure 12). to improve compliance and protect the pharmaceutical companies have been value of its products, as performance- slow to recognise the real potential of based pricing becomes a prerequisite the Internet. Conclusion for reimbursement in its core markets. Most companies are also struggling This will entail the formation of to monitor and manage their sales If Pharma is to create a new marketing numerous alliances with local service activities. The vast majority have and sales model that is fit for 2020, it providers and sometimes, perhaps, equipped their sales representatives will have to begin by analysing its own even rival manufacturers – alliances that with electronic territory management value chain to identify opportunities are very much more sophisticated than systems, but these systems frequently for working more closely with the arm’s length arrangements in which

22 PricewaterhouseCoopers Figure 12: The marketing and sales function of the future will need to be a learning organisation with fully integrated information flows

Product/Service Provider

Product/Service Product/Service Provider Provider

National/Regional Brand Manager

Patient Key Account Specialist Care Communications Manager Adviser Officer

Payer Payer Provider Provider Patient Patient

Payer Provider Patient

Source: PricewaterhouseCoopers

Pharma 2020: Marketing the future 23 Table of contents

most companies currently engage. It emerging, both inside and outside the will also entail the development of a industry, and there is much that Pharma secure, interoperable technological can learn from looking over the fence. infrastructure, the management of Lastly, most – if not all – pharmaceutical new intellectual rights issues, the companies will have to transform their creation of much stronger brands marketing and sales functions. By and the redefinition of the industry’s 2020, the role of the traditional sales role. Instead of trying to stimulate representative will be largely obsolete. prescription sales, its task will be to help Conversely, the industry will have patients manage the disease lifecycle. much greater need of people with the The shift to performance-based pricing expertise to build brands; manage a will dictate other changes, too, including network of external alliances; negotiate the need for a more flexible approach with governments and health insurers; to pricing. The introduction of live liaise with secondary-care specialists; licensing and increasing importance and communicate with patients. of the emerging markets will reinforce These are enormous challenges. Yet this trend. Any company that launches if Pharma can overcome them, we a new healthcare package will have to believe that it will be able to slash its negotiate price increases in line with expenditure on marketing and sales. the extension of the terms on which Consulting healthcare payers during that package can be marketed. And the development process will put it if it wants to tap into the potential of in a much better position to ensure the emerging world, it will have to use that the billions of dollars it invests in differential pricing – both within and R&D are wisely spent, and eliminate between countries. the need to spend massive sums Many of the industry leaders will persuading increasingly sceptical also have to develop comprehensive doctors to prescribe medicines whose strategies for marketing and selling clinical superiority may be questionable. specialist healthcare packages, Focusing on specialist medicines will a process that will require major provide new commercial opportunities organisational and cultural changes, and reduce the risk of generic erosion. including the development of new And creating healthcare packages skills and routes to market. One of the for treating specific conditions will biggest decisions these companies safeguard the value of good medicines, face will be what sort of business model as well as providing new revenue to use. Thanks to globalisation and streams and garnering greater loyalty connectivity, various new models are from patients.

24 PricewaterhouseCoopers Acknowledgements

We would like to thank the many people at PricewaterhouseCoopers who helped us to develop this report. We would also like to express our appreciation for the input we have received from clients and our particular gratitude to the following external experts who so generously donated their time and effort to the project. Joseph D. Palo, President of JD Pharma LLP Dr John Murphy, European Pharmaceuticals Analyst, Goldman Sachs The views expressed herein are personal and do not reflect the views of the organisations represented by the individuals concerned.

Pharma 2020: Marketing the future 25 Table of contents

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The National Institute for Management Research and Educational Foundation, “Prescription Drugs and Advertising, 2000” (November 2001), accessed October 31, 2008, http://www.nihcm.org/~nihcmor/pdf/DTCbrief2001.pdf 12. Michael R. Law, Sumit R. Majumdar and Stephen B. Soumerai, “Effect of illicit direct to consumer advertising on use of etanercept, mometasone, and tegaserod in Canada: controlled longitudinal study”, BMJ, Volume 337 (September 2, 2008): a1055. 13. “Dingell, Stupak Continue DTC Ad Investigation”, Drugs.com (October 14, 2008), accessed October 31, 2008, http://www.drugs.com/news/ dingell-stupak-continue-dtc-ad-investigation-14164.html 14. BBC News, “Pfizer to cut 2,200 US sales jobs” (November 29, 2006), accessed August 6, 2008, http://news.bbc.co.uk/1/hi/business/6194362.stm 15. John Simons, “Big Pharma’s tough medicine”, CNNMoney.com (December 13, 2007); “GSK plant closure begins 5,000 job cuts”, FiercePharma (October 25, 2007); “Novartis plots 2,500 more job cuts”, FiercePharma (December 13, 2007); Sarah Rubenstein, “Merck Cuts Sales Force After Recent Woes”, The Wall Street Journal Health Blog (May 5, 2008); Tracy Staton, “Sanofi confirms sales rep layoffs”, FiercePharma (June 9, 2008); Associated Press, “Merck 3Q net drops 28 percent; to cut 7,200 jobs”, International Herald Tribune (October 22, 2008), accessed October 31, 2008, http://www.iht.com/articles/ap/2008/10/22/business/NA-US-Earns-Merck.php 16. Nina Mehta, “MNC pharma cos prune sales force”, The Economic Times (August 12, 2008). 17. World Health Organisation, “Preventing chronic disease: A vital investment” (2005). 18. Organisation for Economic Cooperation and Development (OECD) Health Data 2008 (June 2008). 19. Lynne Taylor, “Senate bill the first step to a ‘US NICE?’”, PharmaTimes (August 10, 2008). 20. Carla Moore, “Commission publishes e-health report”, DMEurope.com (April 25, 2008); Tara Ravens, “Darwin trials e-prescriptions”, Australian IT (May 16, 2008); Neil Versel, “Medicare Legislation Provides Incentives for ePrescribing”, Digital HealthCare & (July 22, 2008); “Apollo Hospitals to franchise only primary clinics”, The Financial Express (April 5, 2008); OECD e-Government Studies, Turkey (June 11, 2007), p142-143; Association of International Pharmaceutical Manufacturers in Russia & Research Marketing & Business Consulting Company, AIPM-RMBC Market Bulletin, Issue 5, (May 2007). 21. “US survey shows overwhelming benefits of eprescribing”, The British Journal of Healthcare Computing & Information Management (March 7, 2008), accessed September 3, 2008, http://www.bjhcim.co.uk/news/2008/n803007.htm 22. 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26 PricewaterhouseCoopers (August 2008), accessed November 28, 2008, http://www.harrisinteractive.com/news/newsletters/healthnews/HI_HealthCareNews2008Vol8_Iss8. pdf; Per Egil Kummervold, Catherine E Chronaki et al., “eHealth Trends in Europe 2005-2007: A Population-Based Survey”, Journal of Medical Internet Research (October 2008), Volume 10, No. 4: e42, accessed November 28, 2008, http://www.jmir.org/2008/4/e42; Elizabeth Cohen, “Patients find support, help via online networking”, CNN.com (October 9, 2008), accessed November 28, 2008, http://edition.cnn.com/2008/ HEALTH/10/09/ep.health.web.sites/; Barbara Lantin, “Using chat rooms for emotional support”, The Times (November 19, 2007), accessed November 28, 2008, http://www.timesonline.co.uk/tol/life_and_style/health/article2894007.ece; Steve Lohr, “Google offers online personal health records”, International Herald Tribune (May 20, 2008), accessed November 28, 2008, http://www.iht.com/articles/2008/05/20/technology/google. php; http://www.myphr.com/; http://www.medicalrecords247.org/; http://www.ihealthrecord.org/ 24. Nigel Morris, “Row over two-tier health service as ban on ‘top-up’ cancer drugs lifted”, The Independent (November 5, 2008), accessed November 10, 2008, http://www.independent.co.uk/news/uk/politics/row-over-twotier-health-service-as-ban-on-topup-cancer-drugs- lifted-992269.html 25. “Barack Obama and Joe Biden’s plan to lower health care costs and ensure affordable, accessible health coverage for all” (2008), accessed November 10, 2008, http://www.barackobama.com/pdf/issues/HealthCareFullPlan.pdf 26. For further information on these services, see https://www.23andme.com/; http://www.decodeme.com/; and http://www.navigenics.com/ 27. National Comprehensive Cancer Network, “Oncology Outcomes Database Project”, accessed November 28, 2008, http://www.nccn.org/ professionals/outcomes_database.asp; Bernie Monegain, “AMGA seeks power in combined data”, Healthcare IT News (February 01, 2006), accessed November 28, 2008, http://www.healthcareitnews.com/story.cms?id=4404; SAE Consortium press release, “International Serious Adverse Events Consortium (SAEC) Launches Global Research Collaboration to Identify Genetic Markers Related to Adverse Drug Reactions”, September 27, 2007, accessed November 28, 2008, http://www.saeconsortium.org/d/file/SAEC_Announcement_Press_Release_2007-09-27.pdf 28. Andrew Pollack, “Pricing Pills by the Results”, (July 14, 2007), accessed May 19, 2008, http://www.nytimes.com/2007/07/14/ business/14drugprice.html?_r=1&oref=slogin 29. “NICE Endorses Pioneering Lucentis Reimbursement Scheme, Rejects Macugen in Wet AMD”, Global Insight (April 3, 2008), accessed October 22, 2008, http://www.globalinsight.com/SDA/SDADetail12103.htm 30. BBC News, “Deal reached on NHS drug prices” (November 19, 2008), accessed November 28, 2008, http://news.bbc.co.uk/1/hi/health/7737027. stm 31. Pollack, op. cit. 32. V.S. Catalan & J. LeLorier, “Predictors of long-term persistence on statins in a subsidized clinical population”, Value in Health (3) 2000: 417-426. 33. Dr Jim Attridge, “Innovation Models and Their Application to the Pharmaceuticals Sector”, Imperial College, London (2006), accessed September 2, 2008, http://www3.imperial.ac.uk/portal/pls/portallive/docs/1/7290711.PDF 34. PricewaterhouseCoopers, “Pharma 2020: The vision”. 35. IMS Intelligence.360 (2008) and PricewaterhouseCoopers analysis. 36. The of researching and developing a new medicine is thought to be more than $800m. We estimate that the average cost of conducting Phase III trials is $268. For further details, see J. DiMasi, R. Hansen & H. Grabowski, “The price of innovation: new estimates of drug development costs”, Journal of Health Economics, Volume 22 (2003): 151–185; and PricewaterhouseCoopers “Pharma 2020: Virtual R&D – Which path will you take?” (May 2008). A detailed breakdown of R&D costs can be found in footnote 7 on p20. 37. Andrew Jack, “Novartis in UK trials deal”, Financial Times (December 18, 2007), accessed August 6, 2008, http://www.ft.com/cms/s/0/8c866ece- ad0b-11dc-b51b-0000779fd2ac.html 38. Jeanne Whalen, “Glaxo Seeks Guidance From Health Systems”, The Wall Street Journal (July 7, 2008), accessed August 6, 2008, http://online. wsj.com/article/SB121538798154831045.html 39. Genentech, “Herceptin Development Timeline”, accessed November 10, 2008, http://www.gene.com/gene/products/information/oncology/ herceptin/timeline.html 40. Baxter Healthcare, “Renal Services”, accessed October 16, 2008, http://www.baxterhealthcare.co.uk/services/renal_services/ 41. Novo Nordisk, “Our Vision”, http://www.novonordisk.co.uk/documents/article_page/document/about_us_vision.asp 42. Novo Nordisk, “Introduction to DAWN”, http://www.dawnstudy.com/documents/article_page/document/about_dawn.asp 43. Novo Nordisk, “National Changing Diabetes® programme”, http://www.novonordisk.com/sustainability/values_in_action/Access_to_health_ subsites/National_changing_diabetes_programme.asp 44. Medtronic news release, “Medtronic Announces European Launch of Wireless System Allowing Prompt Remote Monitoring and Management of Disease Progression in Patients with Heart Devices” (August 30, 2007), accessed October 16, 2008, http://salesandmarketingnetwork.com/ news_release.php?ID=2020183&key=Conexus%20Wireless%20Telemetry 45. Helen Loveless, “The comeback kid’s medical cover”, on Sunday (October 29, 2007), accessed October 15, 2008, http://www.thisismoney. co.uk/insurance/health-insurance/article.html?in_article_id=425744&in_page_id=39

Pharma 2020: Marketing the future 27 Table of contents

46. Pharmaceutical Research and Manufacturers of America (PhRMA), New Medicines Database and Medicines in Development: (July 2006), accessed August 8, 2008, http://www.phrma.org/files/Biotech%202006.pdf 47. US Generic Pharmaceutical Association, “Statistics”, http://www.gphaonline.org/Content/NavigationMenu/AboutGenerics/Statistics/default.htm; European Generic Medicines Association, “Generic Medicines in Europe”, http://www.egagenerics.com/gen-geneurope.htm 48. Marion Davis, “Drug dispenser growing generic medication use”, Providence Business News (February 25, 2007). 49. IMS, “Intelligence.360: Global Pharmaceutical Perspectives, 2007” (March 2008). 50. IMS Health, “IMS 2008 Global Pharmaceutical Market Forecast” (November 2007). 51. Tufts Center for the Study of Drug Development, “Average Cost to Develop a New Biotechnology Product Is $1.2 Billion, According to the Tufts Center for the Study of Drug Development” (November 9, 2006), accessed August 7, 2008, http://csdd.tufts.edu/NewsEvents/NewsArticle. asp?newsid=69 52. PhRMA, “Biotechnology Medicines in Development” (2004). 53. We have extrapolated from IMS Health’s estimate that the market for specialist medicines is currently worth $295m and growing at 14% a year, as cited above. The total value of prescription sales in 2007 comes from a second IMS Health source: “IMS Health Reports Global Prescription Sales Grew 6.4 Percent in 2007, to $712 Billion” (April 16, 2008). 54. US Office of Inspector General, “Compliance Program Guidance for Pharmaceutical Manufacturers” (April 2003), accessed January 20, 2009, http://oig.hhs.gov/fraud/docs/complianceguidance/042803pharmacymfgnonfr.pdf 55. PricewaterhouseCoopers, “Pharma 2020: Virtual R&D”. 56. Cap Gemini & Merrill Lynch, “World Wealth Report 2008” (2008). 57. Goldman Sachs, “The Expanding Middle: The Exploding World Middle Class and Falling Global Inequality” (July 7, 2008). 58. Diana Farrell, Ulrich A. Gersch & Elizabeth Stephenson, “The value of China’s emerging middle class”, The McKinsey Quarterly 2006 special edition: Serving the new Chinese consumer (2006): 61-69; Eric D. Beinhocker, Diana Farrell & Adil S. Zainulbhai, “Tracking the growth of India’s middle class”, The McKinsey Quarterly (2007), No. 3: 51-61; PricewaterhouseCoopers, “” (2007). 59. Goldman Sachs, op. cit. 60. Andrew Jack, “GSK varies prices to raise sales”, FT.com (March 16, 2008), accessed August 20, 2008, http://www.ft.com/cms/s/0/4dc2b3bc- f380-11dc-b6bc-0000779fd2ac.html 61. “‘Miracle’ £1 pill could save 100,000 lives per year”, Daily Record (May 5, 2008), accessed October 22, 2008, http://www.dailyrecord.co.uk/news/ uk-world-news/2008/05/05/miracle-1-pill-could-save-100-000-lives-per-year-86908-20405679/ 62. Scott Hensley, “Pfizer Follows Docs Online With Sermo”,The Wall Street Journal (October 15, 2007), accessed November 28, 2008, http://blogs. wsj.com/health/2007/10/15/pfizer-follows-docs-online-with-sermo 63. Chris Ross, “: friend or foe?” Pharmaceutical Field (2008), accessed November 28, 2008, http://www.pharmafield.co.uk/article. aspx?issueID=125&articleID=918 64. “GSK Starts Tykerb-Herceptin Head-to-Head Phase III Trial in Early Breast Cancer”, Global Insight (May 13, 2008), accessed August 8, 2008, http://www.globalinsight.com/SDA/SDADetail12508.htm

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